Over the past year, international trade agreements have been an issue in Canadian news and politics, and particularly the benefits that would flow from the Trans Pacific Partnership Agreement (“TPP”) and from the Comprehensive Economic and Trade Agreement (“CETA”) between Canada and the European Union. Both Agreements have been signed by the Parties and, once implemented, will result in greater preferential market access for Canadian traders. However, neither Agreement has yet to be implemented and, once they are, the potential benefits will only be realized if Canadian companies take advantage of the market opportunities offered by the Agreements. Which begs the questions, what are the next steps in the implementation process, how long will the process take and how can Canada benefit from these Agreements?
The first questions concern implementation and the time required to implement the Agreements. In both cases, the Agreements are not self-executing and have to be put into effect by national and sub-national legislatures. Implementation usually takes some time, particularly as the number of Parties to an Agreement an increase. However, implementation may take longer in the case of these two Agreements.
After the CETA was completed, some European member states signalled that they would need changes to the Agreement before they would agree to implementation, which signalled delay. Furthermore, since the CETA was signed, the E.U. has started negotiating the Transatlantic Trade and Investment Partnership (“TTIP”) with the United States. Regardless of European intentions with respect to the CETA, they are likely now fully engaged in negotiations with the U.S. and this may slow implementation of the CETA.
The TPP raises its own issues with respect to implementation. The new government has indicated that it intends to review the Agreement before signing off, which would be prudent since the text has not yet been released. Some Canadian industries, such as Ford Canada, have already indicated that they are seeking amendments to the Agreement. Requests to change the Agreement will likely result in delays in implementation but given the difficulties involved in coming to an agreement among 12 parties, it is unlikely that there could be significant changes to the Agreement at this point. It is far more likely that the TPP will be presented as a “take it or leave it” option on a Party by Party basis. We expect that Parties will be under significant pressure on the Parties to accept the TPP “as is” rather than risk being the only Party out of the Agreement.
Overall, we expect that Canada will work toward full implementation of the CETA and the TPP, but that full implementation will take some time. Canada is a trading country that needs preferential access to foreign markets, so we expect that the Government of Canada will fully implement both Agreements unless it concludes that they are so deeply flawed that it makes more sense to stay outside; a result that would be very unlikely.
This leads to the more important question; how can Canada benefit from the TPP and CETA once these agreements are implemented? The answer to this question is not self-evident. By entering into trade agreements, such as the TPP and CETA, Canada secures preferential access to the other markets covered by those Agreements for Canadian goods, services and investments, However, while the Government of Canada can secure preferential access for Canadian traders, it cannot guarantee a single sale or that any Canadian business will make a profit; whether Canadian companies benefit from the trade agreements is entirely up to them and depends on their willingness to look to these new markets. Currently, the vast majority of Canadian companies involved in export trade ship exclusively to the United States, Canada’s biggest trade partner. Only a small percentage of Canadian companies export to markets beyond the United States. If this pattern holds true going forward, the majority of Canadian companies engaged in export trade, will not actively participate in the CETA or in the TPP beyond the U.S.
Canada has tools, such as the Trade Commissioner Service and Export Development Canada that are intended to assist exporters make sales into all markets. Canada has taken steps to promote the use of these services to assist Canadian exporters, but the time has come to be more active. Perhaps the time has come to return to the Team Canada trade missions and to put more resources into the Trade Commissioner Service in Europe and in the TPP markets. Unless we can see an increase in export trade and a return to trade surpluses, it will become harder to see any value in continued trade negotiations.
Therefore, it is our view that, while opening new markets through trade agreements is a good idea and should be pursued, until steps are taken to promote increased Canadian export trade, the value of pursuing new market access will continually be diminished.
