With NAFTA talks faltering, CPTPP agreement viewed optimistically by Canadians

With NAFTA talks faltering, CPTPP agreement viewed optimistically by Canadians

By Dave Korzinski, Research Associate

January 29, 2018

2018 is off to a much better start for Canada’s trade negotiators than 2017. The government announced on January 23rd that it reached an agreement to sign onto a revised version of the Trans-Pacific Partnership with 10 other Pacific Rim nations, including economic behemoth Japan.

The new version, sans United States, has been labeled the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It really rolls off your tongue. After Canada was reportedly something of a roadblock in discussions at the tail-end of 2017 in Vietnam, Canadian International Trade Minister Francois-Philippe Champagne now says the government is satisfied with an “improved arrangement” on autos and intellectual property. This progress is somewhat antithetical to what Canadians have experienced in trade negotiations over the past year.

Threats to the existence of Canada’s most important free trade agreement became an uncomfortable reality for Canadians and their policymakers in 2017. The most recent example of this came last month, ahead of the most recent formal meeting of American, Canadian and Mexican officials in Montreal, two Canadian officials voiced their expectation that Donald Trump will, at some point, pull the plug on the North American Free Trade Agreement (NAFTA). This is something he has threatened numerous times since his inauguration at the beginning of 2017.

Alongside the frustration of negotiating with a partner who may or may not be acting in good faith is the troublesome possibility that Canada faces an uncertain period ahead, where tariffs and walls may pop up where once a common space for exchange existed. Regardless of the potential suitors for economic cooperation outside North America, there is simply no replacing Canada’s economic relationship with the U.S. – three-quarters of this country’s exports are heading south each year.

Within this environment, the Angus Reid Institute has tracked two intertwining trends in Canadian public opinion over the past year.

 

Trend – Canadians (now) love their NAFTA

The attack on NAFTA appears to be one Canadians have taken personally. In the summer of 2016, before high-profile comments about tearing up the agreement came from then-candidate Trump, just one-in-four Canadians (25%) said that the agreement had benefitted their country. In February of 2017, a few weeks after the President’s inauguration, that number had jumped to 44 per cent. In September, ahead of the third round of negotiations on a new NAFTA, it rose again, to 47 per cent.

NAFTA Canada Trump

You don’t know what you’ve got ‘til it’s gone. Or, at the very least, until you realize someone may be trying to take it from you.

It’s not just the benefit accrued over the past 23 years, but the harm caused if NAFTA is scrapped that has Canadians distressed. Consider the greater concern Canadians express, compared to Americans, when asked what would happen if the agreement were to end. Canadians were twice as likely to say their country would be hurt, while Americans were twice as likely to say their country would benefit:

NAFTA Canada Trump

Given the relative weight of the American economy compared to their own, Canadians are probably right in this assessment. Without NAFTA, Canada would have a number of choices to make. Does the government immediately pursue a bilateral trade agreement with the United States? This is something President Trump has repeatedly expressed interest in. Trump has stated several times that his primary concern over the agreement is Mexico, so maybe Canada could negotiate a fair deal. That, however, is likely not an idea that Canadian softwood lumber producers and supply-managed farmers would agree with.

And what of Mexico in the context of Canada’s interests? Canada may be able to absorb some of the damage done by NAFTA dissolution with the aforementioned CPTPP, of which Mexico is a signatory.

While the vacuum left by NAFTA would create anxieties for economists and businesses across the country, one contingency plan has already been put in place, and it’s the second of the aforementioned 2017 trends.

 

Trend – Canadians view CPTPP, trade outside the US, with optimism

In the face of consternation surrounding NAFTA, Canadians have noticeably averted their gaze from the United States. By August of 2017, the Angus Reid Institute found that Canadians now expressed support for a region other than the United States as their top preferred trade focus – a far cry from what they said in February of the same year.

When asked to look to the future, 44 percent said they would prefer Canada develop closer trade ties with the European Union, three points higher than the number who said this of the U.S.

While a narrow win for the E.U., this represents an eight-point drop in support for a continued focus on trade with the United States compared to the previous year.

Canadian trade partners

Given this data, it was perhaps predictable that support would rise for the Trans-Pacific Partnership. While the major countries listed prior are not a part of the deal, the CPTPP is host to several large, developed economies, offering preferential access to Canadians.

Asked if they supported the TPP in October of 2017, support almost doubled. This was perhaps most surprising due to the low levels of support noted consistently since April of 2015.

NAFTA Canada Trump

It appears that if Canadians can’t have NAFTA, they at least want to secure the CPTPP.

CPTPP viewed positively, but NAFTA still key

While past data suggests Canadians will view this trade pact with optimism, segments of Canadian society are still divided about it. Some, including the Canadian Meat Council and Canadian Agri-Food Trade Alliance (CAFTA) responded with enthusiasm. CAFTA President Brian Innes noted that “now that we will have competitive access to key markets in the Asia-Pacific and especially Japan.”

However, many in the auto sector – including Auto Parts Manufacturers’ Association president Flavio Volpe – expressed disappointment. Volpe called the agreement a “dumb move”, making it easier for TPP countries to import vehicles to this country, undercutting domestic producers.

While details are yet to be finalized, previous analyses offer a picture of the CPTPP’s appeal. Without the U.S. in the agreement, Canada gains preferential access to several large markets, and perhaps a head start on establishing relationships with firms in those countries. A report from the Canada West Foundation suggests greater growth in real GDP for Canada under the CPTPP, post U.S. exit. Their analysis suggests that inclusion in the CPTPP would draw roughly $3.4 billion in welfare gains for Canadian producers and consumers.

The proverbial elephant in the room, however, is still the United States. What happens with ongoing NAFTA discussions will play an enormous role in deciding trade policy in the coming years. $3.4 billion in gains from CPTPP participation could quickly be wiped out by failure to secure a suitable trade deal with our neighbours, with whom two-way trade totalled $544 billion in 2016.

It would appear, however, that most Canadians – and their federal government – are happy to see a contingency plan in place, however small. For Canada’s businesses, every dollar counts.

 

Contact the author for comment/media – dave.korzinski@angusreid.org



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