Statement to the House of Commons Standing
Committee on International Trade
Regarding benefits for Canada of the Trans-Pacific Partnership
Ailish Campbell, Vice President, Policy,
International and Fiscal Issues
March 27, 2014
Statement to the House of Commons Standing Committee on International Trade
Canadian Council of Chief Executives
March 27, 2014
Mr. Chairman, committee members, thank you for the invitation to appear before
the Committee on International Trade to discuss the importance of the TransPacific Partnership (TPP).
Le Conseil canadien des chefs d’entreprise (CCCE) est un organisme sans but
lucratif et non partisan composé de 150s chefs d’entreprise des sociétés les plus
importantes au Canada. Nous sommes responsables d’un programme actif de
recherches, de consultation et de défense en matière de politiques publiques. Le
CCCE est source de commentaires bien réfléchis et fondés sur la perspective des
affaires sur des questions d’importance nationale au niveau de la structure
économique et sociale du Canada.
The Canadian Council of Chief Executives is a not-for-profit, non-partisan
organization composed of the CEOs of 150 leading Canadian enterprises. Member
companies collectively administer $4.5 trillion in assets, have annual revenues in
excess of $850 billion, and are responsible for most of Canada's exports,
investment, research and development, and training. The Council is represented by
virtually every economic sector of the Canadian economy.
Today I plan to answer three key questions:
1. Why should Canada have an ambitious approach to the Trans-Pacific
Partnership negotiations?
2. What would a successful outcome to TPP look like?
3. What else should Canadian firms and governments do to prepare for the
opportunities provided by Asia?
Why should Canada have an ambitious approach to the TPP negotiations?
TPP is an agreement that, with its current members, would cover an area with
about $28 trillion in annual economic output; about 40% of the world’s economic
output.
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Statement to the House of Commons Standing Committee on International Trade
Canadian Council of Chief Executives
March 27, 2014
An ambitious TPP would reduce barriers for Canadian firms to provide products to
almost 800 million customers. If TPP remains open to additional members, as the
CCCE believes it must, this market could grow even further.
The answer to “Why engage in TPP?” and “Why does Canada need an Asia
Strategy?” is clear: Asia has become a powerful engine of global growth. It is
essential that Canada engage fully with the region during this remarkable period of
economic and geopolitical transition.
Canadian merchandise exports to the 10 ASEAN nations, plus China, Hong Kong,
India, Japan, Taiwan, and Korea, have doubled over the past decade. They now
account for 2.2 per cent of Canadian GDP.
However, Canada is underperforming compared to the scale of the opportunity.
Canada’s exports to Asia pale in comparison to Germany’s 5.7 per cent and
Australia’s 10.8 per cent. Clearly there is room for improvement across a range of
sectors, in particular for Canadian energy exports.
Asian prices for gas are in the rage of 3 – 4 times the current North American price.
Even if a “world price” closer to European levels was reached for LNG gas exports,
the impact on Canada’s GDP could be roughly $28 billion per year. This could add
$6 billion in additional federal and provincial revenues according to research by
Kevin Lynch and Karen Miske published in 2013.
Closer relationships between people, governments and firms as part of an Asia
Strategy would certainly advance the case for the purchase of Canadian energy
products. TPP is a key element, but just one element, of a “Made in Canada” Asia
strategy.
What would a successful outcome to TPP look like?
First, it must be ambitious. Ambition means one tariff schedule that eliminates all
tariffs.
Ambition means simple and straightforward rules of origin and cumulation that let
a producer truly produce a duty-free item in the TPP region. Simple rules of origin
are important for Canada as many firms import inputs, add value, and then re3
Statement to the House of Commons Standing Committee on International Trade
Canadian Council of Chief Executives
March 27, 2014
export the product. Simple rules of origin are important as small businesses do not
have the benefits of legal departments and “compliance” teams. Complex rules are
costly.
Ambition means services liberalization.
Ambition means developing common rules for consumer goods, agri-food and
health & safety issues. Non-tariff barriers need to be transparent and TPP
members need to work on eliminating those barriers.
Ambition means strong rules for investment and intellectual property.
Ambition also means discipline on state-owned enterprises so that market-based
firms can compete fairly for customers.
Second, TPP should include completely open agriculture market access. The TPP
promises access to a market of 800 million customers and a growing middle class
of consumers. These customers will buy high-quality Canadian agri-food and
seafood products.
If an ambitious deal is reached, that includes access to the protected sectors in
Japan, the US and elsewhere, this will require Canada to open its agricultural
markets. If our peak agricultural tariffs and quotas are not removed, Canada’s
access to other nations will, in return, be diminished. Much depends, again, on the
level of ambition of the final agreement.
Third, the TPP should include strong environmental protections and labour laws.
What the TPP must not be is a bowl for a spaghetti-like tangle of unique bilateral
agreements among each of the partners.
It must not be a “hub and spoke” agreement in which one nation receives better
access than other partners. Better access could mean, for example: faster phase
outs of agricultural duties for one country, but not all partners; more liberal rules
of origin for products from one nation and not the others; or greater liberalization
in the auto sector between selected nations that is not extended to all partners.
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Statement to the House of Commons Standing Committee on International Trade
Canadian Council of Chief Executives
March 27, 2014
A “hub and spoke” outcome would produce a confusing web of rules that business
may well ignore due to cost. At worst, such outcomes could distort Pacific trading
patterns.
The TPP must be ambitious, simple and straightforward to implement, it must
include agricultural liberalization and it must have strong environmental and
labour laws.
What else should Canadian firms and governments do to prepare for the
opportunities provided by Asia?
To put it simply, Canada needs a clearer and more coordinated Asian strategy with
short and long term targets for flows of trade, investment and people.
An ambitious TPP is a key part of that strategy, but it should not be our entire
Asian strategy. This is because the TPP is missing nations key to global value chains
and that are home to millions of customers, such as China. Second, the TPP may
move more slowly than hoped for.
As such, Canada must prioritize negotiations with Japan for bilateral free trade. We
must also create a Strategic Partnership with China, similar to Australia’s, that
could lead to deeper commerce in sectors of mutual interest or, as New Zealand
has done, a free trade agreement with China. Canada must also continue on-going
negotiations with India.
In this context the free trade agreement with South Korea is a vital first step to
deeper engagement in Asia. The government is to be congratulated for concluding
this important agreement. The free trade agreement with Korea must be
implemented as quickly as possible so that Canadian firms are no longer at a
competitive disadvantage.
CCCE members are not unanimous in their support for the South Korea free trade
agreement. As the auto sector has pointed out, Korean non-tariff barriers remain a
problem. Canada must join with the US, EU and other nations in eliminating these
barriers to trade.
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Statement to the House of Commons Standing Committee on International Trade
Canadian Council of Chief Executives
March 27, 2014
Another way of looking at an Asia strategy is to ask: What are Canada’s competitors
doing?
Australia and New Zealand have a “Plan B” called the Regional Comprehensive
Economic Partnership, or “RCEP” with the 10 ASEAN nations, Japan, Korea, India
and China. I would encourage this committee to study the RCEP negotiations,
which covers 3 billion people.
I would encourage this committee to ask “What is Canada’s Plan B?” Is our current
suite of negotiations sufficient, or must Canada add a plan for deeper engagement
with China?
For their part, firms of all sizes require strategies for specific Asian markets. This
could include countries, regions or even specific city markets.
In 2011, the Canadian Council of Chief Executives (CCCE) launched a multi-year
initiative intended to raise awareness across Canada of Asia’s growing economic
power and influence, and identify key policy solutions that would enhance our
country’s ability to succeed in a transforming global economy.
This discussion and series of papers has informed some of the suggestions I have
detailed here. The CCCE is continuing this work on Asian engagement strategies for
business and government.
In the last year, the CCCE has assisted students at the Munk School of Global Affairs
in an exercise to map Canada's economic footprint in Asia. The first report will be
out next week. Their findings demonstrate that Canadian firms of all sizes are
'getting on with it' in Asia. Our FDI and in-market activities are diverse and
growing.
I would underscore that examining Canada’s merchandise export trade is
insufficient to understand Canadian commercial activity. This committee would be
well advised to ask Statistics Canada for an update on how they are measuring
trade in services, and foreign affiliate sales of Canadian firms in Asian and other
global markets.
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Statement to the House of Commons Standing Committee on International Trade
Canadian Council of Chief Executives
March 27, 2014
Conclusion
Open markets, strong regulation, a skilled and healthy workforce and great
products make Canada a global destination of choice for investment and
production.
Canada is an open economy with tariffs that are already very low. Trade
agreements therefore tend to bring down other countries’ barriers
disproportionately as a result.
Canada is well positioned with robust trade with the US, and new and improved
access to the EU through CETA. Updating our relationship with the US and Mexico
and implementing CETA must be top priorities.
In addition, Canada requires a comprehensive Asian strategy with short and long
term targets for flows of trade, investment and people. This is a strategy that
requires firm engagement, all orders of government, and people-to-people
engagement.
To fail to create a Canadian Strategy for Asia would be a monumental strategic
error.
An ambitious outcome to the TPP negotiations is just one element in building an
Asia Strategy. To be clear, the TPP is not the outcome. It is the process by which
government can play its part to encourage investment in Canada, to sell more
Canadian products to Asian consumers and, in so doing, create jobs and grow the
economy.
Thank you for the opportunity to address your Committee.
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