According to a government official, Canada has become the fifth country to sign off on the sprawling Japan-led CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). Speaking anonymously, the official revealed the ratification ahead of a formal announcement. The Trans-pacific…
According to a government official, Canada has become the fifth country to sign off on the sprawling Japan-led CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).
Speaking anonymously, an official revealed the ratification ahead of a formal announcement.
Background
The Trans-pacific Partnership (TPP) is an ambitious trade agreement that nearly covers two-fifths of the world economy. The proposed trade partnership is between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. It was signed on the 4th of February 2016; however, it was not ratified as required and did not go into effect. At the time, it was the largest trade agreement in history, and the 12 nations comprised 40% of the world trade. Former US President Barack Obama spearheaded the effort for five years before the deal came into effect.
However, President Trump withdrew the US from the TPP. In 2015, Trump had tweeted, “The Trans-Pacific Partnership is an attack on America’s business. It does not stop Japan’s currency manipulation. This is a bad deal.” He had called it a “disaster”. Thus, due to the US’s withdrawal, the agreement did not come into force.
After the United States withdrew, there were concerns that the deal would not survive. The US accounted for 60% of the TPP’s combined GDP. At the time, TPP had to be passed by six countries that accounted for 85% of the group’s economic output. Thus, with the US backing out of the deal, some experts believed that the agreement would go defunct.
However, Japan, the next largest economy in the group, took up a leadership position. Chief negotiators from the remaining 11 countries met in 2017 to determine terms. They also decided to create a new name for the group. It is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11. The remaining 11 nations officially signed the edited trade pact in March 2018.
Analysis
Canada has become the fifth country to ratify the CPTPP, according to a government official. Speaking anonymously, the government official revealed that the Canadian government sent a formal notice of its ratification to New Zealand, as it is compiling the records for the CPTPP.
A total of five countries have signed off on the trade agreement, namely, Japan, Mexico, Singapore, New Zealand and now Canada. Following these countries is Australia, which is next in line to sign off on the trade agreement. Australian Trade Minister Simon Birmingham said on the sidelines of the World Trade Organisation reform ministerial meeting in Ottawa that, “We believe that we are on track to be able to ratify and lodge a notification with New Zealand by the first of November.” Thus, if Australia ratifies the CPTPP, the deal can entirely go into effect during the 2018 calendar year.
The CPTPP Agreement, along with NAFTA and free trade agreements with the EU (CETA) and South Korea, will make Canada the only G7 nation with free trade access to the Americas, Europe and the Asia-Pacific region.
The critical role of the CPTPP is to slash trade tariffs between countries. It also seeks to reduce the non-tariff measures, which create obstacles to trade through regulations. The TPP includes new regulation for online commerce and treatment of foreign investors. It provides for far more comprehensive protection for intellectual property, and labour codes for neutrality regarding state-owned enterprises.
A World Bank report revealed that, if the agreement were to be ratified it would, “raise GDP in member countries by an average of 1.1 per cent by 2030. It could also increase member countries’ trade by 11 per cent by 2030, and represent a boost to regional trade growth, which had slowed to about 5 per cent, on average, during 2010-14 from about 10 per cent during 1990-07.”
Counterpoint
New Zealand Prime Minister Jacinda Ardern, had once expressed concern of how, “If the United States, it turns out, do genuinely wish to re-join, that triggers a whole new process.” Members of the TPP-11 have renegotiated the deal to suspend 22 provisions that the United States had favoured, including chapters on investment.
For the CPTPP to take into effect, Australia’s decision should not be delayed. To ensure that the tariff reductions that are promised come into play within the coming year, the agreement has to take force. It is essential because if the deal kicks in on December 31, the second round of tariff reductions for most countries can come the next day. Otherwise, nations would have to wait.
Assessment
Our assessment is that Canada’s signing off signals a positive outcome for the CPTPP. Both Japan and Canada now represent the two biggest economies of the agreement. However, we believe that Australia’s decision is crucial otherwise beneficiaries of the agreement would have to face delays for trade reductions. We feel that US’s withdrawal from the trade agreement could in the future lead to a re-negotiation on their own terms. Specifically, due to the massive economic benefit of the US’s contribution to the TPP.
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