The Demise of the TPP, Japanese Ambivalence and What Canada Needs to Do Now
by Hugh Stephens
Asia Pacific Foundation
November 29, 2016
The TPP, at least its current form, is dead. It was on life support throughout the U.S. election but president-elect Donald Trump has driven a stake through its heart with his announcement that he will initiate the process for the U.S. to withdraw from the deal on Day 1 of his presidency. And that will effectively end the TPP as we know it because of terms that state that the agreement will come into effect two years after signature (which took place in February of 2016) provided that at least six of the twelve countries representing 85 per cent of the total GDP of the partners ratify the deal. The U.S. and Japan alone represent about 80 per cent of the GDP total, creating a de facto veto for both countries, with the U.S. (62% of the GDP total) being able to singlehandedly derail the agreement.
Meanwhile, the Japanese seem remarkably reluctant to accept reality. Prime Minister Abe made a “Hail Mary” attempt to get Trump to reconsider his TPP position when he became the first foreign leader to meet the president-elect after his stunning victory on November 9. But Trump’s campaign rhetoric against the TPP gives him virtually no room for manoeuvre, (not that he appears to want to manoeuvre). Japan’s ambassador to Canada, meanwhile, is claiming that the TPP is not “completely dead,” and is urging Canada to ratify it, as Japan’s Lower House has done. Japanese reluctance to let go of the TPP is understandable as it was the centrepiece of Abe’s reform of the Japanese economy, the lever he needed to get Japanese legislators to make the difficult choices necessary to reform Japan’s largely protected economy.
But ratifying the TPP at this stage is a non-starter for the Trudeau government. The government has succeeded in strategically “ragging the puck” on the TPP ever since getting elected, setting up a series of cross-country consultations to hear the concerns that Canadians have with the agreement, negotiated by the previous government. Nevertheless, if the US Congress had been on board, the TPP would have proceeded and Canada would have ratified it post haste. We could not afford to stay out of an agreement that includes critically important trading partners like the U.S., Mexico and Japan. Now that this agreement has met an untimely end, there is nothing that Canada can do to revive it.
Not that the demise of the TPP is the worst possible outcome for Canada, although over the longer term it is worrying to see the U.S. turn its back on opening markets in Asia, ceding leadership to, of all countries, China. Canada joined TPP belatedly when it became clear that Mexico was going to be admitted to the negotiations. That was strictly a defensive move by Canada, a means of protecting our access to the U.S. market through NAFTA. After Mexico and Canada joined the TPP negotiations, Japan jumped in, providing another positive goal for Canada, namely improved access to the Japanese market at a time when the U.S. was also negotiating access.
Canada and Japan had already begun bilateral negotiations toward a trade agreement, negotiations that were suspended when both countries became TPP negotiating partners. Now that the TPP has ended up DOA, it is time to resume those bilateral negotiations. Asked about this, the Japanese ambassador to Canada is reported to have said that the negotiations could be picked back up if the TPP fails, but now is “not the right moment.” Added Ambassador Kenjiro Monji: “If the government said we (were starting) bilateral (agreements), then it would send a signal that we have completely abandoned the TPP, domestically and to many other countries.”
This position may suit Japanese domestic politics for the moment, as the Upper House still has to ratify the agreement, but will not be sustainable for much longer. With the TPP no longer a viable option, Japan may well explore the possibility of a bilateral deal with the U.S. After all, the tough negotiations over autos and agricultural products have already been concluded within the framework of the TPP. It is impossible to predict the response of the Trump administration, although Trump has alluded to the possibility of negotiating more bilateral agreements in place of the TPP that he has sworn to tear up. If U.S.-Japan negotiations get launched shortly, Canada risks being sideswiped and put in the slow lane – as happened with Korea where, once negotiations began between Korea and the U.S., ongoing negotiations with Canada were in effect suspended. We were left at the altar while the U.S. and Korea concluded and implemented their agreement (in 2012), and it was only with much effort that talks on the Canada-Korea FTA were resumed, leading to a successful conclusion in 2014, with that agreement entering into force on January 1, 2015. Canada cannot afford to have a repeat of the same scenario.
It should in fact be easier to conclude a bilateral agreement between Canada and Japan than between Japan and the U.S. Canada does not particularly care about most of Japan’s sensitive agricultural sectors, such as rice, nor does Japan have much to lose in allowing Canada to retain its supply management policies for dairy, eggs and poultry. It is a shame that the opportunity to dismantle these economically inefficient policies will be missed, but while both countries can focus on areas where trade barriers can be removed, there are still areas of potential friction. For instance, Canada will need to be careful on the automotive front. Recall that the final round of TPP negotiations were almost scuttled because of the automotive rules of origin agreed to by the U.S. and Japan without consulting Canada, rules that could have inflicted damage to Canada’s automotive manufacturing base. Using the deadline pressure of concluding the negotiations, Canada’s negotiators were able to secure amendments that met, or at least went some way to meet, Canada’s bottom line on this issue. It will be a tough negotiation, but for both Canada and Japan, concluding a bilateral agreement quickly would send a positive signal at a time when market liberalization seems to be on the back foot, and the forces of protectionism are growing, in the U.S. and elsewhere.
In the wake of the demise of the TPP, Japan should set aside its ambivalence and resume bilateral negotiations with Canada with a goal of concluding an early agreement – and Canada should press hard for Japan to do so. It is in Japan’s interest to establish a free trade beachhead in North America, and in Canada’s interest to open new markets at a time when our NAFTA access may be threatened by protectionist forces in the United States.