What Can the TPP Offer Canada? Not Much.
When Canada joined the Trans-Pacific Partnership talks in 2012 it did so somewhat reluctantly and, like Mexico, with strings attached. One of them was that Canadian negotiators could not reopen any closed text. So, in this sense, it’s been a bit of a raw deal for the Obama administration’s NAFTA partners from the beginning. Canada’s bigger business lobbies called it a defensive move, to “secure” NAFTA supply chains rather than offering any meaningful market access elsewhere. The Canadian public have almost no idea what’s going on. But as TPP countries appear to be close to the end game, people here are starting to ask the obvious questions: what’s in it for us, and what will we have to give up to get it. The answers are equally obvious if you look past the hype: not much, and quite a lot.
To begin with, Canada already has free trade deals in place with four of the larger TPP countries (Peru, Chile, the United States, and Mexico), and tariffs on trade with the others—representing 3 percent of imports and 5 percent of exports—are very low. Canada has a trade deficit with these non-FTA countries of $5 to $8 billion annually, and 80 percent of Canada’s top exports to these countries are raw or semi-processed goods (e.g., beef, coal, lumber), while 85 percent of imports are of higher value-added goods (e.g., autos, machinery, computer and electrical components). This Canadian trade deficit will likely widen if the TPP is ratified, as the United States found two years into its FTA with South Korea.
Tariff removal through the TPP is therefore likely to worsen the erosion of the Canadian manufacturing sector and jobs that has been taking place since NAFTA—a result, in part, of the limits free trade deals place on performance requirements and production-sharing arrangements. NAFTA-driven restructuring did not even have the promised effect of raising Canadian productivity levels, which languish at 70 percent of U.S. levels twenty years into the agreement. Instead, Canada has experienced greater corporate concentration, a significant decline in investment in new production, and rising inequality.
In short, there is little trade expansion upside for Canada in this negotiation. And yet the Canadian public will eventually be asked to make considerable public policy concessions to see the TPP through. As many U.S. commentators have argued, the trade impacts of TPP are far less important than the serious concerns it raises about excessive intellectual property rights, regulatory harmonization, and the perpetuation of a controversial investor-state dispute settlement (ISDS) regime that has been extremely damaging to democratic governance globally, not to mention quite humiliating for Canada.
Drug pricing – The intellectual property rights chapter of the TPP could prove a minefield for efforts to control drug costs in Canada. To cement a pending FTA with the European Union, Canada has already agreed to patent term extensions that will add an estimated $800 million annually to Canadian drug costs, which are already the second highest in the world. Now, the TPP threatens to lock in patent linkage, looser patentability requirements (e.g., of “me-too” drugs) and longer periods of data protection in ways that will further interfere with cost-saving reforms.
According to the leaked “regulatory transparency” annex, the United States has also proposed new rules that would undermine drug cost containment policies by requiring governments to set reimbursements according to either market-based prices or the value of a patent. While these restrictions, which are aimed primarily at New Zealand’s highly successful drug pricing regime, will only apply at the federal level in Canada, they are a crude and highly objectionable intrusion into domestic public policy that will complicate efforts by future governments to control costs and implement national pharmacare programs.
Copyright and trademarks – TPP copyright rules would require far longer terms of copyright protection, based on the U.S. model (perhaps as a sign of good faith, the federal government extended copyright terms for audio recordings from 50 to 70 years in its latest budget implementation bill), and could require protection for controversial practices such as “digital locks,” which allow copyright holders to encrypt software in computerized devices. Trademarks have been the central focus of tobacco plain packaging litigation, and the industry is fighting for stronger trademark protection under the TPP.
Free flow of information – In an e-commerce chapter, the United States is reportedly insisting on rules to prohibit countries from requiring that personal information be stored on national databases. The allure of cloud computing aside, there are good reasons why a country might require tax, healthcare, or financial data to be stored locally. Treating all information as a kind of private commodity that companies could move when and where they like has considerable implications for privacy.
Increased protection for corporations – Leaked text confirms that the TPP includes an investor-state dispute settlement (ISDS) mechanism modelled on NAFTA chapter 11 and now found in thousands of bilateral investment treaties globally. The process gives foreign investors an exclusive get-out-of-court-free card allowing them to take their disputes with government decisions (policies, legislation, even the final rulings of the courts) to private arbitration. Canada is already the most sued developed country in the world—Canada has absorbed more investor lawsuits than Mexico—because of NAFTA’s ISDS process, having lost seven cases and paid out damages of $190 million. There are eight active claims against Canada, with one of the most notorious involving a challenge to a freeze on oil and gas fracking in the province of Quebec.
The TPP will significantly increase the number of foreign investors eligible to sue Canada, or the United States for that matter, in this way. The United States has yet to lose an investor-state case, which is almost certainly due to self-interested calculations on the part of the exclusive arbitration industry club. But if the Obama administration embraces ISDS in the TPP, and later the Transatlantic Trade and Investment Partnership (TTIP), it might give the private, for-profit arbitrators who hear these cases the confidence to rule against U.S. regulations, without fear of bringing down a system that is so lucrative for them.
A recent Canadian NAFTA ISDS loss shows how unfair and skewed the process is. In that case, an arbitration tribunal ruled 2-1 that an independent environmental assessment process, which resulted in a U.S. investor (Bilcon) being denied a permit to dig a massive quarry in an ecologically sensitive region of Nova Scotia, violated NAFTA’s chapter 11 investor protections related to national treatment (because similar Canadian projects had been approved) and fair and equitable treatment (because the tribunal determined, incorrectly, that Canadian environmental laws had not been followed). The dissenting member on the NAFTA tribunal called this finding “a remarkable step backwards” for environmental protection. Bilcon is now seeking over $300 million in damages from the federal government.
Supply management – One of the most difficult issues for Canada in the TPP negotiations concerns the fate of its supply-managed agricultural sectors. Supply management matches domestic supply to domestic demand and in the process offers a fair return to farmers and a reasonably priced supply of fresh milk, eggs, and poultry to consumers. Farmers and consumers in countries and sectors without supply management systems are subject to wild swings in commodity prices, and producers have little ability to negotiate reasonable returns or prices with giant global agribusinesses. Unlike many U.S. agricultural sectors, Canada’s dairy, poultry, and egg farmers are not subsidized by government, since the price consumers pay at the grocery store includes production costs and a fair return for primary producers.
The Canadian government has been holding back on making an offer on market access for dairy until the last possible minute. But U.S. negotiators have made it clear that they expect substantial access for all dairy products as well as for poultry. New Zealand and Australia are also insisting on substantial market access for dairy, even though the former has no intention of undercutting the single-desk marketing power of its only dairy exporter, Fonterra.
Cultural protections – The United States and its entertainment industries have always strenuously opposed Canadian efforts to exclude cultural industries and policies beyond the standard exclusion for audio-visual services. The TPP could erode Canadian cultural protections such as foreign ownership restrictions in broadcasting and publishing.
The TPP talks have dragged on for a long time, but they are now in their end game. In a recent but little-reported speech, Canadian Prime Minister Stephen Harper stressed that Canada could not “hold up the TPP on its own,” even if it is unhappy with the results, and that Canadians must prepare for some “difficult choices.” Canadian progressives are watching the Obama administration’s efforts to get Trade-Promotion Authority and hoping that they will falter. If the administration succeeds, Canada, like other TPP countries, will feel pressured to make economically and socially harmful concessions just to save face. It is uncertain how the Canadian public would respond to such a poor bargain at the polls. The federal government is probably just as reluctant to have to make that decision prior to an expected October federal election as it was to enter into the TPP negotiations to begin with.