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A look inside one of the most significant free-trade pacts of its time
It’s hard to overstate just how significant the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be — not just for Canada and Japan, but for the Asia-Pacific region. Once this groundbreaking trade agreement completely goes into effect, it will form a trading bloc that represents some 495 million consumers, and 13.5 per cent of global gross domestic product.
For Canada, it opens up a tremendous amount of economic opportunity. The CPTPP gives Canada new preferential access to Japan, the world’s third-largest economy, and to Australia, Brunei, Malaysia, New Zealand, Singapore and Vietnam. Furthermore, it opens up enhanced access to existing markets in Chile, Mexico and Peru. This preferential market access is projected to provide a significant boost to Canadian exporters and Japanese importers of their products, by eliminating nearly C$430 million worth of tariffs annually, C$338 million of which are removed from exports to Japan. Japanese consumers should benefit from a greater choice of Canadian products and lower price from competition spurred by the CPTPP. In Canada, the deal will level the playing field for Japanese companies looking to export into the Canadian market and help create new investment opportunities. For example, the tariffs on autos from Japan will be eliminated in Canada on January 1, 2022, and tariffs on wagyu beef will be eliminated on January 1, 2023.
Combined with the Canada–European Union Comprehensive Economic and Trade Agreement (CETA) and the North American Free Trade Agreement — and its likely successor, the Canada–United States–Mexico Agreement (CUSMA) — the CPTPP makes Canada the only G7 member which has preferential trade agreements with all of the other G7 countries.
Between Canada and Japan, the CPTPP will allow for tariff-free trade of key Canadian exports, such as agricultural goods, seafood, lumber and industrial products. This is likely to make Canadian goods even more competitive on the Japanese market.
But the CPTPP isn’t just about goods and tariffs; it also includes provisions for investment protection, electronic commerce, government procurement and many more areas. For example, part of the CPTPP includes commitments on temporary entry, which will make it easier for Canadian and Japanese businesspeople and investors, as well as intra-corporate transferees, to work and move between Canada and Japan. The CPTPP is also progressive, including dedicated chapters on environment, labour, small and medium-sized enterprises (SMEs), transparency and anti-corruption, in an effort to ensure that the benefits of trade are widely shared.
As impressive as the agreement is, one of the most remarkable things about it is that it happened at all. The original Trans-Pacific Partnership (TPP) was first championed by then-U.S. President Barack Obama, and the United States was to play a significant role in the agreement. However, U.S. President Donald Trump pulled out of the agreement after he assumed office in January 2017, putting the fate of the early agreement in considerable jeopardy.
As Shujiro Urata, professor at the Graduate School of Asia-Pacific Studies at Waseda University explained, Japanese Prime Minister Shinzo Abe then became the de facto leader of the modified agreement: “[Abe] was of course, very disappointed when Mr. Trump withdrew the U.S. from the original TPP but he couldn’t back off. I guess he had to just move forward in promoting TPP 11, which eventually became the CPTPP. And I think that because of that, he took a leadership role in moving negotiations forward. It was very important for Prime Minister Abe, and also it is very important for the countries involved, particularly because the U.S. has become very protectionist with its trade policy, and we needed something to fight this emerging protectionism. And I think that the CPTPP is one of those very few policies that countries other than the U.S. can put into action to fight the rise of protectionism.”
Abe was … very disappointed when Mr. Trump withdrew the U.S. from the original TPP but he couldn’t back off.
However, with an agreement this large, there were guaranteed to be numerous sticking points. In one case Urata points out, the agri-cultural lobby in Japan was very strong, and did not favour opening up the sector to the rest of the CPTPP nations. In the long run, they got their way, and there are strong protections for the Japanese agricultural market in the agreement.
One of the things that prevented the agreement from being signed in 2017 was the desire to protect Canada’s culture (in addition to concerns about automobile manufacturing).
According to Stephen R. Nagy, distinguished fellow with the Asia Pacific Foundation of Canada, a not-for-profit organization focused on Canada’s relations with Asia: “[During negotiations], Vietnamese Prime Minister Nguyen Xuan Phuc came to Danang and they didn’t sign the CPTPP as they didn’t agree to the agreement at that time. One of the issues was cultural. In the Canadian context, as you know, we are a multi-cultural country and we are officially bilingual. So, we have some laws and regulations about protecting culture in the Canadian context.”
After months of negotiations and hard-fought deal-making, the 11 nations reached an agreement that was not only able to address their respective concerns with the original TPP agreement through suspensions and side letters, but also to build in progressive elements that ensure the benefits of trade can be more widely shared. The countries began to ratify the agreement starting with Mexico in June 2018. Japan, Singapore, New Zealand, Canada, Australia and Vietnam followed, and the CPTPP entered into force in December 2018 between all of the nations that had ratified except Vietnam, with the agreement for that country entering into force in January of this year. Rounds of tariff cuts have begun for the ratifying nations, and will take place for the other nations as they bring the agreement into force later this year.
With an agreement as wide-reaching as the CPTPP, it’s easy to lose sight of how many areas it touches on. As Nagy points out, there are two topics that are often left out of the discussion: “I think two important aspects of the CPTPP that we don’t talk about are the environmental laws and labour laws. What it’s trying to do is encourage businesses in participating countries to start to produce things competitively, but without impacting the environment negatively or using some of the asymmetric advantages some countries with big populations have in terms of exploiting labour. So, this makes competition fair, and fair competition means that Canadian business and Japanese businesses can get out there and compete and sell their products to customers within the [CPTPP] region.”
The agreement also maintains a structure that helps support technical innovation of all types, Nagy adds. “The CPTPP’s focus on protecting intellectual property rights is incredibly important. Now, what does that mean? It means, for example, if a Canadian makes some kind of product — the best example is a Blackberry, an invention made in Canada. That product’s intellectual property rights would be protected within this new agreement. That means that company can continue to invest over the long-term in research and development to produce more innovative products. Intellectual pro-per-ty rights are really, really important in producing long-term innovation and long-term research and trying to create the next Blackberry, or the next iPhone. That is really, really great.
“Now, Japan and Canada both produce a lot of interesting, innovative products and they would like those products to be protected through intellectual property rights. So, what the agreement has done is to create the cir-cum-stances in which both countries, as well as all countries in this CPTPP agreement, can start to really invest in the long term — in the next technologies and in the next services, to produce more wealth and prosperity. And that is always good.”
Urata explains that the trade relationship between Canada and Japan has tended to follow a certain pattern, but it’s one that he’d like to see change in the years to come, and this could come about through the mechanisms of the CPTPP, and through bilateral investment schemes that would be simplified through the agreement.
“[Japan] imports a lot of natural resources and natural resource-related goods from Canada and indeed I think we register a trade deficit with Canada. Half of our exports to Canada are automobiles, and some people call it a very complementary relationship because we import natural resources or materials and we export manufactured or machinery products. However, I’d like to see more bilateral trade in high-quality or high-tech products, such as pharmaceuticals and other chemical goods.
“Maybe, before these trades take place, there could just be investment, both ways — Japan investing in Canada, and Canada investing in Japan. I think that will go first and then, as a consequence of the operations in both countries, they may develop trade in these products. I would like to see a lot of investment done between these two countries.” This could be made possible by the CPTPP’s innovative and modern rules, which offer investors improved protection, predictability and transparency for their investments and improved access to each other’s markets.
What the agreement has done, is to create the circumstances in which … all countries in this CPTPP agreement, can start to really invest in the long term.
For its part, Canada has announced significant investments to help its businesses take advantage of the CPTPP and the other free trade agreements (FTAs) that will soon be in force. The government has committed C$1.1 billion over six years to help Canadian businesses access new markets and take advantage of FTAs that are in force. The funding will include in-vestments in ports and trade corridors linking Canada to Asia and Europe, and will also expand financial support available for businesses to develop and pursue opportunities for export growth and diversification. New resources are also being dedicated to increasing the number of trade commissioners available to serve Canadian businesses both at home and in important markets abroad, including in Asia and the European Union.
Additionally, the government department Global Affairs Canada is actively working to raise awareness of the country’s free trade agreements and help SMEs benefit from the opportunities that agreements such as the CPTPP provide. The department’s outreach program includes the delivery of workshops for Canadian companies on agreements such as CETA and CPTPP, and the development of informational tools to make it easier for SMEs to access information digitally. For example, Canadian companies can find out more about the CPTPP through the Global Affairs Canada’s website, at canada.ca/CPTPP. One of the most useful tools is the Canada Tariff Finder (a joint initiative of BDC, EDC and Global Affairs Canada), which allows companies to determine whether their product’s tariffs have been reduced or eliminated thanks to one of Canada’s free trade agreements. The Tariff Finder covers free trade agreements such as CETA, and is currently being updated to include information on preferential tariff rates with CPTPP countries. The department is also offering comprehensive training to Canadian trade commissioners across Canada and in each of the CPTPP countries on the agreement and the opportunities it creates.
This is especially important as the CPTPP has the potential to be a significant boon to SMEs. According to Global Affairs Canada, SMEs represent more than 99 per cent of all Canadian businesses and nearly 90 per cent of all private sector jobs. But currently, only 11 per cent of these Canadian SMEs are engaged in the global marketplace.
To help address this, the CPTPP has a chapter dedicated to helping SMEs gain access to the opportunities that the agreement offers. Some of these include the elimination of tariffs on 99 per cent of current Canadian exports to countries within the CPTPP. Also, trade is made more predictable and accessible, thanks to the establishment of a single set of rules for trade. Technical barriers to trade, which are often a great concern for SMEs are also addressed. Clearing goods through customs is simplified and SMEs have easier access to customs information online. New rules help to eliminate barriers to digital trade and help data flow freely across the borders of the CPTPP nations. Market access for Canadian services and financial services industries is enhanced and supported by strong mechanisms for handling investment disputes. Finally, a level playing field is created by establishing clearly enforceable rules for state-owned enterprises in CPTPP markets.
The CPTPP is likely to shape the Canada-Japan trade relationship in a number of ways: the CPTPP’s high standard rules will set the stage for greater economic integration and inclusive trade; more Canadian and Japanese businesses will take advantage of the opportunities that the agreement offers; and both Canadian and Japanese manufacturers will expand their supply chains and diversify their sources of supply and customer bases.
Nagy, for his part, says to watch for which countries are likely to join the agreement in the years to come. Economies that have publicly voiced their interest include Thailand and the United Kingdom.
Finally, Nagy says to keep an eye on the development of other global FTAs to see if they follow in the CPTPP’s footsteps: “Japan and Canada should be looking at what kind of trade agreements going forward resonate or reflect much of the language in the current CPTPP and that would suggest that countries are very much on the same page of the book in terms of focusing on development and research and innovation through protecting intellectual property rights.”
For their part, to take advantage of this game-changing agreement, members of the Canadian Chamber of Commerce in Japan (CCCJ) are encouraged to take part in CPTPP-related seminars that will be organized both by the Embassy of Canada in Japan and the CCCJ, and to contact the Trade Commissioner Service if they have questions about the finer points of the CPTPP. This is an exciting time for both Canada and Japan, and we should all look for even more positive developments in the months and years to come.
