Expanding market access in the Asia-Pacific: What you need to know about Canada’s newest trade deal

April 4, 2018

With a relatively small domestic market, Canada’s prosperity is fundamentally linked to the global economy. The growing market in the Asia-Pacific represents a key opportunity, and the CPTPP has the potential to be a cornerstone of that opportunity.

While Canada represents roughly 0.5% of the world’s population, we account for 2.5% of the world’s total merchandise exports. For our businesses to succeed, Canada must continue to trade with the world and encourage investors to set up shop in our communities.

As of late, however, concern over trade and investment has risen considerably. Our North American trading relationship hanging in the balance paired with recent U.S. tax reform, along with our own regulatory barriers and reforms, present significant question marks over the future of investment in Canada.

One of the ways Canada can show the world that we are open for business is to continue to increase our trading ties and enhance supply chains around the world.

The Asia-Pacific: A growing opportunity for Canadian business

The robust growth across much of the region, the rapidly growing middle class and its growing demand for goods and services offered by Canadians, along with an increasingly integrated regional economy makes the Asia-Pacific an attractive place to extend our trade ties.

Historically, little progress has been made to formalize trade agreements with these growing markets. As a result, Canada is falling behind other countries for market access. For example, Canada has one trade agreement in place in Asia, whereas Chile has twelve.

However, on March 8, 2018, with the signing of the Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP), Canada took a significant step toward diversifying our markets and expanding trade in the Asia-Pacific.

The Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP)

The CPTPP will provide Canadian businesses preferred market access to 10 Asia-Pacific countries, including Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

CPTPP countries account for 13.5% of global GDP, and represent Canada’s third largest trading partner – behind the United States and the European Union.

Along with traditional areas of trade – general goods and services – the CPTPP covers significant areas of the modern economy including digital trade, intellectual property rights, state-owned enterprises, non-tariff trade barriers, labour, and the environment.

With all countries signing the agreement on March 8, 2018, each country must now undertake its own domestic ratification process. For Canada, this will include further public engagement, tabling the agreement in Parliament, and the introduction of the implementing legislation. The CPTPP comes into effect sixty days after six of the eleven member-countries ratify.

The economic benefits of the CPTPP

Projections by Global Affairs Canada estimate the CPTPP will provide $4.2 billion to Canada’s economy by 2040.

90% of tariffs are being cut as soon as the CPTPP comes into force. The newly signed agreement would provide Canadian exports with tariff savings in the seven new partner countries (Canada already has agreements with some members) of about $428 million per year, with the bulk coming from Japan, Vietnam, and Australia.

Preferential market access will also provide a level playing field for Canadian businesses compared to competitors who previously negotiated free trade agreements within the Pacific.

Along with reducing tariffs, the CPTPP provides a significant opportunity to enhance supply chains within the region. The agreement provides businesses in member countries with a single set of rules, and allows a business to purchase cheap inputs from one country and sell into another at the preferred tariff rate.

Learn more about the economic benefits from the CPTPP here.

How the U.S. absence impacts Canadian business

With the U.S. backing out of the trade partnership, Canadian businesses will have an advantage over American counterparts. With more than 30% of Japan’s beef imports currently coming from the U.S., and Canada supplying about 2%, there is an opportunity for Canadians, especially Western Canadian beef producers, to acquire market share.

Furthermore, without the U.S. providing preferential market access to all CPTPP members, there will be no additional risk of losing out on our number one market.

Making trade a competitive advantage for Canada

The CPTPP will help current businesses reach growing markets, improves competitiveness by enhancing supply chains, and reduces our dependence on the U.S. economy and their political decision makers.

As other countries contemplate a turn towards protectionism, our efforts to reduce global barriers to trade and investment can be a great competitive advantage for Canada.

We must continue to be stewards of free trade and address the current barriers limiting access to markets.