The members of the Trans-Pacific Partnership have just concluded a round of trade negotiations in Auckland, New Zealand. The group comprises 11 countries—Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam—and represents a market of nearly 658 million people with a combined GDP of $20.7 trillion.

This is also the first negotiating round to include all three NAFTA parties: Canada, Mexico and the United States. Can the TPP succeed where the NAFTA has failed and help rebuild North America’s global competitiveness?

Canada’s (and Mexico’s) most important interest in the TPP is to prevent preference erosion, i.e. ensuring that those benefits negotiated in the NAFTA are not diluted to other TPP parties without commensurate benefits. Similarly, Canada and Mexico have already done the hard work required to integrate their rules and standards to those of the U.S. Other TPP members will have to undertake greater reforms to catch up to U.S. market access and non-tariff demands, giving Canada and Mexico an advantage – at least in the short term.

The second most important aspect of the TPP is that it is the trade equivalent of the iPhone 5. Canada’s trade regime is based on a NAFTA template that has not been upgraded in any significant way since 1993. The TPP is an opportunity to explore emerging areas of trade including WTO-plus intellectual property commitments, new disciplines on state-owned enterprises, labour mobility, standards and technical barriers, origin cumulation, and new modes of services trade, particularly in transportation and communication.

The TPP is part of a continuum of trade negotiations focused on new issues that includes the Pacific Alliance and the ASEAN Plus 6. The TPP is not as nimble as the Pacific Alliance (a group of forward-leaning Latin American traders with Canada, Australia and New Zealand as observers) and not as powerful as the ASEAN Plus 6, which includes China, Japan, South Korea, India, Australia and New Zealand. But, the TPP is the negotiation “most likely to succeed.” The U.S. has made a significant investment in the success of these negotiations and the U.S. (unlike Canada) tends to finish its negotiations.

With new members including Thailand and the Philippines entering the TPP stage, Japan is the wild card. If Japan’s fragile political consensus for TPP membership can be sustained long enough to get them to the table, their entry will significantly affect the pace and scope of the negotiations. Other TPP members, particularly the U.S., have indicated a willingness to give Japan special treatment on sensitive sectors in exchange for the participation of this important and previously FTA-shy economy.

Beyond its defensive interests, the TPP is a central component of Canada’s Asian and emerging markets strategy. Much of 2013 will likely be spent reconciling the trade rule-making interests and capacities of advanced industrialized economies with those of emerging economies such as Vietnam and Peru. Advanced economies like the U.S., New Zealand, Australia and Canada will bump up against each other on issues like investor-state dispute settlement and dairy market access, but there will be relatively few fireworks. In areas like intellectual property and labour mobility, the commitments that Canada is making with the EU are likely to go much deeper than anything we can expect from the TPP.

The Trans-Pacific Partnership has impressive ambitions but it is not clear whether ambitions will match reality. The research team at Dawson Strategic is keeping an eye on the negotiations and on progress in sectors of interest to our clients. We’ll be sending out updates from time to time. Feel free to share the DS TPP Letter with others who might be interested. If you have particular issues of concern in the TPP or other trading subjects, give us a call at (613) 276-4059 or email ldawson@dawsonstrat.com or sbartucci@dawsonstrat.com.