Split decision: Will the new TPP help or hurt Canada in NAFTA talks?

by Alexander Panetta (feat. Eric Miller)

The Canadian Press
January 23, 2018

MONTREAL -- Canada's decision to sign onto a major multinational trade agreement without the United States added a dramatic new wrinkle to the NAFTA process Tuesday just as negotiators gathered for a crucial bargaining round.

The new Trans-Pacific Partnership agreement brings Canada into a new, sprawling trading bloc with standards not always obviously compatible with the goals of its superpower next-door neighbour.

It allows more content into automobiles from non-free-trade partners like China -- at the very moment that the United States is trying to achieve the exact opposite in NAFTA, with tougher rules to keep out Chinese and other Asian parts.

Canada's chief NAFTA negotiator downplayed the effect on his work.

"It's pretty much separate tracks," Steve Verheul told The Canadian Press, while walking between meetings at the Montreal NAFTA round.

"It has not come up here yet -- so far."

Note the qualifier -- yet.

Both supporters and detractors of the TPP pact predicted that this major liberalization of trade in auto parts with Asia will wind up at the NAFTA table somehow.

A Canadian auto-parts lobby group delivered a scathing reaction.

Flavio Volpe of Canada's Auto Parts Manufacturers' Association said the TPP agreement paves the way for more Chinese content in Canadian cars, at the moment Canada's most important customer, the U.S., has made clear its goal of reducing Chinese imports.

He said it's especially problematic in the midst of sensitive NAFTA negotiations.

"This could not be a dumber move at a more important time," Volpe said in an interview.

He accused the government of chasing a legacy item, without regard for how it might affect the far more important NAFTA negotiations: "We're trophy hunting."

The U.S. buys three-quarters of Canada's exports.

Pointing to that U.S. dependency, several defenders of the new TPP said that's part of the rationale for seeking new alliances. One senior federal source said he believes this even helps Canada's position at the NAFTA bargaining table, showing the U.S. that it will look elsewhere for partnerships, giving Canada greater leverage.

"It's better than worth it. It's advantageous," said the official, who spoke on condition of anonymity because he was not authorized to speak publicly on the matter.

"The U.S. does not respect weakness."

One person thrilled with the new 11-country Pacific pact still acknowledged it could create new headaches at the NAFTA table. Eric Miller, a Washington-based trade adviser who worked for the federal government on the 2009 auto bailout, said it will complicate monitoring of auto parts.

Expect U.S. customs officers to keep a closer eye on how much Asian, and especially Chinese, content there is in Canadian shipments, Miller predicted, adding that this will likely raise monitoring and compliance costs for companies.

It will also shape the way the three countries negotiating NAFTA design the auto-parts compliance rules, he said.

"It will certainly make things more complicated," Miller said. "This will certainly be a significant administrative challenge ... (And) these NAFTA discussions (on autos) become all the more important."

That being said, Miller is delighted there's a deal. He said it's great news for lumber exporters, and livestock producers, and many other Canadians and he believes it's smart for Canada to diversify its trade.

"I think it's great news for Canada and Canadian exporters," Miller said.

"If we can maintain access to the U.S., and create new linkages with the outside world, it's the best of both worlds ... This helps to advance the cause of trade diversification ... (and) I think it actually helps Canada's leverage in NAFTA."

Miller added: "This sends a signal: that Canada has options."