Why Canada raced to get in on the CPTPP trade deal

The Comprehensive and Progressive Trans-Pacific Partnership, the 11-country Asia-Pacific trade agreement revived after being abandoned by the Americans, takes effect today.

Agrifood exporters and consumers shopping for Japanese cars could benefit right away. But Canada's greater goals for this agreement are strategic.

"Right now, things are a bit sensitive with the United States,"said BrianInnes, the president of the CanadianAgri-FoodTrade Alliance, the umbrella group representing most Canadian food producers grain and livestock farmers in particular who rely on sales to international markets.

"Secure access, stable access to the Asia-Pacific markets is really important to farmers right now."

The Trump administration's decision to withdraw from the Trans-Pacific Partnership made the reworked CPTPP a far better deal for Canada.

Originally, Canada needed to be in the TPP to avoid falling behind its closest competitors. Whenthe remaining economies including Japan, a large, developed market where Canada couldn't land a bilateral trade deal stuck together and implemented the agreement,Canadians got a head start over the Americans.

Not all 11 countries have ratified yet. But six did, in time for it to take effect before the end of 2018:Australia, Canada, Japan, Mexico, New Zealandand Singapore. Vietnam ratified a few weeks later, so the CPTPP kicks inthereearly in the new year.

Some tariffs have now been lifted, or have started to phase out. More tariffcuts are set for early in 2019, improving price calculations for a range of businesses. But in Canada, the biggest winners are export-oriented farmers.

American farmers have noticed, and they aren't happy about the new foothold Canadian farmers are about to get.

A future U.S. administration may reconsider and negotiate re-entry. In the meantime, it's time for Canadians to work on selling in markets they've chasedfor decades, Innes said.

Chief among them is Japan, a highly-protectionist agrifood market. Beef tariffs there, for example, were 39 per cent.They aren't going away completely, but they will slowly ramp down.

Canola oil will be free of tariffs in five years.

"Right now we can ship a lot of unprocessed, raw seed into Japan, but the tariffs on canola oil prevent us from value-adding and shipping canola oil to Japan," Innessaid. "It's really amazing that it's finally going to happen."

Canada is already a leading pork exporter. Canadian pork maynow be more affordablethan comparable U.S. imports in Japan, thanks to the tariff cuts in the CPTPP.

Asprocessed food tariffs liftin Vietnam, French fries from Atlantic Canada also get cheaper. The list goes on.

"Right now we're shipping eightbillion dollars of exports to CPTPP countries and we think we'll see that grow by 25 per cent once these tariff cuts are implemented," Innes said.

Two new shipping terminals are being built in Vancouver, he said the first new ones in decades.

Automotive industry stickingto new NAFTA

"The Canadian government wanted (the CPTPP) on the books during the NAFTA process to demonstrate to them that we can make a deal without them," said FlavioVolpe, the president of the Automotive Parts Manufacturer's Association.

But the CPTPPdoesn't do much for Ontario'sautomotive industry. When the U.S. was part of the TPP (along with Mexico, which remains in the deal), this agreement superseded theoriginal North American Free Trade Agreement (NAFTA).

But when the Americansleft, there was little prospect of Canada and Mexico overhauling their highly-integrated supply chains to comply with rules different from what the Americans wanted, and recently insisted on, for NAFTA 2.0.

Canada's automotive exports go south, not west.

The reworked CPTPP is more of a bullet dodged for Volpe's industry: the original TPP didn't require a majority of car components to be sourced and assembled in North America, which held open the doorfor moreAsian parts. NAFTA 2.0 works to close it.

"The USMCA [Trump's preferred name for the revised NAFTA]all but cauterizes any wounds, assuming ratification and passage, that we would have endured because of the terms of the TPP," Volpe said.

If anything, the U.S. wants to bring the Japanese under the umbrella of the new NAFTA rules to frustrateChina's growth. The automotive chapter could be overhauled if a future White House negotiates re-entry into the CPTPP.

But there is one automotive outcome worth watching: Canadian consumers eyeing Japanese models not currently assembled in North America might be able to negotiate a better price with their dealerships soon, as the current 6.1 per cent tariff on Japanese imports begins to phase out over the next four years.

When Canada's free trade deal with South Korea made some Korean models cheaper, dealerships offered promotional pricing in celebration.

But if you're not currently shopping for a Mitsubishi, what's changing for you?

"Absolutely nothing," said Carlo Dadeof the Canada West Foundation, who hasstudied the benefits of the TPP for Canada for months.

Service industries look for growth

The benefits from a deal like this equivalent to another NAFTA, Dade said, inlong-term potential take years to materialize. "And they don't often materialize directly into things like lower prices," he said.

Instead, research suggests firms reinvest in their products,services and employees.

As CPTPP takes hold, e-commerce and expedited shipping and customs clearance getsimpler, with more markets usingthe same rules. Cheaperintermediate suppliers become available.

Professional credentialsrecognition for architects and engineers boosts the service industries needed by countries like Vietnam as they develop new infrastructure. And emerging middle-class populations in Asia are startingto purchasethings like insurance, a globally-competitive industry in Canada.

In global service industries, people need to be able to cross borders for work.

"Good luck trying to get a Malaysian into the U.S. for three months to actually work in an office," Dadesaid. Withthe CPTPP, "we've got that advantage over the Americans for the entire Pacific Rim."

"The bigger companies, yes, are ready," said Mark Agnew, the director of international policy at the Canadian Chamber of Commerce. "The gap," he added, "is for small and medium-sized businesses"they often lackthe time, resources and expertise tofigure out how to compete in Asia.

Sometimes it's just easier to focus on English-speaking customersin North America, where the rules are familiar.

"It takes a little while to ...start to notice benefits from any trade agreement," said Meredith Lilly, a former adviser inStephen Harper's office when the original TPP was negotiated by the previous Conservative government. "The government can set the table, but others need to take it up."

"This was largely a defensive deal for Canada," she said a way into a large trading bloc that Canada needed to join so customers and suppliers didn't slip away.

1.5 billion now in 'free trade zone'

Asian imports to Canada, like textiles or electronics, already had low or no tariffs. Clothing from Vietnam won'tsignificantly drop in price now, for example.

These new trading relationships have "longer term, more nebulous gains," Lillysaid. But asmore and more countries join Colombia, Thailand, South Korea and even a post-Brexit United Kingdom are interested the deal's higher labour, environmental and intellectual property standardscould become the regional norm, something which is in Canada's interests.

There aren't many hoteconomies these days. But Vietnam's one of them.

Brian Kingston of the Business Council of Canada sees a sound,long-term strategyin trying to get Canadain there early.

Vietnam's "not quite on par with what China's achieved," he said, "but you can see them following that path" of growing and developing very quickly.

"In 10 to 15 years from now, this could become a very valuable market."

The CPTPP also includes investor protections, making the region more accessiblefor businesses that saw potential but couldn't take the risks.

"We're way better off and way more competitive on the 30th of December than we would be on Dec. 29," International Trade Diversification Minister Jim Carr told CBC News on Parliament Hill before leaving for the holiday break.

"This is a market of 500 million consumers that will be in addition to the 500 million through the European trade agreement and the nearly 500 million with the (revised NAFTA),so 1.5 billion consumers (are now) in Canada's free trade zone."