The Trans-Pacific Partnership needs a better sales pitch: Stanley Hartt in Inside Policy

MASTHEAD-2The Harper government made a weak defence of a stellar achievement – the negotiation of the Trans-Pacific Partnership. The hard-won successes of the Canada-US FTA and NAFTA provide plenty of evidence to rebut the naysayers, writes former Mulroney Chief of Staff, Stanley Hartt in the November 2015 edition of Inside Policy.

By Stanley H. Hartt, Inside Policy, Nov. 6, 2015

It certainly would not have been Stephen Harper’s first choice to announce the landmark Trans-Pacific Partnership trade deal on Oct. 5. There was a vigorous push by trade ministers, meeting in a marathon session in Atlanta, to forge an agreement in principle on the TPP, culminating in an announcement only two weeks before the federal election. Complex and controversial, the agreement will produce winners and losers, be praised by most economists, business leaders and consumer groups, and attract condemnation from unions, left-leaning nationalists and protectionists.

The timing had very little to do with Canada. The impetus to conclude the trade deal, which had been in negotiation for five years, came from the approval in June by the United States Congress of Trade Promotion Authority (commonly referred to as “fast track”), enabling President Barack Obama to expedite the ratification of the ultimate agreement and to avoid Congressional attempts to modify it.

The timing of the announcement of the trade deal ‘in principle’ was politically unfortunate for Harper.

Seen as an essential protection for America’s negotiating partners, who would not wish to offer significant concessions at the bargaining table only to be asked for more in order to assure passage in the House of Representatives and Senate, fast track obliges the majority leaders of the House and Senate to introduce the implementing bill on the first day following its transmittal by the President on which their respective chamber sits. There can be no amendments to the President’s bill, including in committee. All votes must be “up or down” (approval or rejection). Committees studying the bill have 45 days to report (or it is deemed automatically approved) and each legislative chamber then has 15 days for its final vote.

This kind of authority existed at the time the Canada-US FTA and NAFTA were negotiated and was responsible in a very palpable way for the outcome regarding those agreements. Once again, fast track was used to reassure the other 11 TPP participants (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) that they could not be strategically disadvantaged by the separation of powers at the heart of the US system of constitutional governance.

The timing of the announcement of the trade deal “in principle” was politically unfortunate for Harper. In any trade agreement, it is relatively easy to identify the sectors where painful adjustments may have to be made, but much more difficult to make a definitive case for where the growth, investment and employment opportunities, and efficiency gains leading to lower consumer prices, will occur. Such was the case when Canada and the United States concluded their landmark FTA and the naysayers had a field day: We were going to lose our fresh water supply, our universal, single-payer health-care system and other social programs, our cultural industries. In fact, none of these dire predictions came true. On the contrary, Canada has benefitted economically in a most substantial way since that agreement was first implemented on January 1, 1989.

Ratification is not, of course, a certainty, with so many players and different political systems at play.

Harper and Trade Minister Ed Fast had an opportunity to alter the discourse of the election campaign by vigorously touting our negotiators’ remarkable achievement in getting to the finish line in a hugely important trading arrangement, with access to 800 million consumers representing 40 percent of global consumption. We did not begin this exercise with such outstanding prospects: Canada’s entry into the negotiations was stalled over demands by some of the countries engaged in the talks (notably Australia and New Zealand) that we agree to put our system of agricultural supply management for dairy and poultry products “on the table”, and our fear of the political repercussions of accepting this precondition.

The hesitation to place the TPP front and centre in the home stretch of the election campaign may have been due to a reluctance to galvanize the left against the Conservatives, in the way that the 1988 election came to be about almost nothing but the FTA. But what the government side missed was that, unlike Brian Mulroney’s battle against negativity-induced fantasy, there were now, 26 years later, massively persuasive statistics to bolster the case for freer trade. It is now clear that, despite certain painful adjustments, as resources are re-allocated to newer applications where our comparative advantage is greater (almost always towards more knowledge and skill-based pursuits with greater rewards to labour and capital), free trade is overwhelmingly to the advantage of every country signing on to it.

IPNov2015coverOne factor which may have played into the relatively weak defence of this stellar achievement was the unavailability of the formal text. With 12 signatories, multiple languages and complex provisions to be recorded in formal language, this took much longer than expected. Minister Fast first suggested that the text might be available in a few days, but it then became clear that this would not happen until after the election. The formal text only emerged on Nov. 5. Without a text, it would have been more difficult to trumpet huge gains and respond to myths.

NDP Leader Tom Mulcair fell into the trap of opposing the TPP before he had seen the text, forgetting that his Quebec base has traditionally been the strongest advocates for open international markets. Justin Trudeau wisely withheld comment, perhaps reminded of Jean Chrétien’s about-face, once sworn in as Prime Minister, on his promises to tear up NAFTA (and the GST).  To his credit, Chrétien was persuaded to forget he had ever said those things; the Tories had already taken the blame by being reduced to two seats in the Commons, and all Chrétien had to do was feign hustings-induced amnesia and use the vast gains from trade and tax reform to make our national deficit disappear!

Of course there will be winners and losers in any trade deal. In the FTA, Ministers and officials were expecting serious dislocation (and the need for adjustment programs) in multiple industries: furniture, footwear, clothing, wine and others. What actually happened was that the best-run enterprises actually flourished and prospered. So, for example, Canada now boasts literally dozens of world-class wineries making a highly-competitive product and Peerless Clothing of Montreal is now the world’s largest manufacturer of men’s suits!

The TPP negotiators were able to avoid dismantling our domestic agricultural supply management systems, agreeing instead to a modest increase of 3.25 percent over the 10 percent market share currently set aside for foreign dairy imports, with an even smaller share of imports for the poultry industries. An enormous $4.3 billion compensation package for producers has been announced which will be designed to provide income support for 10 years while being phased out during the subsequent five-year period.

In the auto sector, the percentage of content required to originate in the TPP region will be 45 percent, down from the 62.5 percent stipulated in NAFTA. This could pose some risk for auto parts and assembly jobs. But the bottom line prospects are for increased investment and employment and lower consumer prices across a broad spectrum of industries, goods and services.

Ratification is not, of course, a certainty, with so many players and different political systems at play, but one overriding fact must influence our own domestic process as we study, consider and decide on Canada’s role in this historic pact: it would be very dangerous to decline to participate in such a mammoth liberalizing initiative.

The influence of the pact with the European Union has not yet been felt

A trading nation that has existing trade agreements that are vastly to its benefit risks diminishing these advantages by refusing to join a new trading bloc involving some of its current free-trade partners. When that happens, the countries that are involved in all of the trading arrangements become the “hub” in terms of attracting new investment, and those who decline to join condemn themselves to being a mere spoke, with all new trade-induced investment tending to be made in the nations which can provide access to more trading partners.

Before the NAFTA negotiations commenced, this writer (then Chief of Staff to Prime Minister Mulroney) had a visit from my Mexican counterpart, Jose (“Pepe”) Cordoba. He told me Mexico was anxious to enter into free trade negotiations with us and the Americans. I scoffed and told him that when Mexico got its hyper-inflation, its corruption, its dismal labour laws under control, we might talk sometime in the future, perhaps in 10 years. After he left, the US Ambassador to Canada, Ed Ney, called me and said that what I had told Pepe was very dumb. “We’re going to do a deal with them,” he said, “and you HAVE to be in it. Otherwise we’re the hub that can trade with both countries and you’re just a spoke”. NAFTA has proven to be an enormous success, some of the benefits of which we would have missed out on by relying solely on our existing deal with the Americans.

The benefits of the TPP will only become clear over time. Let us at least profit from the lessons learned in 1988 when the harbingers of gloom and doom seemed so persuasive, only to be proven so wrong as the FTA and NAFTA spurred our economy to ever greater growth. The influence of the pact with the European Union has not yet been felt, and the significant number of agreements put in place over the years with smaller countries making up less dramatic shares of our exporting and importing activities will also need to be evaluated for their contributions. Trade helps us grow and prosper, with lower tariff and non-tariff barriers to trade encouraging the entrepreneurial spirit of our producers and suppliers to find ways to develop advantages in new markets, and with lower prices helping our consumers stretch budgets further and improve their standards of living.

Undoubtedly, the Clerk of the Privy Council and the Deputy Ministers in key departments will have ensured that the Transition Books (massive briefing documents prepared for incoming Cabinet Ministers on the vast array of important issues facing them immediately upon taking their oath of office) contain persuasive arguments for the new Prime Minister and Ministers about the importance of the TPP for Canada’s future. If ratification elsewhere proceeds as expected, Mr. Trudeau will want to use a small amount of his newly-acquired political capital to ensure that Canada is squarely in the mix in newly liberalized trans-Pacific trade.

Stanley Herbert Hartt, OC, QC is a lawyer, lecturer, businessman, and civil servant. He currently serves as counsel at Norton Rose Fulbright Canada. Previously Mr. Hartt was chairman of Macquarie Capital Markets Canada Ltd. Before this he practised law as a partner for 20 years at a leading Canadian business law firm and was chairman of Citigroup Global Markets Canada and its predecessor Salomon Smith Barney Canada. Mr. Hartt also served as chairman, president, and CEO of Campeau Corporation, deputy minister at the Department of Finance and, in the late 1980s, as chief of staff in the Office of the Prime Minister.