From TPP to FTAAP: The stakes for Canada

by Hugh Stephens

Embassy
November 19, 2014

By now most Canadians have heard of the TPP, the Trans-Pacific Partnership, the trade agreement under negotiation between the United States, Japan, Canada, Mexico, Australia, New Zealand, Singapore, Vietnam, Malaysia, Peru, Chile and Brunei.

The TPP made headlines earlier this month when the 12 leaders met on the margins of the Asia-Pacific Economic Cooperation Summit in Beijing, calling for a recommitment to complete the negotiations as soon as possible. (All TPP countries are also members of APEC.) Prime Minister Stephen Harper attended that meeting prior to flying back to Ottawa for Remembrance Day ceremonies.

While the TPP has been the target of much criticism by anti-globalization forces, who accuse it of everything from undermining Internet freedom to engaging in a race to the bottom through harmonization of regulations, its supporters describe it as a “next generation” agreement that will focus as much on “behind the border” measures that impede trade as on traditional “at the border” measures such as tariffs and quotas.

It will cover 21st-century trade issues such as investment, intellectual property, competition policy, e-commerce, services and movement of service providers. In doing so, it could set the norms for trade agreements of the future: the type of agreements that are needed in an age of integrated supply chains and fluid movement of capital, business people and digital products.

Shortly after the TPP meeting in Beijing, the 21 APEC leaders issued the Beijing APEC Declaration in which a call was made for progress on a new regional trade agreement, the FTAAP (Free Trade Area of the Asia-Pacific). The FTAAP will be less familiar to Canadians although the concept was first floated by Canada’s APEC Business Advisory Committee about 10 years ago. Since then it has been studied by various think tanks and academics.

One credible economic study has compared the gains that would come from the FTAAP to those that the TPP would produce. The FTAAP gains would be some eight times that of the TPP—close to $2 trillion by 2025—and four times that of another trade agreement that is being negotiated among the Southeast Asian (ASEAN) nations, China, India, Japan, Korea and Australia/New Zealand.

China—which is not among the TPP negotiating countries—has become a champion for the FTAAP. This has the advantage for China of countering the US-led TPP process, which may explain the carefully worded communiqué issued in Beijing. This document endorsed the “eventual realization” of the FTAAP and called for a “collective strategic study” on issues related to its realization by 2016.

This wording papered over significant differences between China and the US. While China has been pushing for a full “feasibility study,” this has been resisted by the US as premature. The real reason is US concern that engaging in a full FTAAP feasibility study would interfere with completion of the TPP.

Rocky road for TPP
Indeed, the TPP is in trouble. Negotiations between Japan and the US over market-opening measures are stalled, and the Obama administration has not received Trade Promotion Authority (TPA) from Congress that would allow it to conclude an agreement without having to subject the final text to possible congressional amendments.

For Canada, the stakes are big. We were latecomers to the TPP process and had to push hard to gain entry. Canada’s participation is essential not only to preserve the full benefits of NAFTA but also to ensure that Canada has equal market access to Japan, the other TPP economies and any others that may join later. It is important for Canada to be part of the new international rule-making in the trade arena that is being developed within the TPP.

While the recommitment to TPP completion by the 12 leaders in Beijing is an important demonstration of political will, completion will also be given impetus by the new Republican majorities in both the US House of Representatives and Senate, which could lead to approval of TPA. This in turn could help break the logjam between Japan and the US, and lead to a final concluding round among all 12 partners.

Somewhat ironically, the FTAAP study announced at APEC will also drive TPP completion. With that study due at the end of 2016, the US and the other TPP countries will want to have their own trade deal completed prior to the launch of the next phase of the FTAAP. In this way, the TPP—one of the declared paths to a larger regional agreement—will be in a position to strongly influence the eventual shape of an FTAAP.

In doing so, it will hopefully lead to the acceptance of stronger market-opening disciplines by economies like China, India and ASEAN—good news for Canada. Canada as a member of APEC will have its opportunity to participate in the FTAAP strategic study, but the best step Canada can take to the kind of market access that Canadian business needs is to push hard for early completion of the TPP.

Hugh Stephens is senior fellow at the Asia Pacific Foundation of Canada, a fellow at the Canadian Foreign Affairs and Defence Institute and principal of TransPacific Connections. He has more than 35 years of government and private sector experience living and working in Asia. He is also vice chair of the Canadian National Committee on Pacific Economic Cooperation.