Signatories to the Transpacific Trade Partnership will need to modernize their logistics practices
Canada’s recent signing of the Transpacific Trade Partnership (TPP) treaty with 11 other countries is a dramatic step on its own. But when combined with our earlier inking of the Comprehensive Economic Trade Agreement (CETA) involving the 28-member European Union, upon ratification of both agreements, it will create stronger links with markets totaling almost 1.5 billion consumers across two oceans.
The 12-nation TTP group includes our NAFTA partners the US and Mexico along with nine other Pacific Rim countries ranging from established economies such as Australia and New Zealand to Japan. More important, it also includes emerging markets in South America – Peru and Chile, as well as several southeast Asian nations, Malaysia, Vietnam, Brunei and Singapore. Many economists forecast that several of these countries will become drivers of future global economic growth.
In September, Global Affairs Canada, formerly known as the Department of Foreign Affairs Trade & Development (DFATD), concluded that Canadian agricultural products would gain from tariff elimination and improved market access especially in Japan, Malaysia and Vietnam. Their combined population totals almost 250 million people. Our exports of fish and seafood products currently face tariffs of up to 15 per cent in Japan and Malaysia. In Vietnam, the ceiling is 34 per cent. After TPP ratification, such exports are expected to soar as the middle classes in the latter two markets upgrade their diets.
As for imports, raw milk will not move across the border leaving Canada’s dairy industry supply management system intact. The TPP fluid milk import agreement also requires 85 per cent of imports to be processed at facilities in Canada.
In the crucial automotive sector, Japanese cars will enter Canada duty free within five years of TPP ratification. As for auto parts, the new standard requires that 45 per cent of their cost must be based in a TPP member.
Expanding two-way, trans-Pacific trade will exert greater pressure on Canada’s transportation & logistics processes and infrastructure.
At a recent Chartered Institute of Logistics and Transport in North America (CILTNA) conference, Jeff Heynen, director, Trade Policy, Transport Canada concluded that despite TPP’s ambition, in general, it will have less impact on the transport sector relative to CETA.
However, he contends that TPP will extend NAFTA’s openness on Specialty Air Services (SAS) to other TPP parties on a reciprocal basis. As well, the agreement recognizes the importance of “demonstration effect” on future FTA rule making, e.g., disciplines on state-owned enterprises, which are major players in many Asian economies.
According to CILTNA president Bob Armstrong, “The investments and collaborative efforts of successive federal and Western Canadian provincial governments under the Asia Pacific Gateway initiative will help the Canadian transportation industry position itself to take advantage of the TPP. But it will be important to ensure improving efficiency while smoothing out delays at the Canada-US border so we can remain competitive in this broader trade environment.”
More specifically, Washington, DC-based international trade lawyer Gary Horlick concludes that all TPP signatory countries will need to build new infrastructure and modernize relevant processes. Here at home, he pointed out that North American railways must add more refrigerated cars to handle increased traffic in fresh and frozen meat and seafood products.
As a result of Japan’s decision to reduce tariff on beef imports from 38.5 per cent to 9 per cent over 15 years, Horlick foresees a need for more slaughterhouses in Western Canada, more specialized refrigerated transport and better handling facilities at ports.
He also predicts that Vietnam will replace China as the go-to source for everyday consumer goods such as clothing thanks to its lower production costs, especially land and labour. Among other things, the US removal of its existing 32 per cent tariff on Vietnam-made apparel will open up opportunities for North American engineering, consulting and construction firms to design and build new road, canal, and airport and harbour projects throughout South-East Asia.
Closer to home, Mexico will continue to rival China as a source for large machinery and other manufactured goods thanks to its lower costs and more predictable delivery schedules. The country is already aggressively expanding and modernizing its transportation network.
Signing an international trade agreement is merely the first hurdle in opening up markets between countries. Ratifying the deal is often a different and more challenging task. Yet Horlick predicts that the road ahead for TPP ratification may be smoother than the one CETA faces.
He says, “For TPP, if after two years not all signatories have ratified the agreement, it can come into force if at least six original signatories whose economies represent 85 per cent of the group’s total GDP say yes. Since the US and Japan alone represent just shy of 80 per cent of the group’s total GDP, if they agree that’s it.”
Despite negative headlines to the contrary, Horlick contends the US will ratify. “That’s because they there are more than 700,000 cattle ranches across the 50 states which, thanks to reduced tariffs will sell more beef in Japan. Politicians on both sides cannot ignore such support.”
After the TPP agreement is ratified, it will be one international trade treaty down and one more to go.