Because 81% of Canadian exports already go to the other 11 Trans-Pacific Partnership (TPP) nations, exporters might consider it largely inconsequential whether Canada agrees to the controversial trade agreement.
After all, government statistics show that 73% of Canadian exports go to the United States alone, and Canada is in the North American Free Trade Agreement (NAFTA). So, Canadian trade with the U.S. is secured, right?
Wrong, according to Lawrence Herman, an international trade lawyer and Herman & Associates partner.
If Canada opts out of the TPP and the agreement is ratified by the other 11 nations the TPP covers, Herman said Canadian exporters will no longer enjoy the same preferred access to their largest trading partner.
Provisions of NAFTA would not change, but other countries, such as Japan, Chile or Australia, would suddenly get access that is preferable to that negotiated in NAFTA.
“Start with the World Trade Organization (WTO) agreement,” Herman said.
The multilateral WTO, the world’s largest trade agreement, legally restricts Canada and 122 other countries – virtually the entire world – from applying discriminatory tariffs to imports from WTO trading partners as part of what Herman said is its most-favoured-nation provision.
“You have to treat imports of goods, services and investments of all WTO members on a non-discriminatory … completely equal footing.”
The exception, however, is that nations are free to negotiate preferential trade agreements (PTAs).
Canada, for example, has a PTA with the European Union (EU).
“We get preferential treatment into the EU that the U.S. does not get because Europe does not have a trade agreement with the U.S.,” Herman said.
For example, Herman pointed out that the Canada-EU Comprehensive Economic and Trade Agreement allows Europeans to export an additional 12,000 tonnes of cheese into Canada’s supply-managed system. U.S. cheese producers do not get that perk even though Canada and the U.S. are in NAFTA.
“We get duty-free treatment into the U.S. market on virtually all goods,” Herman said. “The EU does not because they weren’t part of the NAFTA. Now that the EU has reduced tariffs on Canadian-made products going to the EU, we still get duty-free treatment into the U.S., and we get lower duties on products exported to the EU that do not apply to parties that do not have a trade agreement with the EU.”
The TPP will operate in much the same way.
So Canadian beef and pork producers, for example, will have a harder time exporting their products to Japan than they do now if the TPP passes and Canada is not a signatory to the deal.
Were Canada to opt out of the TPP, U.S. beef and pork producers would be able to enter the Japanese market with reduced tariffs compared with what Canadian exporters would have to pay.
Herman told Business in Vancouver that he has seen but not read the six-inch stack of pages that make up the full TPP text.
He is therefore unclear as to which Canadian sectors would have less favourable access to the U.S. market than 11 other TPP nations if the Canadian government does not ratify the TPP.
In principle, however, there would be some.
“That’s what preferential trade agreements are all about,” he said. •
