Australia, Canada and the TPP

Australia and Canada share political traditions, have a largely common cultural heritage, and a similar world view. While shaped by their respective geographies (Australia has neither the challenge nor the advantage of co-existing along a 9000 km common border with the US but faces its own challenges from Asian neighbours), both countries still have much in common. Although they don’t do a huge amount of trade with each other (CAD 2 to 3 billion annually) as they tend to compete in terms of exports, bilateral trade is largely balanced and could grow. Australians are among the foreigners for whom Canadians have the warmest and most favourable feelings. (In the annual National Opinion Poll on attitudes towards countries in the Asia Pacific region conducted by the Asia Pacific Foundation of Canada, Australia consistently comes at the top of the list as the country that Canadians view most favourably, well ahead of the US and Japan). I daresay that Australians have a similar relatively benign view of Canadians, at least until Canada’s “Danang moment” when Canadian Prime Minister Justin Trudeau all but sabotaged the planned announcement of agreement in principle for the revised Trans-Pacific Partnership, the TPP 11.

When Trudeau failed to show up for the planned announcement, the Australian press were quick to denounce Canada, proclaiming that Australia and the other nine countries had been “screwed” by Canadian antics. While Canada had some legitimate concerns leading it to proceed cautiously - the ongoing NAFTA negotiations between Canada, Mexico and the US were a particular reason for caution - there is no doubt that mixed messages about Canadian intentions had been sent by Trudeau’s delegation. Negotiating partners like Japan and Australia appear to have been genuinely caught by surprise by the last-minute case of Canadian cold feet. Among Canada’s concerns were culture, automotive rules of origin, intellectual property provisions and elements of Mr Trudeau’s “progressive” trade agenda.

A certain amount of domestic political grandstanding was also involved. Backing away from concluding the agreement in Vietnam allowed Trudeau to proclaim that he was standing up for Canadian interests and would not be rushed into a deal. This hearkens back to the 2015 general election when the Liberals won a convincing victory over the Conservative Government of Stephen Harper, in the process relegating the social democratic New Democratic Party (NDP), formerly the official opposition, to third party status. Part of the Liberal game plan was to win over so-called “progressive” voters, in particular traditional NDP supporters who were anti-trade and anti-globalisation.

While the Liberals have always been generally pro-trade, when they came to power they refused to endorse the TPP that had been negotiated by their predecessors, the Conservatives. During the run-up to the US presidential election, when all parties were waiting to see what the US position would be with regard to the TPP, the Liberals “bought time” by holding cross-country hearings on the TPP, allegedly seeking to “improve” it. After the US unilateral withdrawal from the Agreement, the Trudeau government endorsed the idea of a new TPP (minus the US), but declared they would address concerns of those opposed to the original agreement by making it more “progressive”. The idea of “progressive trade” had been adopted by the Liberals when they completed the negotiations, started by the Harper Government, with the European Union. The “progressive trade agenda” focuses on issues such as labour and environmental standards, but also potentially includes gender equality, indigenous rights and even governance.

Accordingly, when Mr Trudeau showed up in Vietnam, part of the Canadian agenda was to promote “progressive” trade, and indeed the negotiating partners acceded to a Canadian request to add the word progressive to the description of the agreement, now to be known as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). One can imagine that some of the TPP negotiating partners (Japan, Brunei, Malaysia?) may have been somewhat bemused by proposals to add a gender chapter to the agreement, while others (Vietnam for example) were not keen on strengthening language on labour or environmental standards.

Canada also insisted that it needed a “cultural carve-out”, allowing it to be able to override other commitments in order to support Canadian culture. The shibboleth of Canadian culture is a hot button issue in Canada given the preponderant cultural influence of the United States. The original Canada-US FTA had a cultural exclusion clause, as does NAFTA, and although one was not required in the TPP given that Canada had taken chapter-by-chapter exceptions for proactive cultural policies, securing inclusion of an overall cultural exemption would be seen as a domestic political win for the Liberals. Other concerns involved provisions in the intellectual property (IP) chapter that had been demanded by the US in the original negotiations, and the amount of TPP content required in autos and auto parts in order to qualify for duty free treatment.

From an Australian perspective, the Canadian demands were likely not deal-breakers, although their timing was unfortunate. For example, in the area of culture, Australia itself pursues affirmative policies in support of maintaining Australian voices in broadcasting and publishing. While the automotive rules of origin are very important to Canada with respect to the import of Japanese autos and parts (Honda and Toyota both have assembly operations in Canada while other major Japanese manufacturers like Mazda and Subaru do not) they are probably of less direct concern to Australia given the cessation of car assembly there. All parties, including Australia, agreed to “suspend” certain IP provisions (no doubt in order to ensure that the US was not rewarded with what it regards as “wins” while having withdrawn from the TPP). Finally the only real movement on “progressive” trade appeared to be the change of name, although Canada may continue to push for a gender chapter along the lines of the one inserted in the recent update to the Canada-Chile agreement.

Substantively, none of the Canadian conditions appear to be non-negotiable, but one cannot help but wonder why they were not put forward earlier, or if they were, why they became last-minute stumbling blocks in Vietnam. Part of the answer may be that in order to preserve the original agreement, and get quick ratification, the parties had agreed to keep changes to a minimum. Picking apart a few threads can unravel the fabric quickly. Canada does not seem to have appreciated this and came to Vietnam with new conditions in its pocket.

While there is some talk of a Comprehensive and Progressive TPP proceeding without Canada, especially on the part of Japan, this may be a negotiating tactic. Canada is the second largest economy in the revised TPP and there are benefits to all parties, including Australia, to having Canada included. It remains to be seen whether Mr Trudeau’s “progressive trade agenda”, and some of the other issues raised by Canada in Vietnam, will prove to be insurmountable. This should not be the case, as none of this is beyond fixing. The real question is one of timing. In reaching a complex agreement among 11 negotiating partners it is important to seize the moment. If the moment passes, the momentum may evaporate and the agreement could slip between the fingers of the parties. That is the greatest risk to the conclusion of the CPTPP. If Canada is the one held ultimately responsible for such a failure, common heritage or not, we will enter a disappointing period for Canada-Australia relations rather than looking forward to being partners in a new trans-Pacific trade agreement.