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  December 19th, 2017 | Written by

Recent Setbacks for Canada in Asia Could Affect NAFTA Bargaining Power

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  • TPP members want to move forward with the Comprehensive and Progressive Trans-Pacific Partnership.
  • Canadian Prime Minister Justin Trudeau refused to agree to the CPTPP’s terms.
  • Remaining 10 TPP parties were prepared to sign an agreement in principle before Canada chose to hold off.

In the game of trade negotiation, timing is critical and perception is reality.

These tenets of gamesmanship have become evident over the past couple of weeks as Canada moved to secure closer trade ties to the Asia-Pacific region, but stopped short of solidifying agreements in principle.

The troubles began a few weeks ago at the meeting of the Asia-Pacific Economic Conference where key members of what many were hoping would be a revitalized Trans-Pacific Partnership (now dubbed as the Comprehensive and Progressive Trans-Pacific Partnership or CPTPP) brought the finalization of a trade deal in principle to a standstill after Canadian Prime Minister Justin Trudeau refused to agree to the CPTPP’s terms.

The Canadian delegation was vague about the reasons, citing concerns over automotive industry competition, intellectual property rights, and cultural exemptions. It would be unfair to say Canada stood alone in expressing concerns over the proposed terms of the CPTPP, but the remaining 10 parties were reportedly prepared to sign an agreement in principle before the Canadian delegation chose to hold off.

The difficulties continued last week when Mr. Trudeau visited China with the expectation that exploratory talks around a free trade deal would progress into formal negotiations. Instead, the Canadian delegation left without any commitment from Beijing on trade talks. The stalemate was driven predominantly by Canada’s insistence on the inclusion of progressive provisions around labor, the environment, and gender.

To be fair, Mr. Trudeau was left with little choice but to include such progressive elements. According to the Globe & Mail, a recent “listening tour” by Canada’s federal government on the potential for a trade deal with China revealed widespread concerns from Canadian industry players over the possibility of Canada compromising its values and hurting its competitiveness via free trade with China. The exclusion of the liberal provisions would have confirmed the worst fears of Canadian business leaders who are struggling with core aspects of doing business in China.

To be sure, the lack of progress made at the APEC meeting and in Beijing do not in any way suggest Canada won’t be moving forward with the CPTPP or a Sino-Canadian trade deal at some point in time (although the latter is looking much less likely in the short term). It may, however, put Canada’s NAFTA negotiating team at a slight disadvantage moving into the January 2018 sixth round of negotiations to be hosted in Montreal.

It’s not unreasonable to assume at least part of the impetus behind Canada’s trade talks with the CPTPP group and Beijing was to demonstrate that it was moving toward trade diversification and away from its traditional dependence on trade with the US It is difficult to dismiss as coincidence that the exploratory talks with China coincided with the inauguration of President Donald Trump who had been quite transparent about his desire to renegotiate or otherwise terminate NAFTA. Similarly, the push to resurrect what was previously thought to be a defunct TPP occurred at a time when the NAFTA negotiations had turned sour for the Canadian delegation.

Presumably, the move to secure trade deals with key Asian allies – if only in principle – would serve to signal to the US that Canada has alternatives to NAFTA, augmenting its negotiating power. Even if the trade talks in Asia did little to improve Canada’s NAFTA position, at the very least they would have left Canada in a more advantageous position in terms of alternative trade partners in a post-NAFTA world.

Today, neither of these scenarios seem plausible to achieve, at least not in the immediate future.

However, it is worth noting that the participating members of the CPTPP have reportedly already found the means to accommodate some of Canada’s demands. Perhaps Mr. Trudeau’s decision to walk away from signing an agreement in principle had precisely the effect for which he had hoped. Should the reported changes to CPTPP meet Canada’s needs, it could serve as an indication to US negotiators that Canada is prepared to walk away from the NAFTA negotiating table if the terms of the agreement aren’t right.

If perception is reality in the game of trade negotiation, the outcome of the APEC summit with respect to the progress of the CPTPP, will be critical, regardless of whether or not it is Canada’s intent to use this as a means of improving its bargaining position with Washington. The perception on Capitol Hill will be either that Canada is a strong negotiator with viable international market alternatives to the US, or a nation with continued dependence on US trade and, in turn, limited negotiating power.

Given the number of international trade agreements and arrangements being negotiated or severed concurrently – NAFTA, CPTPP, Brexit, RCEP and more – the process has become a kind of game of chess. Each nation’s success will rest at least partially on its ability to establish the perception of strength in alliances at just the right time, and the clock is ticking.

David Rish is president of Global Trade Management at trade services firm Livingston International.