The Impact of the Trans Pacific Partnership to Canada – Commodities (Part 2 of 3)

The Trans Pacific Partnership encompasses trade with pretty much everything that can be exported and imported out of and into Canada.  Today, many of these commodities have tariffs applied to them to the exporting nation.  The goal of the Trans Pacific Partnership (TPP) is to help ease the flow of goods between the member nations by eliminating or reducing existing tariffs.  When entering into an agreement such as the TPP, a nation has to consider the broad base of commodities that could be affected both for exports and imports.

Generally speaking, the industries that have existing exports stand to gain with lower or non-existent tariffs.  For example, Japan is the world’s largest importer of pork and pork products.  Canada is already one of the largest exporters of pork and pork products.  Currently, the existing tariffs run from 4.3% all the way up to 20% depending on the product.  The TPP will completely eliminate these tariffs within ten years of ratification, and could lead to much larger Canadian exports to Japan.  Canadian pork will be more attractive financially to Japan in relation to other exporters who are not part of TPP.  Additionally, Canadian pork is regarded as high quality and adds to this advantage over other members of the TPP.

Some of the other nations in the TPP have growing middle class populations.  The middle class in nations such as Malaysia, Vietnam and Singapore tend to purchase a more protein based diet, so the growth from these nations should be very large with decreased and eliminated tariffs.  With Canada and the United States as the only significant TPP exporters of pig meat (Chile also exports some but is a very minor player), Canada stands to gain significant export volume to the TPP nations with decreased and eliminated tariffs.  Some experts have projected anywhere from 30% to 100% increases in pig meat exports to Asian nations in the TPP.

Another export product for Canada is wheat and other grains.  Currently, there are varying tariff amounts for different grains (wheat, barley, canola oils etc.) to each TPP nation.  Certainly, most of these will be eliminated upon ratification, but other tariff level will either gradually decrease to zero or to much lower levels than today.  As Canada competes with the United States and Australia (as fellow members of the TPP), it would be difficult to compete with their exports to Asian markets for grains if Canada were not part of the TPP.  Additionally, Russia is a large exporter of grains and Canada can maintain their share versus the US and Australia and gain share compared to other exporters who rely on partners in the TPP.  The percentage of expected grain export increases is not expected to be as large as pork but still should be large overall numbers.  Expected increases in grain exports range from 5-10% to Peru and Chile and up to 20% to Japan, Vietnam and Malaysia.

These are just a couple of examples of specific industries that are expecting positive outcomes from the ratification of the TPP.  There are many others that should lead to a net benefit for Canadians such as beef, potash, forestry products and honey among many others.  While people and companies in those industries support the TPP, there are others that feel that they will not have any benefit and may actually hurt their industries with more free trade.  One such industry is the dairy sector.  Canada has long helped protect the dairy industry with significant tariffs for dairy product imports.  The government has taken steps to continue to protect this industry by minimizing the overall percentage of imports that can take place.  This opens up the industry a little for consumers (although the bulk of the dairy product imports will be for industrial consumption) while continuing to protect the dairy farmers and industry within Canada.  This protection will be in the form of keeping the overall import levels relatively low as well as a compensation package for industries that will be negatively affected for ten to fifteen years (promised by the former Conservative Government).

Overall, the positives appear to outweigh the negatives with this deal.  With continued debate on the merits, the government still has not committed to passing the deal through yet.  The latest update has the Federal Government agreeing to sign the next step in the process, which essentially enables Canada to still be at the table for future final ratification but no commitment to sign on the dotted line at this time.

Written by Steve Banks, Partner, Triskele Logistics in partnership with the Van Horne Institute.