Why the TPP is all about Japan for Canada
BARRIE MCKENNA
OTTAWA — The Globe and Mail
Published
Last updated
The Trans-Pacific Partnership trade deal has been cast as a showdown between Canada and the United States over this country’s protected dairy and poultry industries.
But the real stakes are about Japan – the world’s third-largest market. And Canada risks losing a big chunk of that market if it’s not part of the deal.
Canadian International Trade Minister Ed Fast and his 11 TPP counterparts are gathering in Maui, Hawaii, next week in what is expected to be the final drive toward an agreement. The meeting comes amid warnings that Canada should be shut out of the deal unless it makes big concessions in agriculture.
Being kept out of the TPP would be a stealth export killer for Canada – not because of the trade gains Canada would leave on the table, but because of what it would lose if it’s not there. Trade rivals would steal billions of dollars worth of export sales from us in Japan. The cost of exclusion may actually dwarf the benefits of inclusion.
For Canada, the TPP is all about Japan. Canada already has free-trade agreements with four TPP countries: the United States, Mexico, Peru and Chile. And most trade is relatively unimpeded with two others: Australia and New Zealand.
That leaves Malaysia, Vietnam, Singapore and tiny Brunei among the remaining TPP participants. They represent promising markets, but they are paltry compared with Japan. Canada’s goods exports to Japan hit $10.6-billion last year, making it this country’s fourth-largest export market behind the United States, China and Britain.
Free trade with Japan would boost those exports by an estimated $2.7-billion (U.S.) a year and generate annual economic gains to Canada of $3.8-billion, according to a 2012 joint Canada-Japan study on the benefits of a now-shelved bilateral trade agreement between the countries.
Canadians need look no further than South Korea to see what happens when rival exporters gain preferential access to an important market. Canada suffered billions in lost sales when the United States and the European Union struck trade deals with the fast-growing Asian economy before Canada. After dithering for two years, Canada belatedly negotiated a deal with Korea last fall, and it’s still struggling to recapture the market share it lost in beef, pork and other products.
Falling behind in Japan would be significantly worse for Canada’s sputtering export sector.
For the most part, Japanese tariffs are not prohibitively high, averaging 6 per cent across the board. But duties and other import restrictions are much higher for many of Canada’s key exports to Japan.
In food and agriculture, where Canada would make substantial gains in the TPP, tariffs average 16 per cent, and are up to 50 per cent on products such as beef and pork when imports surge. Food and agricultural products make up more than a third of what we sell to Japan.
In some food categories, tariffs ratchet up the more these goods are processed, such as wheat flour or mustard and products containing sugar, beef, peas and beans. Trade experts call this “tariff escalation,” and it’s common in Japan, which does it to protect domestic manufacturers.
Tariffs are also high on canola and soybean oil – Canada’s top export category in Japan. Japan limits wheat and barley imports with quotas.
Lumber producers complain that Japan imposes discriminatory tariffs on Canadian lumber and plywood while charging lower duties on near-identical building materials from other countries.
Now imagine what would happen if Japan substantially lowered or eliminated these kinds of barriers for the United States, Australia and other TPP countries but not for Canada.
Billions of dollars worth of exports that now dominate this country’s trade with Japan could be wiped out as rival countries undercut Canada on price, virtually overnight.
When Prime Minister Stephen Harper says it’s “essential” that Canada be in the TPP, that’s what he means.
It’s not an easy story for a government to explain in the fog of an election campaign.
It isn’t just about what dairy and poultry farmers may have to give up in the TPP.
A much broader swath of the Canadian economy – from forests to fields – has significantly more on the line in these talks.
And we’ll all feel the pain if Canada is left on the sidelines.
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