By Ken Peacock
Canada was at the table when negotiations recently concluded for the Trans-Pacific Partnership (TPP) agreement, the largest, most ambitious free trade initiative in history. This is good news for our province. The TPP is a comprehensive trade deal that will help expand and secure access to much of the markets of key Asia-Pacific nations.
Although growth in emerging markets has slowed of late, Asia is still projected to comprise two-thirds of the world’s middle class by 2030-35, and will grow to account for upwards of one-half of world GDP within three decades. There will be early benefits from participating in the TPP, but most of the upside will emerge over the medium term.
The TPP currently has 12 participating countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Over time the expectation is that other countries, perhaps including China and South Korea, will also join. Last year, BC exported nearly $23 billion to the other 11 TPP member countries, which accounted for more than 60% of our total merchandise exports.
One reason the TPP is good for BC is it will enhance and deepen these existing trading relationships. Once in force, the agreement will eliminate tariffs on almost all of BC’s key exports and provide secure access to growing economies in the Asia-Pacific. BC will have an advantage over non-TPP countries (notably Europe and Russia) by having duty free access for most of our major merchandise exports, including: wood and other forest products; aluminum, iron and steel products; seafood; agricultural products, and chemicals and plastics.
Although global trade has been liberalized and barriers have been steadily lowered over the past few decades, BC’s exports still face sizable tariffs in some TPP markets, ranging from 5% to as much as 40% in a few countries. Japan, BC’s third largest export market, levies tariffs of 6% on some lumber products, 5% on many seafood items and 15% on ice wine. Malaysia has stiff tariffs of 40% on some plywood and panel products. Vietnam also has many punitive tariffs in place.
Importantly for BC, which has a well-established base of tradable service exports, the TPP covers not just goods but also most non-public services through a “negative list” approach. This means that all services are covered by the agreement, with the exception of a few sectors listed by particular countries. The negative list approach ensures that as services evolve to become a larger fraction of world commerce over time, they will be automatically covered by the agreement within the TPP trading bloc.
A second reason the TPP is good for BC is it should result in lower prices for BC consumers. Canada too applies tariffs to some imported products from TPP countries. Under the agreement, Canada will phase out a 6.1% tariff on passenger vehicle imports from TPP partners over five years. The deal also makes some small-scale inroads into the dairy and poultry supply management systems. TPP countries will have duty-free access to 3.25% of Canada’s dairy market and 2.1% of the chicken market. Over time this will help reduce prices for consumers.
A third, and perhaps most compelling, reason to welcome Canada’s participation in the TPP is because it ensures we are “inside the tent” rather than on the “outside looking in.” With the US and Japan part of the TPP it was critical that Canada also be at the table. As a participant, Canada was also in a position to negotiate more favourable arrangements for economically sensitive industries. When other countries join the TPP they will have to accept the existing framework hammered out by the original 12 signatories.
When thinking about the near-term implications of the TPP, it is important to keep in mind that Canada already has a comprehensive trade agreement (NAFTA) with the US and Mexico as well as a bilateral free trade agreement with Chile. So the majority of BC’s exports to the “TPP market” are already shipped with few or no tariffs and face a limited array of non-tariff barriers. For BC, the most significant benefit comes from improved access to the Japanese market and to the markets of fast growing Asian economies, and to a lesser extent Australia and New Zealand. But even in these instances many of the tariffs are phased out over a five or ten year period, limiting the immediate lift from the Agreement. This is the nature of complex, multi-party trade agreements. Overall, Canada’s participation in the TPP is positive for BC – over time, it will strengthen and enhance trading relationships and contribute to provincial economic growth.
Ken Peacock is Chief Economist and Vice President of BC Business Council.