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Terence Corcoran: Big TTP trade deal – no boon to free trade

2016-02-27 11:22:11

Prime Minister Stephen Harper appears set to launch the Conservative election campaign on Sunday, buoyed by the expected signing of what its boosters are calling “the biggest trade deal in history.” Once signed, the Trans-Pacific Partnership — linking Canada, the United States, Australia and nine other nations rimming the Pacific Ocean — will certainly be seen as the capstone of the Harper government’s trade agenda.

Whether all Canadians should be as pleased as Mr. Harper with the deal is another issue. For Canada, joining the TPP is rightly seen as a solid, geopolitically strategic necessity in a world of changing trade patterns and rising powers such as China. Less clear are the benefits to the Canadian economy, and individual Canadians, of a trade super-deal that leaves much of Canada’s existing trade-hampering regime in place.

The TPP may be a trade deal, but free trade is not immediately at hand. Free trade implies open and easy movement of goods and services around the world, free of tariffs and other barriers. The final agreement, if it is signed this weekend, will cover thousands of pages whose details may not be known for months. After five years in the making, however, the giant lumbering TPP contraption looks like one of the Imperial Walkers from Star Wars — a lumbering, bureaucratically designed nightmare of dubious effectiveness.

As for trade and tariffs, Canadians paid $3.5 billion in custom duties on imported goods in 2009. By 2014, the duty total had increased almost 30 per cent to $4.5 billion, heading to $5 billion this year. That money flows directly into federal coffers, a budget-boosting tax that will not disappear as a result of TPP.

Vancouver-based trade economist Jingliang Xiao estimates that TPP could cut about $400 million off the tariff total — but only by 2030, due to the slow-moving liberalization process. The biggest reduction would come in imports from Vietnam ($200 million) and Japan ($200 million) by 2030 from 2014 levels.

The reason for the long lag in actual dollar impact is that TPP follows the international trade practice of loading barrier reductions, especially tariff cuts and agricultural marketing reforms, off into the long-term future. Usually three or four general elections into the future.

As the TPP negotiations intensified prior to the final sessions now underway in Hawaii, the usual topics of public bickering dominated coverage and commentary. Would Canada cave on supply management of farm products? Would the U.S. play hardball on sugar and autos and the environment? Will Japan get the U.S. to bend on auto import issues, and vice-versa? Will intellectual property provisions kill innovation and free expression?

None of the above is likely. No knowledgeable observer expects Canada will be forced to cave on supply management, despite the claims of farm lobbyists and the constant media reports of looming political standoffs. Canada reached a trade deal with Europe that included only modest increases in quotas for imports of cheese products but left 300 per cent tariffs in place. Nothing more dramatic can be expected out of TPP.

Canada’s supply management for farm products has never really been at risk. It’s not even clear why other countries would care all that much about Canada’s farm protectionism since one of its consequences is a farm sector that is uncompetitive internationally. So long as supply management is in place, Canada is no threat to other nations.

Most of the clatter over farm and other hot topics is in many ways a diversion. The 2.5 per cent U.S. tariff on Japanese cars has been under negotiation for years. Instead of removing the tariff and getting on with free trade, U.S. and Japanese negotiators are said to have settled on phasing out a 2.5 per cent tariff over 20 years. In return, more Japanese rice might make it to the United States.

(Source: Financial Post)