Written by Hugh Stephens.
Image credit: Canadian Prime Minister Justin Trudeau by World Bank Photo Collection/ Flickr, license: CC BY-NC-ND 2.0.
As Canada works to develop and roll out its new “Indo-Pacific Strategy,” its membership in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) has become a cornerstone in the strategy’s thrust of diversification in Asia away from China. This is part of a perennial concern to find new markets to help offset Canada’s high degree of trade dependence on the United States. Closer economic relations with Taiwan will likely be one outcome of this strategy, although China will remain an important factor.
It is somewhat ironic that the key asset of CPTPP membership came about less from Canada’s desire to engage more directly in an Asia-Pacific trade agreement than from a desire to protect its market access to the United States through NAFTA. Canada initially showed no interest in the Trans-Pacific Partnership’s predecessor, the so-called “P4 Agreement,” because it felt it had little to gain in terms of trade access. Likewise, when the Trans-Pacific Partnership (TPP) negotiations emerged out of the P4 structure in 2008, Canada expressed little interest, one factor being the perceived domestic political need to continue to protect Canada’s exclusionary supply-managed dairy sector. Only when it appeared that a successful TPP might threaten Canada’s preferred access to the U.S. market did the Canadian government express a desire to join a negotiating process that was by this time already well underway. Access to Asian markets was not the key factor driving this policy change. Through intensive political lobbying, Canada finally joined the TPP negotiations in 2012 and became one of the signatories when a final agreement was achieved in 2015.
Despite its promise of trade gains and new rules to deal with behind-the-border protectionist measures, the TPP was controversial in many countries, including Canada. Shortly after Canada signed the TPP Agreement, there was a change of government in Ottawa. The new Liberal regime led by Justin Trudeau was decidedly cool to the TPP—which had been signed by its predecessor, the Conservative government of Stephen Harper—especially given ambivalence toward the Agreement in the United States, one of its principal authors. To define their own approach to international trade, the Liberals devised what they labelled a “progressive” trade policy that would be more inclusive, emphasising the importance of environmental and labour concerns, gender considerations, indigenous rights and a “values-based” approach to trade, the latter being code for human rights. The thinking behind “progressive trade” emerged from Canada’s ongoing trade negotiations with the EU.
“Progressive” Agenda Became Obstacles
After Donald Trump won the U.S. presidential election, he promised to terminate U.S. membership in the TPP. This was an action he took almost immediately after taking office. Canada was then faced with the dilemma of accepting that the TPP was “dead” or participating in the Japan-led initiative to keep the Agreement alive without U.S. membership. Given the potential gains from preferred access to the Japanese market, Canada considered it beneficial to try to stay in the pact. However, there were still traditional concerns over supply management, protecting Canada’s auto industry, and securing a full exception for cultural policy measures, as well as a desire to promote the progressive trade agenda. Although the revised TPP-11 agreement was to be based on the final TPP-12 text, absent provisions that related specifically to the United States, Canada hoped to bring in additional changes. That process did not go well.
It had been difficult to agree on the TPP text, requiring over 20 negotiating rounds. Moreover, with such a complex agreement, once one of the partners sought to roll back commitments or propose new initiatives, unravelling could occur, and the entire carefully balanced structure could collapse. Besides, Canada’s “progressive trade” agenda had limited appeal for many existing members. Vietnam, for example, was wary of making more commitments on labour issues. Indeed, references to gender and trade had little appeal in some Asian members, and indigenous trade issues were not relevant for members without significant minority indigenous population groups.
Nonetheless, a broad consensus appeared to be reached after several rounds of meetings among officials and trade ministers. The stage was set for a ceremonial signing of an “agreement in principle” at the APEC Leaders’ summit to be held in Danang in November 2017. However, either through a genuine misunderstanding or a mishandling of communications, Justin Trudeau was not ready to sign anything and became a “no show” at the ceremony, resulting in an awkward and embarrassing last-minute cancellation. If the Australians were furious, the Japanese were somewhat more restrained but made it clear that if Canada was not ready to join the CPTPP, the others would proceed as a pact of ten.
Shortly after the diplomatic imbroglio at Danang, Trudeau was in Beijing for what was widely anticipated to be a formal launching of bilateral Canada-China free trade negotiations. But, as in Danang, what was widely expected to occur did not happen. Instead, the culprit was once again the “progressive trade agenda.”
The Chinese wanted nothing to do with the parts of the progressive package they considered extraneous to trade. With the prospect of an early launch of Canada-China talks set aside and Japan was threatening to proceed with CPTPP completion without Canada, a more realistic assessment of Canada’s goals took place in Ottawa. Officials were dispatched to Tokyo to mollify the Japanese, and CPTPP negotiations resumed, but the progressive agenda was not adopted. However, the word “Progressive” was added to the title of the TPP-11 agreement. Canada set out to negotiate side letters with all members on its cultural exclusion policies and with Japan on automobile trade. After completing these largely cosmetic changes, Canada was finally ready to sign on. It had been a tortuous road to get to “yes.”
China As an Important Factor
With the CPTPP finally fully embraced by the Trudeau government, Canada became one of the original six countries to ratify the agreement, allowing it to come into force on December 30, 2018. Unfortunately, Canada’s ratification had occurred just prior to a major downturn in Canada-China relations arising from the arrest at Vancouver airport of senior Huawei executive Meng Wanzhou on a U.S. Department of Justice warrant alleging bank fraud for violation of U.S sanctions legislation. If Meng’s arrest was a setback for Canada-China relations, Chinese retaliation a few days later by arresting two Canadians, Michael Kovrig and Michael Spavor, on national security charges, pushed the Meng affair into a full-blown crisis. China also took various trade actions to punish Canada. There had been limited prospects for a bilateral Canada-China agreement before Meng’s arrest. Now, the chances seemed nil. While the Meng/Michaels affair was eventually resolved, Canada-China relations are unlikely to recover for a considerable period of time. Bilateral dialogue is minimal. This has implications for Canada’s position on the expansion of the CPTPP.
Given China’s increased military assertiveness, weak human rights record, and record of weaponising trade combined with the bitter aftermath of the Meng/Michaels case, the Canadian government has accepted there is no longer any reasonable prospect for a Canada-China FTA in the foreseeable future. This reality has reduced one of the unspoken constraints holding back further development of Canada-Taiwan economic relations, although the “China factor” is still present. The cooling of Canada-China relations, combined with the application of Taiwan to join the CPTPP, offers a way forward for Canada to agree on market-opening measures and disciplines with Taiwan in concert with other CPTPP members. However, it will be difficult for Canada (and other CPTPP parties) to agree to begin accession negotiations with Taiwan while not agreeing to the same for China, given China’s concurrent application for CPTPP membership.
Assuming that China is prepared to undertake the market reforms necessary to meet CPTPP standards, Chinese accession would be a way for Canada to advance market opening discussions with China while avoiding direct bilateral talks. However, this situation could trigger the “poison pill” Article 32.10 of the new NAFTA Agreement (the USMCA, called the CUSMA in Canada). Moreover, it could be unpopular with the Canadian public. Article 32.10, inserted at U.S. insistence in the CUSMA, effectively threatens to dissolve the new tripartite agreement if one of the Parties enters an FTA with China over the objections of the other two CUSMA partners.
Thus, parallel negotiations with China and Taiwan would seem to be the logical course depending on the position taken by other CPTPP members. However, if negotiations with Taiwan progress faster than those with China, CPTPP members will face the difficult choice of whether to accept Taiwanese membership while rejecting China. On the other hand, the Taiwanese willingness to meet CPTPP standards could induce China to up its game. Thus, the virtually simultaneous applications for membership by China and Taiwan present current CPTPP members with both a dilemma and an opportunity; a dilemma in navigating the complex China-Taiwan relationship within the parameters of the CPTPP but also a chance to expand the reach of the Agreement while nudging China toward greater acceptance of CPTPP disciplines and market-opening measures.
Hugh Stephens has more than 40 years of government and business experience in the Asia-Pacific region. Based in Victoria, BC, Canada, he is Distinguished Fellow at the Asia Pacific Foundation of Canada and Vice-Chair of the Canadian National Committee on Pacific Economic Cooperation (PECC). Before returning to Canada in 2010, he was SVP (Public Policy) for Asia-Pacific for Time Warner, based in Hong Kong, after a career of 30 years in the Canadian Foreign Service. While with Foreign Affairs, Mr Stephens served as Assistant Deputy Minister for Policy and Communications and served at six Canadian missions in Asia, including as Canadian Representative in Taiwan. He has written extensively on Asia Pacific trade and investment issues and on intellectual property topics and has commented frequently in the Canadian media. In addition, he writes a weekly blog on international copyright issues under the title www.hughstephensblog.net.
This article was published as part of a special issue on “Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”