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Trans-Pacific Partnership: Canada’s Supply Chain Perspective

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Supply Chain Integration is a crucial part for all the systems and that includes not only full integration between the different companies, industrial sectors, and chambers of commerce. But, it also means that the countries must work together to decrease the trade barriers and increase the ease-of-doing-business.

Trans-Pacific Partnership

Canada’s Supply Chain Perspective

Contents

canada-supply-chain.php#_Toc486950007">Executive Summary

canada-supply-chain.php#_Toc486950008">Introduction

canada-supply-chain.php#_Toc486950009">Brief History and The Nitty Gritty

canada-supply-chain.php#_Toc486950010">Negotiations of signatories with conditions involved.

canada-supply-chain.php#_Toc486950011">The Canadian Involvement and other Trade Agreements

canada-supply-chain.php#_Toc486950012">Benefits and costs of Trans-Pacific Partnership

canada-supply-chain.php#_Toc486950013">Industry-wise Analysis

canada-supply-chain.php#_Toc486950014">Autos

canada-supply-chain.php#_Toc486950015">Agriculture

canada-supply-chain.php#_Toc486950016">Beverages & Tobacco

canada-supply-chain.php#_Toc486950017">Beef and pork

canada-supply-chain.php#_Toc486950018">Dairy

canada-supply-chain.php#_Toc486950019">Fisheries

canada-supply-chain.php#_Toc486950020">Forestry

canada-supply-chain.php#_Toc486950021">Heavy industry

canada-supply-chain.php#_Toc486950022">Services

canada-supply-chain.php#_Toc486950023">External analysis

canada-supply-chain.php#_Toc486950024">Geopolitics

canada-supply-chain.php#_Toc486950025">Domestic politics

canada-supply-chain.php#_Toc486950026">Economical

canada-supply-chain.php#_Toc486950027">Recommendation

canada-supply-chain.php#_Toc486950028">Agriculture

canada-supply-chain.php#_Toc486950029">Beef and Pork

canada-supply-chain.php#_Toc486950030">Fisheries

canada-supply-chain.php#_Toc486950031">Forestry

canada-supply-chain.php#_Toc486950032">Service Industry

canada-supply-chain.php#_Toc486950033">Industrial goods

canada-supply-chain.php#_Toc486950034">Importance of TPP to Canada

canada-supply-chain.php#_Toc486950035">Exhibits

canada-supply-chain.php#_Toc486950036">Table 1

canada-supply-chain.php#_Toc486950037">Table 2

 

Executive Summary

Anish: we analyzed some basic but very important external environmental factors (or realities as I prefer to call them) which are deciding factors for whether Canada should be part of TPP. We also briefly discussed the implications for Canadian companies, people and Canada’s trade and political partners if the deal is realized in future. The crux of this analysis, which we will see in the later part of the report, is that Canada must walk a very tight rope to get benefit out of TPP and maintain its current alliances.

Introduction

Brief History and The Nitty Gritty

Supply Chain Integration is a crucial part for all the systems and that includes not only full integration between the different companies, industrial sectors, and chambers of commerce. But, it also means that the countries must work together to decrease the trade barriers and increase the ease-of-doing-business.

With the same fundamentals and principles, 4 countries back in 2005 signed an agreement called as Trans-Pacific Economic Partnership Agreement also known as P4. Originally, the 4 countries involved were: 1) Brunei, 2) Chile, 3) Singapore, 4) New Zealand. This agreement was comprehensive to affect trade in goods, trade remedies, intellectual property, government procurement, and competition policy. The agreement entered into the force back in 2006, through which there was a mutual effort to reduce tariffs by 90 percent. Also, the countries called for a zero tariff by 2015 and interestingly, there was a provision of Accession also with this agreement for the future addition of countries into the agreement to enhance the tradability between the countries (Agreement, 2006).

TPP (Trans-Pacific Partnership) began as an expansion of Trans-Pacific Economic Partnership Agreement. This all started with in the year 2008 when 8 countries put a step forward to enter this accord. The 8 countries are: 1) Australia, 2) Canada, 3) Japan, 4) Malaysia, 5) Mexico, 6) Peru, 7) U.S, 8) Vietnam; making a total of 12 countries (Isfeld, 2015). The Headquarters of this trading vehicle is in Auckland, New Zealand and though all countries have signed the agreement- except the U.S withdrawal, will be discussed in coming sections- but the ratification by the signatories are yet to be made and to be deposited with the depository i.e. New Zealand.

Negotiations of signatories with conditions involved.

New Zealand and Singapore had their agreement NZSCEP (New Zealand Closer  Economic Partnership) signed by 2001 and Trans-Pacific SEP was built on this only (Begawan, 2000). So, the original partners were the 4 countries and they developed a robust agreement to enhance the trading between the countries. Seeing this, the U.S also entered the picture back in 2008 regarding trade liberalization in financial services (Daniels, 2008). Immediately after that in 2008 Australia, Vietnam, and Peru announced that they would also join the P4 trade bloc (Brindal, 2008). Canada became the observer back in 2010 and expressed interest in officially joining the TPP (Press, 2010). But Canada faced a problem about the Canadian Agricultural Policy- specifically the dairy industry and intellectual property rights protection (Palmer, 2012).

Below is a timeline details of the countries and their joining:

Year Progress
2006 The P4 agreement became effective
2008 The US announced its intention to participate in the TPP negotiations.
2009 The US decided to join the TPP negotiations
2010 P4 member countries and an additional 4 countries (US, Peru, Australia, and Vietnam) began TPP negotiations (March, in Australia).
2011 Feb 5th round of conference
March 6th round
June 7th round
September, 8th round
Oct, 9th round
Japan, Canada, and Mexico showed the intentions of joining the TPP

Transpacific Partnership Negotiation Progress 1

Source: (Institute, 2013)

“It is difficult to predict the outline of the negotiations thus far, since they have been proceeding and no public information is currently available. According to various sources involved with the TPP negotiations, the member countries have successfully agreed to draw the number of chapters and other major structures, but the specific contents and sensitive issues were not extensively negotiated, even in early 2013.” (Institute, 2013)

The Canadian Involvement and other Trade Agreements

Canada already has trading agreement through NAFTA with Mexico and US. Also, Canada has an agreement with the Chile and Peru through FTA and TPP helps in making a bond with 7 Asian nations.

Other agreements that Canada has done apart from the NAFTA are CETA (Comprehensive Economic and Trade Agreement) with the European Union and the twelve nation TPP (Canada, 2017). Also, Canada is a member of WTO since its inception in the year 1995, January 1.

Interestingly, Canadian territories and provinces will be signing a free trade deal in April which will be a game changer on how products and services will be traded between all the provinces and the territories. The former trade agreement was signed in the year 1995 and it will be superseded by this new trade accord between the provinces. Under this new trade deal, provinces will protect vulnerable areas of their economy or underdeveloped regions such as northern communities while setting open trade as default position (Glowacki, 2017). But, coming back to the point of TPP, let us get some more details on the supply chain benefits associated with the Canada and delve into the analysis.

Benefits and costs of Trans-Pacific Partnership

With implementation of TPP, Canada would have increased market access and greater regional economic integration with Asia-Pacific countries, resulting to net advantage to Canada. Global affairs Canada website reported that, by 2040, TPP would boost Canada’s GDP by 0.127 percent above baseline performance, thus generating GDP gains of C$4.3 billion (US$3.3 billion) in the long term.

There are various factors that would shape Canada’s overall economic gains under the Trans Pacific Partnership Agreement:

TPP’s membership would guarantee Canadian goods and services to preferential market access to seven new free trade agreement partner countries. With implementation of TPP, Canadian exporters would have new trade opportunities in the TPP member countries as the agreement puts Canada in an advantaged position as compared to non TPP member countries in these markets. As per world trade organization, Canada has overall lower levels of tariff protection than most of its TPP partner countries. Thus, other conditions being constant, free trade agreement under the TPP would provide a net advantage to Canada. Global affairs Canada website reports that the TPP Agreement would provide Canadian exports with tariff savings of about $428 million per year, in the seven new FTA partner countries. The majority of projected savings is expected to come from Vietnam, Japan, and Australia.

Global affairs Canada website also reported that Canadian exports to the new FTA countries would increase by US$2.2 billion due to liberalization. Further, as per report by global affairs Canada, Canada has huge export potential to Japan, Canadian exports are expected to increase by US$1.1 billion with exports of beef, pork and wood products leading the way. Exports to Australia, Vietnam, and Malaysia is also expected to increase. There is good potential to export machinery, equipment and transport equipment to Australia and Malaysia, while Canadian food and automotive products would have export potential to Vietnam.

The report from global affairs Canada states that imports from the new FTA partner countries would increase by US$3.6 billion, which would be led by automotive products from Japan and labour-intensive products such as textile and apparel products from Vietnam. However, Canadian automotive industries would have little effect from imports from Japan as the increased imports would be offset by a decline in imports from NAFTA countries, especially USA, due to NAFTA preference erosion in Canada. It should be noted that under NAFTA, for assembled vehicles under preferential treatment, the rules of origin threshold is 62.5 percent, while under the TPP the threshold is 45 percent.

Further TPP’s impact on Canada would be incomplete without discussing the potential influence US- Largest trading partner of Canada and Canada’s economic ties. Since Us is out of TPP, Canada would not lose this preferential market to the other TPP countries, except Mexico which is a trade partner of US under NAFTA, but Us would lose preferential market of Canada to other TPP countries especially Japan.

Also, TPP would allow Canadian industries to better access for some highly skilled and business workers. Thus, making those Canadian industries, such as service industries, function more efficiently and profitable that are facing shortage of skilled workforce.

Industry-wise Analysis

From Table 1 and Table 2, we figured out that the industries which would be negatively affected by TPP are: metal products, automotive, chemicals, rubber and plastics, Textile and apparel, dairy, and oilseeds and vegetable oils. On the other hand, the list of Canadian industries benefitting from TPP is very long. Some of the industries gaining most from the agreement are: fruit and vegetables, fishing, pork and poultry, beef, food products, beverages and tobacco, wood products, trade, construction, transportation services, financial services, business services, communications, and other services.

Automobile

From the analysis in Table 2, we calculated that Auto sector would lose approximately C$ 420 million, resulting an overall decrease of 0.3 percent from 2016 base figures. The export to TPP countries would decrease by approximately C$ 133 million, a decrease of 0.2 percent. While imports from TPP countries would increase by C$482, an increase of 0.6 percent from 2016 prices.

In the TPP Canada agreed duty free entry of Japanese vehicles within five years. It is expected that current privilege of Canadian auto parts in North America would be diluted by TPP. At present, to avoid non-preferential tariffs under NAFTA, 62.5 per cent of auto parts should be from North America. Under the current provisions of TPP, 45% of the cost for auto manufacturing in Canada will be based on parts made within TPP. Though US has opted out of the TPP to which approximately 80% of the auto parts and automobiles are exported from Canada, still TPP would negatively impact the auto industry.

Agriculture

Agriculture industry is further divided into subparts in our analysis. The subparts are rice, wheat & cereal, fruit & vegetables, oilseed & vegetable oils, sugar, and other agriculture. From the table 1, it is observed that overall the sector would have benefits of C$ 376 million as compared to 2016 when there was no TPP agreement in place. On further analysis, we observed that total exports of rice industry to TPP industry would decline by 0.3 percent while imports from TPP countries would increase by 0.6 percent. Wheat and cereal industry would see increase in exports to TPP countries by 1.3 percent while there would also be increase of imports by 1.1 percent. Fruit and vegetable industries would see an increase of exports by C$ 341 million, an increase of 22.5 percent. At the same time imports would also increase by C$ 22 million, resulting in an increase of imports by 0.4 percent. Sugar industry would see an increase of exports by 3.5 percent and increase of imports by 1 percent. Other agricultural industries would experience increase of exports by C$ 36 million and decrease of imports by C$ 1 million, resulting in increase of exports by 1.4 percent and decrease of imports by 0.1 percent.

Though the agriculture industry would experience gains in above mentioned industrial sectors, oilseed and vegetable oils sectors would experience decline in exports by C$ 54 million, a decrease of 0.7 percent, and increase in imports by C$ 5 million, an increase of 0.3 percent.

Beverages & Tobacco

Canadian ice wine and whisky are famous abroad. TPP would lower the barriers on these products. While Australia and New Zealand will immediately remove duties on Canadian wine, Japan will remove the same within seven years. It would take 15 years for Malaysia to drop its whisky tariffs, while Vietnam would drop its whisky tariffs by 55 percent within 12 years.

From the analysis done in table 1, we expect that exports of beverages and tobacco would increase by C$ 97 million and imports will increase by C$ 8 million. TPP agreement would result in increase of exports of wine products by 6.5 percent and increase of imports by 0.2 percent. Overall the agreement would be beneficial for Canadian beverages and tobacco companies.

Beef and pork

Under TPP, in 10 years, Japan has promised to completely remove tariff on a variety of meat products. Of this elimination, 50 percent tariffs on beef will be reduced to 9 percent within 15 years. On the other hand, Vietnam will eliminate tariffs by up to 31 percent on fresh and frozen beef within 2 years. Thus Canadian meat producers win big under the TPP deal.

From the analysis done in Table 1, we expect that beef industry would see overall increase in exports by C$ 44 million resulting in 2.2 percent increase. Pork and poultry industry would expect to increase its exports by C$ 117 million dollars, an increase of 4.9 percent. This industry would also see an increase of import by C$ 8 million, an increase of 0.4 percent.

Dairy

During the negotiations, other TPP members, including New Zealand, wanted majority dairy concessions from Canada. As per the agreement, Canadian government will give access to 3.25% of its dairy market to TPP members. Dairy industry is affected the most in negative sense. It is from table 1, we can see that the dairy industry would bear loss of C$ 1.022 billion.

From table 1, we can expect that Dairy exports to TPP countries would decrease by C$ 5 million and imports would increase by C$ 433 million. The decrease in export would be 2.8 percent, the increase in imports would be whooping 124.7 percent. This increase in imports would be detrimental for the dairy industry, and without subsidies and grants it would be very difficult for Canadian dairy industry to survive.

Fisheries

Japan has high per capita consumption of fish and sea food. In the TPP negotiations Japan agreed to eliminate 66 percent of its and seafood tariffs once the deal would be in place. Lobsters, salmon, shrimps, snow crab, scallops, halibut, mussels, tuna and tuna are listed Canadian sea products that will gain easier access to TPP markets.

Table 1 shows that exports, to TPP countries, of fisheries would grow by C$ 12 million and imports would grow by $ 17 million. Overall there would be C$71 million increase of business for Canadian fisheries worldwide. So, TPP would be beneficial for the Canadian fisheries industry.

Forestry

The TPP deal is important boost for Canadian Forestry industry. At present, United States is the biggest importer of Canadian wood. Through TPP deal Canadian wood be exported to TPP member countries at lower tariffs thus increasing market for the industry and decreasing dependency on US, reducing uncertainty in business arising due to current political situation in US. It is noteworthy that the current exports of $22.6-billion of forest products a year to TPP countries & US will only further grow after this deal.

Heavy industry

Under TPP, industrial goods such as construction equipment, farming equipment and aerospace products will have a easier access to TPP nations. It is projected that TPP will help to double the manufacturing and exporting output of Canadian heavy industries by the year 2030. In table 2 heavy industries is divided into sub industries namely: Transport equipment, Electronic equipment, Machinery equipment and Other manufacturing.  From table 2, we observe that though there is not much benefit to electronic and other manufacturing industries, there is huge potential for transport, machinery & equipment. Transport equipment is expected to increase exports by C$110 million when TPP would be implemented. Also, machinery & equipment industry may see export increase of C$ 68 million.

Services

In the TPP services industry includes many sectors of service industry such as bankers, engineers, architects and environmental consultants. With the implementation of TPP it would become easier for employees to make temporary work trips within the member countries reported the globe and mail. In the TPP, it is made easier for workers to bring their spouses on business trips for member country workers.

In table 2, we have subdivided the service sector in construction, trade, transportation, communications, financial services, business services, recreation services, and other services. Financial services and business services are expected to be the biggest gainers from TPP. It is expected that increase in exports financial services will be approximately C$ 183 million and that increase in exports of business services will be approximately C$ 267 million. Also from table 2, we observe that imports from TPP countries in financial services would increase by C$90 million, and imports from TPP countries in business services would increase by C$ 544 million dollars. Overall, business for Canadian financial services and business services would grow by C$ 368 million and C$ 175 million.

External analysis

Geopolitics

Canada has been trying to gain more independence from the United States in terms of trading and diversify its economic relationships by investing in closer ties with Asian markets. The decision of Obama administration to not approve the Canada-US Keystone XL pipeline reinforced Canada’s this ambition.  One country which was left out of TPP despite being a major trade country is China. The biggest problem that the TPP agreement had for Canada is that Canada’s second largest trading partner China, was not invite to the negotiation table. Even China itself did not request membership to the multilateral free trade deal. China sees the TPP as a US instrument to hold back China’s rising influence in Asia pacific region and the world. Many steps taken by the USA (especially ever since Donald Trump started running for president and after he won) since the negotiations for TPP began, has made China cautious against the US administration and its leadership and the TPP agreement. On the other hand, Canada-China relations which have been rising steadily and have the potential to further advance due to complementing economies has to be balanced while maintaining relationships with the largest trading partner of Canada i.e. USA. Canada can leverage in this situation by using its strength in major sectors, particularly in natural resources where China is lagging. As an alternate, Canada can initiate a free trade agreement with China, in either a bilateral or multilateral context. China already has bilateral FTA with 4 countries involved with TPP. This kind of arrangement will make-up for the loss that may rise due to not having china on board with TPP and strengthen Canada-China relations. As the future of the TPP is still uncertain from the leader state which initiated the agreement, Canada has all the more reason to consider this type of bilateral agreement with China. This will ensure that Canada’s economics interests are kept in place. As China takes a more assertive position to counter American influence in its backyard, Canada must find a way to balance its own economic interests and not get caught between the tensions between its two largest trading partners. Canadian policy makers might also want to reflect on the possibility that perhaps China and not the US will be leading the future of economic planning and integration. The fact that US is a traditional a political and economic ally of Canada and that there may be important economic implications for Canada if it does decide to drop out of the TPP also must be considered. The ratification of TPP by both US and Japan will further compound the implications (Cui, 2016) (Department, 2016).

Domestic politics

The ultimate TPP negotiations and the final agreement were driven, at least in part, by the Canadian election calendar. The outgoing government of Prime Minister Stephen Harper was a strong supporter of TPP, both as a means of enhancing US-Canada economic ties but, equally importantly, to further diversify Canada’s trade and investment ties with leading Asian economies. During the final round of TPP talks, polls showed that the opposition Liberal Party led by Justin Trudeau would secure an overwhelming mandate to lead a new government in Ottawa; however, his support for TPP was ambiguous during the campaign. Meanwhile, a third party, the New Democratic Party led by Tom Mulcair, was also performing strongly in the polls and was publicly opposed to TPP, in part due to its

base of support in western Canada, whose agricultural communities felt threatened by liberalized trade in their sector.34 The Canadian federal election on 19 October 2015 did indeed depose the Harper government and usher in a strong majority for the Liberals, however, the final TPP negotiations had been concluded two weeks earlier. At that time, candidate Trudeau had expressed skepticism towards the TPP and took a ‘wait-and-see’ approach. 35 But by early 2016, Prime Minister Trudeau’s Minister for International Trade, Chrystia Freeland announced that Canada would sign the agreement (Department, 2016).

Economical

In older days when there were no or very few FTA and tariffs were generally high, it was easy to calculate the benefits of a new agreement (which were usually bilateral). Drop duties from your exports and one could easily understand which side was getting benefit of the deal. However, in today’s world when currency fluctuations, demand and multilateral agreements are prominent, such calculations are a tough task. There many projections on the real benefit TPP will bring to Canadian economy. One of the most widely acclaimed TPP study, by economists at the Washington-based Peterson Institute for International Economics, projected half a percent increase in Canadian economic output by 2025. That’s a $10-billion-a-year boost. As per another analysis done by leading economists in Canada, Trans-Pacific Partnership is projected to generate gains for the Canadian economy in the long term and will expand the output by $4.3-billion. Majority of this output will come through better access to some lucrative and growing markets like Japan, Vietnam. Obviously, remaining outside the TPP would damage Canada. Canada will lose an estimated $5.3-billion due to lost economy activity. As other countries gain preferential access to major Canadian trading partners such as the United States and Mexico and Canada will lose its market share. Canada would still suffer loses if it was not part of the TPP but the losses would be offset by new trade access to other markets. Yet another TPP analysis predicted that the deal would have a “modest impact” on Canada with a $3-billlion (Canadian) increase in household income by 2035. It should be noted that most of these estimates about the impact on Canada are based on the assumption that the United States, the biggest player in the TPP talks, as well as all 10 other negotiating parties, ratify and are part of the deal. The Canadian Centre for Policy Alternatives states that the reported estimates are only an indication of the gains that will come though TPP. In reality, these estimates ignore the extra costs that will accrue from signing the TPP like billions of dollars in for farmer compensation as well as pricier copyrighted goods and patented medicines.

The tariffs on goods are already low between Canada and most of the other 11 countries involved in the TPP. So, the real gain will only show when tougher-to-quantify non-tariff barriers are tackled, as well as trade in services and investment. This will require new regulations, policies, investment rules, new regulatory bodies and intellectual property protections. Something that will again increases costs and decrease net profits (Chase, 2016) (Economist, 2017).

Recommendation

Based on above analysis, we recommend that Canada should be a part of TPP but in industries like Agriculture, Beverages & Tobacco, Beef and pork, Fisheries, Forestry, Heavy industry

And services whereas industries such as Auto, Dairy should not be a part of TPP.

Agriculture

Agriculture industry of Canada benefits significantly due to TPP. Canada expects its export numbers in agriculture to rise as TPP would exclude the tariffs.  However, the key factor here for Canada is the entry in the Japanese market. The TPP agreement would allow Japan to reduce its tariff by around 32% while New Zealand, Australia and Malaysia would reduce 90% of the tariff on agricultural products subsequently presenting a great opportunity to access the new markets and boost up their exports.  Products such a Canola were to be significantly benefitted by TPP. (The Globe and Mail, 2017).

Beef and Pork

Beef and pork industry of Canada would be significantly benefited by TPP. The benefits would include the access to Japanese market where the current Canadian meat exports are over 1 billion annually. Moreover, the reduction in trade and tariffs would allow to export to other countries such as Malaysia, Vietnam where the meat consumption is high. Moreover, this would also provide a bridge to Canada to enter into other Asian markets where beef consumption is high. (Trans-Pacific Partnership (TPP) Canadian Meat Industry Position, 2016)

Fisheries

Japan, Vietnam and Malaysia has a high number of tariffs on Canadian exports. The TPP would allow Canada to export fish products without any tariff within next 10-15 years. However, the crucial factor is that once the TPP is implemented, over 50% of tariffs in Japan and Vietnam will become duty free. Moreover, Malaysia will allow 100% duty free on fish item coming from TPP participating countries. This will provide Canada an upper hand and would serve as a significant boost to the Canadian economy as it would increase the Canadian exports. (Kenigsberg, 2015)

Forestry

Forestry and Free trade has not always worked out favorably for Canada. In this industry, Canada is subject to high tariffs from few TPP participating countries. However, the TPP would reduce those barriers and would considerably increase forestry imports of Canada. Countries like Japan, Vietnam and Malaysia would reduce the tariffs of would export. Most of the tariffs would be reduce immediately whereas for some countries, it would be within few years. (Kenigsberg, 2015). TPP would allow Canada to do its export in US, Asia, Australasia and European market. TPP would facilitate Canada’s entry into some big markets consequently resulting in higher sales boosting up the economy. The TPP would provide Canada with an entrance to the countries with over 800 million consumers and an opportunity to making $28 trillion (ZWEIG, 2015).

Service Industry

In table 2, we have subdivided the service sector in construction, trade, transportation, communications, financial services, business services, recreation services, and other services. Financial services and business services are expected to be the biggest gainers from TPP. It is expected that increase in exports financial services will be approximately C$ 183 million and that increase in exports of business services will be approximately C$ 267 million. Overall, business for Canadian financial services and business services would grow by C$ 368 million and C$ 175 million. The TPP would facilitate more transparent access to TPP participating countries. The TPP would further better the trade relations beyond GATT. (Kenigsberg, 2015).

 

Industrial goods

The TPP would substantially reduce the tariffs on industrial goods. Once the TPP is implemented, the majority portion of Canadian exports of industrial goods would be duty free whereas the minority portion would become duty free within next 20 years. This would allow the country to access new markets thereby increasing exports and boosting economy. (Kenigsberg, 2015)

Dairy and Auto industry:

The dairy industry would have negative implications of TPP.  It would threaten the Canada’s Supply management. How supply management works is in a way that prices are set by milk board of respective provinces based on factors such as cost of production, price of the milk in current market and farmers household income. Canada’s supply management system allows them to cost of production low and allows them sell it at a highly profitable price. The TPP will significantly shrink the tariffs subsequently reducing the profitability of Canada’s dairy industry (Linde, 2015). However, to offset any loses caused to dairy farmers, government is willing to offer a subsidy of $4.3 billion, 15-year compensation pay to the farmers (Isfeld, 2015).  The automotive industry will definitely see a shift in the tariffs when the agreement will be ratified and because of this the companies will find other places where they can manufacture at a cheaper labour cost and it will lead to loss of job opportunity for the Canadian automotive sector (Congress, 2016). Moreover, the Canadian vehicle exports will be constrained to limited markets only, specifically North America and at the same point of time, cheaply manufactured vehicles will enter into the Canadian markets and this will lead to consumers buying those products at a more economical rate (alternatives, 2016).

References:

alternatives, C. C. (2016, July 07). Canada Centre for policy alternatives. Retrieved from Canada Centre for policy alternatives: https://www.policyalternatives.ca/newsroom/news-releases/trans-pacific-partnership-will-hurt-canadian-auto-industry-study

Congress, C. L. (2016, June 15). Candian Labour Congress. Retrieved from Candian Labour Congress: http://canadianlabour.ca/news/news-archive/government-must-stop-trans-pacific-partnership-tpp

Isfeld, G. (2015, November 18). $4.3 billion TPP compensation for Canada’s dairy industry is not a done deal: Trade Minister Chrystia Freeland. Retrieved from Financial Post: canadas-dairy-industry-is-not-a-done-deal-trade-minister-chrystia-freeland/wcm/2948f05d-46d1-4523-94f2-37d42d4243b9">http://business.financialpost.com/commodities/agriculture/4-3-billion-tpp-compensation-for-canadas-dairy-industry-is-not-a-done-deal-trade-minister-chrystia-freeland/wcm/2948f05d-46d1-4523-94f2-37d42d4243b9

Linde, D. v. (2015, July 28). Why Canadian dairy farmers are worried about the Trans-Pacific Partnership: ‘We could go out of business’. Retrieved from Financial Post: http://business.financialpost.com/commodities/agriculture/why-canadian-dairy-farmers-are-worried-about-the-trans-pacific-partnership-we-could-go-out-of-business/wcm/2fa355a2-5528-4518-8e60-fb2ecc00fabc

Importance of TPP to Canada

The TPP would substantially reduce the tariffs. Around 19,000 tariff lines would change for Canada. Canada would be able to access the markets and services and products going out of the country would be duty free. Moreover, Canadian consumers would significantly benefit from this TPP. The lower tariffs on imports would reduce the prices and increase the purchasing power parity. (Tombe, 2015). To summarize, we can expect productivity to increase along with high GDP and high income.  Moreover, TPP would be the effective way to penetrate in to Asian markets.

On the other hand, if Canada does not join TPP, this would result in a GDP loss of $5.3 billion. Canada would lose the opportunity to access the market of the TPP countries which would of disadvantage to the Canadian economy. Canada would lose the share in Japanese import markets if they decide against entering the TPP. The Canadian beef exports would go down by 66% whereas Pork export could go down by 13%. (Global Affairs Canada, 2016). Besides, if Canada decides to not enter the TPP, the production and investment loses would be significant for Canada. This is would reduce the Canadian auto production and investment by 4% (Global Affairs Canada, 2016). To conclude with, TPP is an important and critical step for Canada to trade freely across the globe. Though it has its pros and cons, the pros outweigh the cons as TPP will facilitate Canada to enter in new and growing markets subsequently enhancing the economy.

Exhibits

Table 1

Table 2

References

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