There will be no lack of challenges for Prime Minister-designate Justin Trudeau and his newly elected team in shaping Canada’s trade agenda.
The Trans-Pacific Partnership (TPP) has the highest profile. Though it requires urgent attention, there are other important issues in play.
The Liberal government will have willing and capable helpers in the trade bureaucracy. Having their advice sought – and considered – is both refreshing and encouraging. Not to mention the catalytic impact of losing their PMO watchers.
WTO Revitalization
Canada has traditionally, if not recently, been a champion of the multilateral trading system. The World Trade Organization (WTO) Ministerial meeting in Nairobi appears to be headed towards a North-South confrontation between the U.S. and developing country members.
Washington is not wrong in trying to end the Doha Round and its development agenda. But the developing countries will have none of this.
The U.S. prefers more focussed negotiations – bilateral and plurilateral – where it can exercise its leverage. The WTO is a better vehicle for small- and medium-sized countries. It urgently needs to become functional. The WTO must be more than a court deciding trade disputes. It is an organization which cannot ignore the needs of the majority.
It is in Canada’s interest to try to help WTO General Director Roberto Azevedo to develop the necessary compromises. Canada is well suited to accept the challenge. In the early days of the General Agreement on Tariffs and Trade legendary Canadian officials Dana Wilgress and Jake Warren were instrumental in this role.
The WTO badly needs an honest broker. If Canada’s current WTO Ambassador, Jonathan Fried, doesn’t have the necessary skills and energy to help put Canada in this position, no one does.
Country of Origin Labelling
Then there are the ever present bilateral disputes. The WTO Arbitration Panel on Country of Origin Labelling (COOL) will rule on the quantum of Canada’s retaliation rights early in December. The Canadian Cattlemen’s Association has been assured that a Liberal government will follow up aggressively to ensure that the United States adheres to the Arbitrator’s award.
Canada should use the leverage of the Arbitrator’s award to expedite a legislated solution to this six year old multi-billion dollar breach of WTO rules.
It would be a serious error for U.S. interests to assume that Mr. Trudeau’s s cooperative, less antagonistic approach to foreign relations means Canada will bend to the U.S. will on issues important to Canadians. There is no lapdog gene in the Trudeau DNA.
Softwood Lumber
Softwood lumber, after nine years of relative peace, is rearing its ugly head. The managed trade agreement concluded by Prime Minister Harper in 2006 has expired. British Columbia Premier Christy Clark wants Ottawa to re-engage with the U.S. to make a new deal to avoid the possibility of yet another round of trade litigation – which will be known as Lumber V.
Premier Clark is very anxious to move to another managed trade agreement. Perhaps too anxious. Should Canada propose to limit its exports without being asked to by the U.S.?
Is a managed trade agreement consistent with the Liberal government’s view of trade policy?
If the new government chooses to follow the Harper model it faces two challenges – reaching a consensus among the concerned provinces – and satisfying a potentially insatiable, politically-connected U.S. Lumber Coalition.
Stay tuned – this irritant has been around for over a hundred years
Navigating TPP Ratification
Canada joined the TPP negotiations in October 2012. The negotiations since then have been continuous, in exotic venues where round the clock sessions leave little time for tourism. It is now crunch time – at least it is for the Obama Administration which may have already run out of time.
Without the details of the text, the Liberals refused to engage in TPP during the election campaign. Mr. Mulcair tried to ignite the electorate – but on the whole the TPP did not change much. Canadians had other priorities.
The TPP Agreement announced in Atlanta on October 5 is not quite done yet. There is ongoing drafting and legal scrubbing underway in Tokyo by technicians and lawyers from all 12 parties. The very detailed review and scrubbing of what is rumoured to be a 1,500 page agreement is very complex detailed work – it moves slowly and the text will not be ready until early November (if then).
Inside US Trade reports that there will be a short additional delay while the new Canadian Government reviews the text . Washington does not expect this review to be problematic.
The Liberal party is clearly pro-trade but there is no evidence its polices are “blind faith” free trade. Given its position on COOL, it will not be reluctant to defend Canada’s trade agreement rights. No decision will be made absent facts and analysis. Until the full text and all side letters are available, the TPP is a “pig in a poke” which must be examined and discussed with all stakeholders.
Measured against the initial goals and more than five years of hype about gold-standard agreements, the results may be considered underwhelming by those who believed the hype. That the TPP has not delivered on the irrationally exuberant expectations is not surprising.
I explained the process in November 2012 as Canada was heading to its first formal TPP Round in Auckland. Aim high and harvest whatever you can when the process is exhausted.
Every country has problems and sensitivities in trade negotiations. Economic and political realities make it necessary to compromise. (See“TPP negotiations present far more questions than answers”.) Atlanta was no different. A number of important American Holy Grails had to be abandoned to reach consensus.
To those who had reasonable expectations, the TPP will not likely be fatally flawed or underwhelming. Trade Negotiations, like politics, is the art of the possible. The Atlanta Text was all that was possible.
United States Trade Representative (USTR) Ambassador Michael Froman achieved what was reasonably and realistically possible. There is much in its 11 separate market access agreements as well as in the other parts of the TPP which is beneficial for the Americans. But in the U.S. all politics are local. For U.S. legislators it all boils down to where one votes. And foreigners don’t vote in U.S. elections.
Congress likes big deals where all American objectives are met. The Atlanta text does not meet Congressional objectives.
Data protection for biologic pharmaceuticals remains an important dividing issue. Accepting U.S. demands on data protection for biologics would have been political suicide for some TPP Members.
Australia, New Zealand, Chile, Peru and others were not prepared to drink the USTR Kool-aid. Accepting 12 years of data protection which would delay introduction of generic versions, increasing health care costs, was not a reasonable outcome. Indeed, the U.S. had all but abandoned its 12 year position at Maui.
Had Froman not compromised – agreeing to disagree by allowing others to maintain their own systems – Atlanta would have been Maui 2 – dooming the TPP to drift and possible unraveling. Going back to the table is not likely to achieve the original U.S. goals.
There will be much in the TPP which will benefit Canada. There will be market access agreements with Japan, Vietnam, Malaysia, Brunei, Singapore, Australia and New Zealand. And a bridge to developing trade with Asia.
Only a full review of the text will reveal problems and difficulties which have not surfaced to date. The TPP is like a very big omelet – some eggs will be broken. (The previous government has tried to ensure that egg farmers were not broken in the process.)
Broad plurilateral trade agreements are not like quarterly corporate results. They are building blocks for the future – impacts and benefits will be delivered over years and decades, not months.
The TPP is a living agreement. Washington is already discussing accession by Korea. Thailand, the Philippines, Taiwan and Colombia will soon be kicking the TPP tires.
Canada may want to change or massage the text or seek clarifications through side letters. It is very expensive to be the demandeur for change in such a carefully negotiated balanced multi-party agreement. Far better to counter demands form others with one’s own shopping list.
Congressional approval dynamics are important for Canada. There is no point approving an agreement which has not been finalized, nor does Canada need to make the amendments to Canadian law necessary to implement the TPP until it is clear the trade deal will fly with Congress.
Without U.S. ratification there is no TPP. The accession provisions would need to be revised to envisage a TPP-lite (very lite). Without access to the U.S. market the rest of the Agreement would likely unravel.
Selling Congress on the TPP – as done in Atlanta – is crucial. It will not be easy. There is reluctance in Congress to endorse the deal – based on a view that it was negotiated in haste with greater concerns for the Obama legacy than for quality.
Among the specific concerns are:
- Froman abandoned demands for 12 year data protection on biologic pharmaceuticals;
- tobacco state legislators oppose the carve-out of tobacco products from legal protections of the agreement;
- Japanese concessions on agriculture are inadequate and will be implemented too slowly; and
- there are no effective enforceable disciplines on currency manipulation.
It is not unusual for the key committees to hold a mock mark-up which does not go beyond the Committees. This enables the Administration to present a bill likely to be acceptable to Congress.
The Agreement itself may not need to be amended but the implementing legislation may require amendment elaboration, undertakings or directions which can be delivered through side letters – as Canada did with NAFTA on labour and environmental issues to meet the concerns of the then newly elected Liberal Government. Or through renegotiations as the Obama Administration did with the US-Korea Trade Agreement negotiated by the Bush Administration.
President Obama has been told repeatedly by Senate Finance Committee Chairman Orin Hatch not to give notice of his intent to sign the Agreement until the Senate has had an opportunity to examine the full text. Senate concerns could send Ambassador Froman, like Oliver Twist, back to the negotiating table.
Trade Promotion Authority (TPA) is not a blanket authority – either the Senate or the House may decide not to apply the Fast Track procedures to a specific agreement. Invoking one of these escape clauses would clear the way for amendments to the implementing bill which could require re-negotiation. The exceptions to Trade Promotion Authority are draconian but can be used if the Administration ignores Congress.
Former House Speaker Nancy Pelosi used the House’s ability to deny fast track treatment to the US-Colombia Free Trade Agreement to force the Administration to amend the agreement to meet Congressional concerns.
If front running Presidential candidates are not prepared to accept the TPP Atlanta Text, Congressional leadership may prefer to leave the deal to the next Administration so the new President can put her/his stamp on it and present a palatable implementing bill to Congress.
At the end of the day, Congress will have its way or the TPP will not be approved. For Canada and the other 10 countries entertaining possible Congressional demands for change or interpretative side letters, this may be an opportunity to rebalance and address their own concerns. After all, the U.S. would not be shy about telling Canada there is no free lunch.
Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada’s leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist. Follow him on Twitter at @jpclark14