A TPP deal on the horizon?

A successful outcome to the current negotiations around a Trans-Pacific Partnership (TPP) rests on the leadership of Japan and the United States.

The U.S. and Japanese governments have held multiple bilateral meetings to find a way forward. And it was recently reported in the media that the gap between the two countries is narrowing.

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Whether we can expect a positive outcome for TPP over the next few months or not, Canadian agriculture should prepare for the eventual outcome.

There are some critical pieces missing before the TPP can be concluded. One important issue is Trade Promotion Authority (TPA), commonly referred to as “fast-track”. This is the U.S. process through which a trade agreement can be submitted to the U.S. congress for a straight yes or no vote. It bypasses the usual procedures that can hang deals up, sometimes for years.

Here’s an alternative scenario without the TPA: An agreement submitted to the U.S. Congress for approval is dissected according to each lawmaker’s preferences. The potential trade partners including powerful countries like Japan (or Canada for that matter), wouldn’t have made their best offer knowing the negotiation outcome could be rejected by U.S. lawmakers. It is difficult to envision a TPP deal without prior ratification of TPA.

Congress currently seems to be receptive to the idea of granting TPA to President Obama, and not coincidentally, we see the convergence of Japanese-U.S. trade discussions.

TPA aside, there are other issues still to resolve that will impact Canadian agriculture.

1.       Tough negotiations are needed around protected sectors, negotiations that are sure to take more time to complete. The U.S. wants Japan to open market access to red meats, grains and oilseeds, as it cautiously proceeds with a few sensitive sectors of its own (rice, sugar, and dairy).

2.       A TPP deal could address potential exports of dairy products from New Zealand, creating tariff-free market access for NZ butter. It’s not clear how this might impact the Canadian market.

3.       Opening up market access for red meats could be an important gain for Canadian pork exporters. But the Japanese border system is highly complicated. With a pretty low tax (4.3 per cent) applied to Canadian pork exports, Japan has other mechanisms in place to shield their pork market from foreign competition. A “gate price” is applied when import prices fall below a threshold, automatically raising the border price of foreign pork. 

These are just some of the issues. We just don’t know yet how Japan will react.  Will it be willing to revise this system?  Or, will their legislators implement safeguards (in other words further trade restrictions) if reforms lead to substantial imports?

There are more questions at this time than answers. Stay tuned because we’ll have more on the negotiations in the weeks ahead.  

 J.P. Gervais, Chief Agricultural Economist