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What if the Lame Duck Waddles? Canada and the TPP

Written by: Hugh Stephens, Executive Fellow

Ever since it took office last year, the Trudeau government has been on the horns of a dilemma over the Trans-Pacific Partnership, the 12 nation trade agreement it inherited from the Conservatives. The Liberals know that if the TPP goes ahead, Canada has to be part of it. It would be unthinkable to have to share with the other TPP countries (other than Mexico) the privileged access that Canada has to the U.S. market through NAFTA without getting anything in return, which is what would happen if Canada stays out of an implemented TPP. It would be equally unthinkable to give up competitive access to the Japanese market, carefully negotiated so that Canadian businesses and exporters will be on a level playing field with their U.S. and Australian competition. Canada would be locked out of the first regional trade agreement to encompass economies on both sides of the Pacific and would not benefit from new competitive rules on services, investment, intellectual property, labour, the environment and more that the TPP brings as the prototype trade agreement for the 21st Century. But for the present government, part of the problem is that the deal was negotiated by the Conservatives. For political reasons, they can’t just “sign on”, even though Mr. Trudeau and International Trade Minister Chrystia Freeland have been at pains to stress that the Liberals are pro “free trade”.

In some ways, Mr. Trudeau is in a similar position on the TPP to Hillary Clinton. Mrs. Clinton was Secretary of State while it was being negotiated and during that period was a strong advocate. But that was then and this is now. Now that she is running for President, suddenly the TPP has become an inconvenience, especially since Mr. Trump has upended the traditional Republican support for trade liberalization by characterizing the TPP as a bad deal that will cost U.S. jobs.  (In commenting on the TPP, Trump singled out China and India—neither of which are in the TPP—for criticism). Mrs. Clinton had to fight off Bernie Sanders to win the Democratic nomination, and Sanders represented the anti-trade labour wing of the Democratic Party. To beat Bernie, she had to “out-Bernie” Sanders on trade, so she too has become a vocal TPP critic. Some have said that if (or once) she becomes President, she will change her position, as Mr. Clinton did on NAFTA in the 1990s, but because of these assumptions she has painted herself more and more into a corner, declaring that she is against “this TPP” now and in the future. All this makes the prospects for ratification of the TPP in the U.S. very problematic, to say the least.

The stasis in Washington on the TPP has been welcomed by the Liberals as it has allowed them to “rag the puck” for the past nine months. On taking office, Mr. Trudeau declared that his government would consult Canadians on the TPP, and there have been a series of hearings and meetings that have brought every possible anti-TPP advocacy group out of the woodwork.  A good example is the Canadian Centre for Policy Alternatives (CCPA). The CCPA has just completed a series of analyses criticizing the TPP for just about everything but bad breath. It is bad for health care, the environment, migrant workers, cultural diversity–even the postal system, according to the CCPA. It is a repeat of the “every sparrow that falls” syndrome during the days of the Canada-US FTA.

Early in the new government’s mandate, Ms. Freeland was asked at a meeting with business executives how she planned to convince opponents of the TPP. She replied that it wasn’t her job to persuade people to support it; rather she would be in listening mode. Well, she has had an earful from the anti-globalization community in Canada, (as well as pro-TPP commentary from business groups) but apart from allowing various lobby groups to sound off, this has actually accomplished very little. It is not realistic to expect that just because this or that group or professor does not like a particular aspect of the TPP, it is going to be changed. The deal is done. There was a detailed negotiation of give and take that lasted for twenty one rounds. Canada employed a team of skilled negotiators who succeeded in negotiating an agreement that will bring great benefit to Canada. In the process, they also made some concessions, although the “concessions” they made will probably be good for the competitiveness of the Canadian economy in the long run in any case. Regardless, Canada cannot re-open the deal (unless the Americans come back and demand more concessions as the price of ratification).

The real action will take place in Washington this fall. With both Mrs. Clinton and Mr. Trump publicly opposing the TPP, the Obama Administration has finally gone into action and has declared that it will seek to have the Agreement ratified by Congress in the “lame duck” session that will take place after this November’s Congressional elections and before the swearing into office of a new Congress in January 2017. The Administration has already notified Congress that it will be forwarding a bill to implement the TPP. As Canada’s former chief negotiator for NAFTA, John Weekes, and a number of observers have commented, there is some reason to believe that the lame duck may yet waddle across the finish line. Mrs. Clinton, assuming that she becomes President, would welcome not having to deal with the TPP as an early controversial issue in her mandate. There are a number of sitting Republicans who philosophically support the TPP, although they are reluctant to show their true colours before the Presidential election. There are even a number of pro-trade Democrats, although a minority, who are equally unwilling to show their colours prior to the November election. If a coalition of enough Republicans and a few pro-trade Democrats could be cobbled together, the TPP theoretically could pass. After all, President Obama was able to put together enough votes to obtain “trade promotion authority” allowing him to sign the TPP, despite widespread opposition in Congress. If it does not pass the U.S. Congress it will not come into force as the text requires that it be ratified by at least six of the 12 members, representing 85 per cent of total GDP of the totality of the participating economies based on 2013 statistics. This effectively gives both the U.S. and Japan a veto, or put another way, both Japan and the U.S. must ratify the agreement for it to come into force.

Meanwhile back in Canada, the ragging of the puck continues, and the pretence continues that Canada could “improve” the agreement. If Congress moves this fall, Canada will have no choice but to proceed with ratification, whether or not the CCPA and others of similar persuasion are happy. Will this happen? The chances are probably less than 50/50 for lame duck passage—although not impossible. If it is not passed in Congress, as prominent trade lawyer Larry Herman has pointed out, there is nothing that Canada can do about it, nor would Canada be required to do anything. That is one important reason for all the endless circular skating on the ice—to buy time to see what happens. Why take a position when you may not have to? If the TPP fails or gets put on ice indefinitely, Canada has other options, as Weekes and other have noted, including reviving the bilateral Canada-Japan negotiations that were suspended once Japan joined the TPP negotiations, and moving forward with discussions of trade agreements with others, such ASEAN (already announced) and China.

However, if the Obama Administration is successful in getting the lame duck to move, watch for quick action in Ottawa.