Canadian Manufacturing

New TPP text released, fed analysis says U.S. imports could dip

The details of Canada's pact with 10 other Pacific nations are now available, and while the outlook is generally positive, trade with our largest economic partner could take a $3.3 billion hit

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OTTAWA—On Feb. 20, the full text of Canada’s newly minted trade agreement with 10 other Pacific nations, rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), was published.

“We wanted a good deal, and that’s what we got for Canadian workers and their families. Canadians from coast to coast to coast will have preferential market access to one of the largest trading blocs in the world. More trade means more growth and more growth means more jobs for the middle class,” said International Trade Minister François-Philippe Champagne.

The full text of the bilateral side-letters are expected to follow soon.

The federal government says the CPTPP represents 495 million people with a combined gross domestic product of CA$13.5 trillion— 13.5 per cent of global GDP.

The 11 nations in the CPTPP are Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Ministers of all 11 member countries will officially sign the CPTPP on Mar. 8 in Santiago, Chile.

While there is economic optimism surrounding the pact, it has the potential to impact our trading relationship with our neighbour to the south.

The feds’ analysis of the new TPP predicts U.S. imports into Canada could drop by $3.3 billion, led by a decline in automotive products, sparking fears the new pact could hurt the ongoing NAFTA renegotiations.

“Under the CPTPP, Canadian exports to the United States are not expected to change significantly as the United States is not party to the CPTPP. However, there would be a decline in imports by Canada from the United States, resulting from erosion of U.S.’s NAFTA preferences in the Canadian market,” the analysis says.

Flavio Volpe, the president of Canada’s Automotive Parts Manufacturers Association, says that will hurt Canada at the upcoming NAFTA round, where auto remains a major obstacle between Canada and the U.S.

“The report states that U.S. imports into Canada would drop $3.3 billion, mainly in automotive. If true, that is a gap smart U.S. negotiators could then be seeking to close in NAFTA 2.0,” said Volpe.

Canadian auto workers and manufacturers have been critical of the new TPP, including the government’s assertion that it has gained more access to the protected Japanese market.

Champagne has said a side letter with Japan guarantees greater access and enshrines a dispute resolution mechanism. But that side letter and others with Malaysia and Australia have yet to be made public.

The government’s analysis also says, “production in the automotive sector is expected to rise very modestly, by $206 million.”

The analysis concludes: “The impacts on the automotive sector are slight, with a small increase in output and exports.”

Volpe dismissed those predicted gains as insignificant. He said the gain would amount to only $171 million by 2040.

“Contextually, the Canadian auto sector ships about $85 billion in goods annually. This 22-year increase represents approximately 0.2 per cent on that number and when one accounts for inflationary dynamics, this represents a serious decline in real dollars.”

The government analysis also concluded that the agreement would generate long-term economic gains for Canada totalling $4.2 billion, up from the $3.4 billion that was expected under the old TPP. The increase is due to improved access to member nations in the absence of U.S. competition.

The analysis suggests that the net benefits are greater for Canada now that the United States has withdrawn from the agreement, with gains covering a broad range of sectors, including some agricultural products such as pork and beef, wood products, machinery and equipment, and transportation equipment.

The destiny of the trade pact was cast into doubt late last year after Trump pulled the U.S. out. But Canada and the remaining members of the old TPP agreed to a revised trade agreement on Jan. 23, 2017 that would forge ahead without the U.S.

The U.S. pullout left Japan as the largest player in the revised 11-nation pact that spans two hemispheres and includes both U.S. neighbours.

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