Expected Impacts of the TPP Agreement

 

Canada and Vietnam are two countries with an important role in the Trans Pacific Partnership (TPP). For the U.S., Canada is the U.S. largest trading partner, and China is number two. The U.S., is Canada’s largest trading partner. China is Vietnam’s largest trading partner. Japan is not only the third largest economy, but the largest ODA partner to Vietnam, and an increasingly strategic investment partner. There is a clear common structure to our two countries’ trade with large neighbours that creates an interdependence with our neighbours. Both Canada and the U.S., are keen to diversify and balance our economic relations through expanding our trade relations with other countries. Canada is actively looking west, towards Asia. Vietnam is actively looking everywhere, and towards North America.

 

There have been certain issues raised, which require recognition and clarification. One is that the trade talks have been described as ‘secretive’ as the trade negotiations are not being made public until an agreement has been settled between member countries. In fact, this is not altogether unusual, nor is it necessarily a bad idea. In each country’s case, the agreements will still require ratifications from the governments parliaments and/or legislative bodies. What this means is that, while the negotiations on the particular ‘chapters’ are being kept private until they have been agreed to between negotiators, the details will be made public and will still require public support before ratification by each member country.

 

Canada became an official member of TPP on October 8^th, 2012 and since participating in the Auckland, Singapore and Lima Rounds. Key inhibitors to Canadian participation were on the basis of agriculture supply management policies and market practices – particularly Dairy and Poultry. Key rationale was for a unified voice for participating in the rules-setting process governing this region. For Canadian business, it is to broaden and deepen relationships with existing FTA partners, and an opportunity to build on our relationships with the U.S., Mexico, and to be a bridge between the Americas and Asia.

 

TPP offers opportunity to advance Canadian interests in one of the fastest-growing regions of the world. TPP importantly offers Canada a foothold in the burgeoning Asian market and access to critical Asia-Pacific value chains. TPP also strengthens trading lines between the Americas and Asia – in which Canada has particular strengths and advantages with our ports and infrastructure system.

 

For Canada, Canadian business and investment is looking to TPP negotiations to achieve minimum objectives, including a meaningful market access package with Vietnam.

 

Of the current participants in the TPP negotiations, Vietnam holds the greatest market potential for the vast majority of Canadian food and agricultural products. Canada understands from the outset of the TPP negotiations, Vietnam is a key growth market for Canadian producers and exporters. The opportunities for further export expansion can only be fully realized if existing tariff and non-tariff trade barriers are removed.

The level of support a TPP agreement will receive from Canadians and Parliament will likely depend on whether there is a comprehensive free trade deal with Vietnam. Without TPP, Canadian agriculture will be at a disadvantage in this fast growing market to Australia and New Zealand, which have preferential access under the ASEAN-Australia-New Zealand Free Trade Agreement which came into force January 2010.

 

Trade deals are not solutions. They are not intended to be. Trade deals are simply the starting point - the game rules, and like all games, trade deals require teams, rules, and referees.

 

While there are a number of other trade deals under current negotiation globally, the Trans Pacific Partnership is arguably the most significant. The TPP creates a market of 790 million people with a combined GDP of US$ 27 trillion, accounting for one third of global trade. Like all trade deals, it is also complex, but the TPP is complex in that it has evolving participant member countries as the agreement was designed so that other countries could later come on board. (Japan, for example, joined in July of this year.) It’s complexity is also challenged by an agreement between both high and mid income countries, with varying degrees of market access and established rule of law. This is going to be particularly challenging around the issues of intellectual property, environment, state-owned enterprises, and market access.

Economics basic concept is of ‘trade-offs’. Trade deals exemplify this.

 

Let’s take a key issue for Vietnam, in the TPP negotiations – textiles and garment industry.

 

Vietnam is the second largest exporter of garments to the United States, behind China. Apparel imports to the United States from China reached US$31 billion in 2011. U.S. apparel imports from Vietnam, while smaller, have grown 14,000 percent from 2000 to 2011 to US$6.7 billion.

 

The Vietnam textile association is arguing against a possible TPP yarn-forward rule, which would likely end up limiting the amount of garments that could be exported to the U.S. market due to requirements that the textiles produced, must be sourced from TPP countries. As most Vietnamese textiles are sourced from China, a non-TPP country, this rule might limit the future growth of Vietnamese garment exports. However, the textile industry in Vietnam, would benefit from such a rule – as then Vietnamese textiles would be more competitive. As 80 percent of textiles were imported, mainly from China, by 2011, there is large scope for increasing Vietnamese presence in textile production, depending on the outcomes of the trade negotiations.

 

There are also the opportunities to other ‘yet to be born’ companies and industry in Vietnam, that can take advantage and flourish under established trade rules and standards. In Canada, we established a world class wine industry from scratch after NAFTA.

 

Vietnam will be required to do some ‘heavy lifting’ in order to meet the same standards as all participants in the TPP. In Vietnam’s case, for example, the TPP seeks to encourage an upgrading of many Vietnamese manufactured products which currently fail to meet the highest international standards. In Vietnam, 80 percent of the country’s textile fabrics are forbidden for export to America, as they don’t meet the strictest of standards. One expected impact of the TPP Agreement is increased investment into technology and manufacturing knowhow, which will assist Vietnamese companies upgrade and meet international quality standards. That opens the entire international market more fully to Vietnamese companies, which have until now traditionally concentrated on supplying lower quality and lower value goods.

 

The trade-off also includes higher consumer protections with stricter standards that will improve reliability of products, food safety standards, and the environment – critical concerns for both Vietnamese people and the Government. Despite the number of Vietnam government rules and regulations that have been put into effect, there are still many reported and unreported cases of companies disobeying and working around the rules and procedures. International trade allows for consumers and companies to have a choice and choose not only the least cost products, but the best, healthiest and safest products whether they are produced locally or internationally. Historically this has proved to be the significant winner of trade deals, consumers and the people.