Comprehensive and Progressive Agreement for Trans-Pacific Partnership Implementation Bill
Honourable senators, I rise today to introduce Bill C-79, the implementing legislation for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, otherwise known as the CPTPP. Given that this is a bit of a tongue twister, I shall occasionally refer to it as “the agreement.”
As background, there is little doubt that there are many economic and societal benefits of trade. The former U.K. Chancellor of the Exchequer, George Osborne, noted that “The biggest single thing that has lifted people out of poverty is free trade.”
Canada has always been a trading nation. For many reasons, Canada’s prosperity is linked to accessing economic opportunities beyond our borders. Exports account for nearly a third of Canada’s GDP and support one in five Canadian jobs. Canada relies on trade to produce long-term, sustainable opportunities and wealth for Canadians.
Today, over three quarters of our merchandise exports are to the U.S. However, in a time of rising anti-trade sentiments, the need for Canada to diversify its trade beyond North America is now even more important. Canada took its first big step to break away from the North American market with CETA, which opened up opportunities in the European Union, the world’s second-largest market for goods.
Now, it is time for Canada to look across the Pacific Ocean. The bustling economies of Asia have become an increasingly important hub for global economic activity, and Asia is home to some of the world’s most innovative and rapidly growing economies, forming an integral part of regional and global value chains.
To provide you with an overview of CPTPP, it is a comprehensive, modern free-trade agreement that will generate economic growth in Canada while upholding our belief in a rules-based international trading system. The agreement will translate into market opportunities for Canadian businesses of all sizes, in all sectors and in every part of the country. Once the agreement enters into force, Canada will become the first and only G7 nation that has a free trade agreement with all other G7 nations.
I would also note that the CPTPP is, from my perspective, a bipartisan effort. The bill before you is the result of the work of many individuals and groups, as well as the current and former governments. I want to acknowledge the efforts undertaken by former International Trade Minister Ed Fast, especially, as well as Ministers Champagne and Carr.
What is CPTPP exactly? It is a free trade agreement with 11 countries. It enhances our relationships with three existing free trade partners: Chile, Mexico and Peru. It also offers preferential access to seven new markets in the Asia-Pacific region: Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam.
This agreement will create the largest trading bloc spanning the Pacific Ocean, representing 495 million consumers — I repeat, 495 million — a market over 150 million bigger than the United States and 50 million larger than the trading bloc in CETA. In addition, these countries represent 13.5 per cent of global GDP. In 2016, Canada’s merchandise trade with the 10 other countries amounted to $105 billion.
From a tariff reduction standpoint, over 86 per cent of tariffs will become duty-free immediately when it comes into force. Virtually all remaining tariffs will be phased out over a maximum period of 15 years. And upon full implementation, 95 per cent of tariff lines will become duty-free, covering 99 per cent of Canada’s current exports. This agreement is projected to boost Canada’s GDP by $4.2 billion over the long term. Furthermore, Canadian exporters are projected to save $428 million a year on tariffs alone, as well as benefit from consistent rules and procedures.
Besides the opportunities created by exports and international trade, it will also lower prices and provide better selection for Canadian consumers.
Honourable senators, I want to clarify the differences between the Trans-Pacific Partnership, or TPP, and the CPTPP that is now before you. The Trans-Pacific Partnership agreement was concluded in 2015 between 11 countries as well as the United States. However, in 2017, the U.S. declared its intention not to ratify the TPP, and the 11 remaining members proceeded without them.
This agreement incorporates by reference the provisions of the TPP agreement with the exception of 22 suspensions. The suspensions focused, in particular, on intellectual property and investor-state dispute settlement, many of which were included in the original agreement at the insistence of the U.S. and were quite unpopular in the original agreement.
Canada is poised to benefit by almost $1 billion more under this agreement than under the TPP. Market access will be significantly better without the United States in the agreement, as it gives our exporters preferential access and the chance to displace American exports with Canadian ones.
Moving to the structure of Bill C-79, honourable senators, the implementation of this agreement requires a series of changes to be made to Canadian legislation. Bill C-79 is divided into three parts. Part 1 officially approves the agreement and provides for the payment by Canada of its share of expenses.
Part 2 amends a series of acts in order to implement Bill C-79. First, it amends the Export and Import Permits Act to include a CPTPP country in the definition of a free trade partner. It also amends the Financial Administration Act, the Trade-marks Act, the Investment Canada Act, to name a few. Finally, Bill C-79 contains amendments to the Customs Tariff Act to eliminate tariffs either immediately or in stages.
Part 3 of the bill contains coordinating amendments and the coming-into-force provisions.
I now wish to outline how this agreement is expected to impact various sectors of the Canadian economy. I shall start with industrial goods.
This agreement will eliminate nearly 100 per cent of tariffs on Canadian industrial goods, including metals and minerals, industrial machinery, medical devices and construction equipment, to name a few. Tariff elimination is a big plus for this sector. From 2015 to 2017, Canadian exports of industrial goods to CPTPP countries were, on average, $12 billion per year, and this sector employed 1.2 million people. Given that Japan and Mexico account for two thirds of exports for Canadian goods, tariff reduction should give a big boost to growth and employment.
Next is forestry. Canada is a world leader in exporting lumber, newsprint and wood pulp. This agreement will eliminate tariffs on all Canadian exports of forestry and value-added wood products. Key market access gains for Canada are Japan, Malaysia and Vietnam, where Canada does not have bilateral free trade agreements. As a result, the Forest Products Association of Canada has expressed its support for this bill.
Moving to agriculture and agri-foods, in 2016, Canada’s agriculture and agri-food sector employed close to 2.3 million and accounted for close to 7 per cent of Canada’s GDP. Canada is the fifth-largest exporter of agricultural and agri-foods globally. This sector’s exports to CPTPP were worth $6.9 billion annually. When Bill C-79 comes into force, more than three quarters of agriculture and agri-food products will benefit from immediate duty-free treatment. The tariffs on many other products will be phased out gradually. Examples of affected products include beef, wheat, pork, maple syrup, et cetera.
The measures contained in the agreement are supported by a number of agricultural and agri-food groups. They include the Canadian Canola Growers Association, the Canadian Cattlemen’s Association, the Canadian Meat Council and the Canadian Pork Council, and many more.
For fish and seafood, the agreement will also eliminate 100 per cent of tariffs on Canadian fish and seafood products. Hence, groups such as the Fisheries Council of Canada and the BC Seafood Alliance are supportive of the agreement, since it makes Canadian exports of a wide range of products more competitive.
For the automotive sector, the impacts of this agreement are a bit complicated. First, I would point out that roughly 90 per cent of vehicles produced in Canada are exported, and of that amount, 96 per cent are exported to the United States. Given this, Canadian auto manufacturers will continue to source the majority of their parts from within North America, and CPTPP will have minimal impacts on North American auto supply chains.
Second, only 30 per cent of vehicles sold in Canada are produced in Canada, and the U.S., Mexico, EU and Korea already have preferential access to the Canadian market. Hence, a large proportion of any gains from imported vehicles from Japan as a result of this agreement is expected to come at the expense of suppliers in other countries.
On the plus side, since the vast majority of Canada’s vehicle production is for export to the U.S., this agreement will support diversification by providing access to new markets in the Asia-Pacific region. From 2014 to 2016, Canada exported an annual average of $721 million worth of motor vehicles to CPTPP countries, and this has the potential to grow.
According to an analysis conducted by the Office of the Chief Economist at Global Affairs Canada, Canada is expected to see an overall increase in motor vehicles and parts exports of $255 million. Imports of motor vehicles and parts, on the other hand, are expected to rise by only $84 million, or 0.07 per cent.
In summary, the impact of the tariff reductions from this agreement on the Canadian auto industry is expected to be limited.
On investment, the CPTPP will also spur new investment opportunities both within Canada and abroad. Economic modelling conducted by Global Affairs Canada predicts that Bill C-79 will spur an additional $810 million worth of investment into the Canadian economy.
In addition, the investment obligations are backed up by a fair, impartial and effective investor-state dispute settlement mechanism. This will facilitate increased Canadian investment in the Asia-Pacific region by creating a fair and predictable investment environment. For example, Canadian businesses and investors will be protected from expropriation or nationalization without compensation and eliminate unfair requirements which favour domestic industries.
For the environment, the environment commitments outlined in Bill C-79 are designed to help ensure that environmental protection is upheld as trade is liberalized and to prevent countries from lowering environmental standards to promote trade and investment.
The CPTPP environment chapter establishes a binding and enforceable dispute resolution process. In fact, the enforcement of the environment chapter through this mechanism is a first for Canada.
On temporary entry and labour mobility, the agreement provisions on labour mobility will also make it easier for short-term business visitors, intra-corporate transferees and highly skilled professionals to work and conduct business in Canada.
The labour chapter includes obligations to protect and promote internationally recognized labour principles and rights; specifically, parties are required to ensure that their national laws and policies also protect the fundamental principles and rights at work, including the right to freedom of association and collective bargaining and the elimination of child labour, forced labour and compulsory labour.
On Indigenous issues in this agreement, Canada sought chapter-wide exceptions and exclusions with respect to Indigenous rights. The Government of Canada has been actively reaching out to Indigenous partners to seek their views on Canada’s trade agenda, including this one.
In September 2017, the department established a dedicated working group of over 60 Indigenous partners that has allowed officials to engage in constructive dialogue with Indigenous peoples on trade and investment. The Indigenous working group has met 31 times since inception.
Officials worked in close collaboration with the working group to develop a model trade and Indigenous peoples chapter that has been proposed by Canada in the context of all free trade agreements.
Non-tariff measures are also specifically included in Bill C-79. Provisions regarding technical barriers to trade will help to ensure that unnecessary or discriminatory regulatory requirements do not erode key market access gains negotiated elsewhere.
The agreement also has disciplines that help to enhance transparency and promote regulatory cooperation. This addresses one of the top concerns of Canadian businesses. These new rights and obligations will help to ensure that Canadian exports will not be undermined by unnecessary or unjustified trade restrictions.
On service providers, Canadian service providers will also benefit from preferential market access in many sectors of importance to Canada’s economy, including professional, construction, environmental, transportation, and research and development services. Canada’s service exports to our CPTPP partners were worth over $6.6 billion in 2016 but still accounted for only 6 per cent of Canada’s total trade in services. This means that there is a great potential for growth in markets like Japan, Malaysia and Singapore, to name a few.
There are also smaller sectors that would gain, such as government procurement, which will allow Canadian companies to compete equally with domestic suppliers for contracts and services.
The agreement also includes a chapter on small and medium businesses, which is a first for Canadian free trade agreements. This will make it significantly easier for Canadian SME’s to explore and navigate these markets through various provisions such as improved transparency and fair business practices.
On intellectual property, or IP, the agreement contains a comprehensive IP chapter that builds on existing international treaties. The agreement establishes a clear and predictable standard for IP rights holders and investors operating in the Asia-Pacific region.
In terms of policy flexibility, each country has reservations for sectors or activities where it wishes to retain policy flexibility now and in the future. This allows Canada to maintain its own policy flexibility in sensitive areas such as Indigenous and minority rights, culture and social services.
For example, under the state-owned enterprises chapter, Canada maintained an exclusion for the CBC, Telefilm Canada and future culture-related Crown corporations.
Lastly, there is one sector that could be negatively impacted by the tariff reductions in this agreement, and that is the supply-managed sector. Honourable colleagues, I know many of you are engaged with stakeholders in supply-managed sectors. Under CPTPP, the three pillars of Canada’s supply management system — production controls, import controls and price controls — will remain intact.
Production in Canada’s supply-managed sectors will continue to be based on import volumes and consumption patterns, and prices will continue to be set at a level that ensures producers get a fair return on their labour and investment.
Imports from CPTPP markets will be administered through tariff-rate quotas or, TRQs, maintaining the predictability needed to determine domestic supply requirements for production.
However, limited market access has been provided to CPTPP countries for dairy, poultry and egg products, and it will be phased in over five years. Nevertheless, combined with the outcome under CETA, Canadian producers will still supply 91.1 per cent of the poultry market and 92.3 per cent of the dairy market, or more in the event that a TRQ is not filled.
With regard to future compensation, my understanding is that the Prime Minister’s recent commitment to compensation would encompass not only the impact of the USMCA but also this agreement.
I note that a number of senators have recently engaged dairy industry stakeholders from a number of provinces on this issue. From these conversations, the message I have heard, which I have communicated to the government, is that dairy producers are asking for a program that is universal, easily applicable and long-term in scope.
Honourable colleagues, as I mentioned at the outset, Bill C-79 benefits all provinces. These range from Newfoundland and Labrador, where 72 per cent of exports were from the metals and minerals sector. These exports will now see tariff reductions of 40 per cent in places such as Vietnam, which is their top Asian market.
P.E.I., New Brunswick and Nova Scotia will have greater opportunities in fish, seafood products and the agri-food sector.
Quebec and Ontario would benefit from tariff reductions in industrial goods, metals and minerals, aerospace and agriculture, to name a few.
For Manitoba, Saskatchewan and Alberta, there would be improved access for agriculture, agri-foods, canola oil and seed, wheat, beef and pork.
Lastly, B.C.’s mining and mineral products such as copper and aluminum will benefit as will forestry producers of lumber, board and newsprint.
The last piece of this agreement, which is very important, is the ratification timeline.
Honourable senators, it is of critical importance for Canada to implement and ratify the agreement as soon as possible. The CPTPP will enter into force 60 days after six of the signatories have ratified the agreement. To date, three have done so and some others appear to be imminent. Being among the first six countries to ratify the agreement would allow Canadian business to capture a first-mover advantage, thereby establishing themselves in important supply chains early on.
A concrete example of this first-mover advantage is in the area of Canadian beef and pork exports to Japan. If we are part of the agreement when it first comes into force, our beef and pork exporters will have the first crack at using their preferential market access to displace U.S. exports, which will be at a higher tariff. If other countries are able to gain first-mover advantage before Canada, then Canadian exporters will have a more difficult time gaining market share.
I quote from a letter that all of you would have received, signed by five major industry groups. It says:
Time is of the essence. If we miss the timeline then the tariff reduction schedule on our exported beef and pork is pushed back. This represents money in the pockets of Canadian farmers that we cannot afford to lose.
In conclusion, honourable senators, Bill C-79 is good for Canada because it will provide Canadian businesses with new commercial opportunities in the fast-growing Asia-Pacific region and increase economic growth in Canada.
The agreement will set a high standard for rules on trade and investment, and Canada can ensure it is at the forefront of a robust, predictable and rules-based international trading system which has contributed to our prosperity in the past.
In fact, a number of additional economies have already indicated an interest in becoming part of CPTPP. These include our existing free trade partners, such as Colombia and Korea, as well as other large markets like Thailand, Taiwan and the United Kingdom. This means that Bill C-79 will not only provide benefits for the Canadian economy today but will also open up additional commercial opportunities once new members join in the future.
Honourable senators, the Leader of the Opposition in the other place is supportive of this legislation. I agree with his comment that:
. . . Canada needs to diversify its export market now. There is no time to wait.
I also share his opinion that:
Given the importance of this bill to Canadian livelihoods, it is crucial to the public interest that Canada ratify the CPTPP as soon as possible.
I hope everyone in this chamber joins me in supporting Bill C-79 so that we can begin to reap the benefits as soon as possible.