What does Prime Minister Justin Trudeau mean for TPP and CETA?

by Mara Chadnick

“This deal is, without any doubt whatsoever, in the best interests of the Canadian economy”, said Stephen Harper regarding the Trans-Pacific Partnership. Throughout Harper’s duration as Prime Minister of Canada, the Conservative government focused on expanding Canada’s regional trade agreements, most significantly through the Trans-Pacific Partnership (TPP) and the Canada and European Union Comprehensive Economic and Trade Agreement (CETA). However, on Monday October 19, 2015, a new Liberal Majority government was elected in Canada.

Negotiations for both the TPP and CETA are concluded, but the agreements must still be signed and ratified, and so their futures are uncertain. With the futures of CETA and TPP in question, it is an interesting time to compare these two massively ambitious trade agreements that Prime Minister Justin Trudeau is inheriting. Both TPP and CETA aim to lower tariffs, eliminate trade barriers, create jobs, and establish investor-state dispute resolution mechanisms. They have many notable similarities yet also vital and fundamental differences.

Canada began negotiating CETA with the European Union (EU) in 2009. At the Canada-EU Summit on September 26, 2014, the two parties finalized negotiations and released a text of the draft agreement to the public, but the agreement is not expected to come into effect for another two years at the earliest and must be approved by the Council of the European Union and the European Parliament. It is undetermined whether each EU member state must also approve the deal. This contentious agreement has been hailed as the most ambitious trade agreement for Canada. The EU is Canada’s second largest trading partner, after the United States, but Canadians are divided in their reactions to CETA. In particular, exporters praise the deal while dairy farmers oppose it.

The TPP’s negotiations concluded on October 5, 2015. This agreement between 12 countries includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. As with CETA, there are avid advocates and critics of the TPP. The Department of Foreign Affairs, Trade and Development views the TPP as a way to increase Canada’s economic position in the Asia-Pacific region, which it believes will comprise half of the world’s gross domestic product in 35 years. Opponents focus on the potential harm to certain Canadian industries and the perceived risks of trade with less developed countries.

Canada’s role at the negotiation table has been a hot topic in discussions of both agreements. Unlike in the TPP, where Canada took a back seat in the negotiation process, Canada was one of only two parties negotiating CETA and consequently was highly involved in the negotiation process. Critics of Canada’s lack of involvement in the negotiations of the TPP blame its less active role on the agreements’ insensitivity to certain Canada-specific issues. But since CETA has also been criticized, it seems the main concerns are about negotiations taking place in secrecy and lacking transparency. Critics are expected to continue to use the secrecy of the negotiation process as a way to challenge the legitimacy of the TPP and CETA. Perhaps Prime Minister Trudeau will be more transparent in his discussions of the ratification process and this will ease critics’ concerns.

For the most part, TPP and CETA have been praised by Canadian exporters, especially in the beef and pork sectors, and criticized by Canadian dairy farmers. Advocates hail CETA for opening a huge market for Canadian exporters by removing EU tariffs on a wide range of Canadian products. Proponents of the TPP are excited by the prospect of more trade with the Asia-Pacific region, who promises to cover half the world’s GDP in the near future. For example, Canadian pork exporters view Japan in particular as a growing potential export market. This is especially promising for the pork industry that has suffered recently with sanctions from the United States. When referring to the TPP, Manitoba Pork Council General Manager, Andrew Dickson, said “This sends a positive signal for our ability to market more pork into these markets” (Winnipeg Free Press)[i].

Opponents of CETA are concerned the agreement will be more beneficial to the EU than to Canada. According to an internal EU analysis of the agreement, EU exporters will save more than $670 million annually in duty payments compared with about $225 million saved annually by Canadian exporters[ii]. There is concern that CETA will harm Canadian dairy farmers by doubling the annual amount of cheese that EU countries can export to Canada. The Canadian government has promised to “monitor impact and, if needed, provide compensation should a negative impact be observed” (DFATD).

Dairy farmers have also been active critics of the TPP, despite the agreement granting dairy farmers $4.3 billion in federal government compensation. It is unclear whether this compensation will form a baseline for compensation for CETA and other trade agreements and of what this could mean for the future of Canada’s protected supply management industries.

As economies and societies become increasingly connected through regional trade agreements, demand for “regulatory harmonization” across borders increases. Neither CETA nor the TPP intend to harmonize regulations, however concerns remain. Unlike CETA, the TPP does not only include highly developed countries. Throughout the TPP negotiations, Canadians raised concerns over child labour, worker protection, and regulatory standards in poorer member countries. Though CETA does not have these problems, Canadians remain concerned that harmonization of social, health and environmental policies through CETA will lower standards domestically. In a way, CETA engages regulators to push for harmonization as parties can make requests for recognition of certain standards and policies on a case-by-case basis.

Investor State Dispute Settlement (ISDS) is a mechanism similar to that created in NAFTA Chapter 11 that has been included as part of the TPP and CETA. ISDS allows investors to use dispute settlement proceedings against a foreign government, and has been a contentious subject throughout negotiations of both the TPP and CETA. Critics worry that creating a process through which corporations can challenge a democratic government fundamentally undermines a state’s inherent democracy. There is a fine line between creating investment and economic growth globally and maintaining a state’s right to legislate in sacred areas, such as health and the environment. There are mechanisms in place within the agreements to address these kinds of concerns, for example sanitary and phytosanitary concerns. There is a chapter within the TPP on Sanitary and Phytosanitary Measures, which maintains each Party’s right to take SPS measures necessary to protect against risks such as food safety or health[iii]. However, despite measures like this being in place, concerns remain. For example, with regards to CETA, many EU countries, in particular Germany and France, are critical of the ISDS aspect of CETA. They assert that countries with robust legal systems should not require ISDS.

The TPP and CETA are both years away from ratification and implementation. CETA requires approval by the Council of the European Union, the European Parliament and may even require independent support from each member state in addition to approval by the Canadian government and provinces. The TPP must be signed and ratified by each of the 12 countries involved. It remains to be seen how Prime Minister Trudeau will respond to these agreements and what these agreements, with their similarities and differences, mean for Canada.

[i]  Cash, Martin (2015), “Manitoba Pork and canola producers happy with TPP agreement”, Winnipeg Free Press, October 5.

[ii] Blanchfield, Mike and Beltrame, Julian (2013), “CETA to give European exporters bigger duty savings than Canadians”, The Globe and Mail, October 29, 2013.

[iii]  Foreign Affairs, Trade and Development Canada (2015), Trans-Pacific Partnership; Sanitary and Photosanitary Measures, October 4.

 


 

Mara Chadnick is a lawyer passionate about international trade. Mara was called to the Bar of Ontario in June 2015, after working as an articling student at a boutique international trade law firm in Toronto. While pursuing her legal education, Mara worked as a legal intern at the Canadian Embassy in Washington DC and spent two summers working at the Canadian Radio-television and Telecommunications Commission. Prior to law school, Mara completed her Honours Bachelors Degree in Political Science from McGill University. Mara has a wide range of academic interests, however, she focuses on foreign affairs, international trade, and public policy.