With U.S. out, Canada's focus on TPP is more important than NAFTA

Canada’s government is engaged in a two-pronged trade negotiation strategy as its handles simultaneous negotiations with its NAFTA partners and a revived TPP bid. However, TPP-11 is starting to take greater precedence over the stalled NAFTA negotiations and could put the country in a better negotiating position with the U.S.

Engaging more deeply in the TPP is to Canada’s advantage for a number of reasons. Perhaps the most important is it now constitutes the second-largest economy in the trade agreement, behind only Japan, giving it substantially more clout than when the U.S. was involved.

“The TPP was seen as a way to keep the U.S. in check if you like,” says Daniel Schwanen, vice president of research at the C.D. Howe Institute. “And it also gives us a stronger hand in eventually negotiating an agreement with China because if we’re part of a bigger group and we already have access to that region then we’re more comfortable vis-a-vis the U.S.”

Canada’s increased prominence among the TPP nations also allows it to push for the sort of “progressive trade deal” to which the Liberal government has publicly committed itself. There’s a better chance for Canada to influence the free trade zone’s rules surrounding labour and gender rights, environmental protection, and product origin rules given the absence of American bargaining power.

Doing that in the TPP negotiations will provide Canada with added leverage in its NAFTA negotiations. “Otherwise, the U.S. can turn to us and say, ‘Well, you’re accepting lower standards in the TPP-11 and you’re demanding we employ higher standards,'” says Schwanen. “It all has to do with what made sense when the U.S. was in the TPP.”

The Canadian government’s performance on certain areas of the TPP agreement will likely have a direct impact on how those issues are resolved in NAFTA.

“The cultural exemptions that were negotiated in TPP is not something you want to give up now …because we’re in that same fight with the U.S. separately,” Schwanen says.

The issue of cultural exemptions, which allows Canada to favour homegrown over foreign content, was agreed upon in TPP, but is still being negotiated in NAFTA.

The new TPP is an improvement from the first version written behind closed doors and without public input or feedback. Even advocacy groups that were previously against it say there have been improvements compared to the version the Harper government committed the country to before the 2015 elections.

“The TPP agreement that seems to have been reached is actually really good news for our community overall,” says Laura Tribe, executive director of Open Media, a digital rights advocacy group. “To see that the IP chapter has been suspended is a really big step.”

The intellectual property chapter was one of the key provisions in the first agreement that generated widespread opposition to the free trade agreement as it would’ve required Canada to surrender strong privacy protections that the government provides for Canadians. But with the U.S. having backed out of the agreement when Donald Trump was elected, the IP provision, which was insisted upon by the American negotiators, was suspended.

“Coming at it from a trade framework is already working with an assumption that it’s a material good. And it’s not,” says Tribe. “Particularly when the consultations are being held behind closed doors and the people that really are experts at this aren’t even at the table.”

As the Electronic Frontier Foundation, a U.S.-based digital rights advocacy group, noted, “literally none of the remaining parties to the TPP would benefit” from keeping the IP chapter on the books. But the chapter is only suspended, and not removed entirely, leading to fears that those provisions could be brought back if the U.S. eventually decided to join.

Despite the change in government and appearance of sufficient public involvement, the Liberal government has faced accusations its negotiating position in the new trade deal was based off feedback collected by the Harper government. That administration was criticized for failing to sufficiently include public input. Perhaps due to the legacy of secrecy of the first negotiations, the Liberals held a nationwide, months-long round of consultations in 2016 led by Chrystia Freeland while she was trade minister.

The government also held another round of public consultations in October, weeks before Justin Trudeau’s announcement Canada had agreed to proceed with TPP negotiations at the APEC summit.

“There’s not necessarily an enormously new amount of facts or general positions that would have changed between the time of those extensive consultations, briefs and meetings with the public,” says Schwanen. “The government has a pretty good feeling of how people are feeling based on the original consultations.”

But activists say the consultations ran for too short a duration and weren’t sufficiently publicized. This year’s consultations closed on Oct. 30, while reports the Trudeau government had rejected the initial terms of TPP-11 surfaced on Nov. 8, less than two weeks later.

“It’s really hard to see how the voices of the people consulted have actually been included in those negotiations,” says Tribe. “Thousands of people’s submissions could not have been analyzed and factored into the negotiation process that quickly.”

“There haven’t been any public interest representation at any of the negotiations and when the table is stacked with corporate interests, powerful lobbyists,” Tribe continues.

“The process has been flawed from the very start, and particularly for a Canadian government committed to progressive trade, we would really hope that that would mean progressive negotiations and progressive consultations and applying those transparency elements that they’ve talked so much about.”

Nevertheless, polling by the Angus Reid Institute reveals Canadians have sharply changed their attitudes towards TPP. Nearly 60 per cent of respondents now support the trade deal. The deal polled at just 32 per cent support in February 2016. Part of the change may be due to the absence of onerous American demands at the negotiating table.

There are also concerns the investor-state dispute settlement tribunal, known as ISDS, infringes upon Canada’s ability to enact legislation in the public interest. A press release by Global Affairs Canada shortly after Trudeau announced an agreement had been reached between the TPP-11 countries said “environment and labour rights will form crucial pillars of a new agreement and will be subject to dispute settlement mechanisms.”

An ISDS mechanism already exists in NAFTA, under the Chapter 11 clause the Canadian government has fought hard to keep in its effort to modernize the agreement. But according to Brent Patterson, political director at the Council of Canadians, it makes little sense to keep it in NAFTA or push for it in TPP-11.

“We have a mature courts system where it would be much more proper for any disputes to be resolved,” he says. “It’s failed to explain, given the weight of evidence about why ISDS is unfair, why it’s tilted in favour of corporate power, when it’s used by corporations to challenge environmental legislation and public interest legislation, why it would be backing such a provision.”

Canada is the most sued country developed country in the world solely due to the litigation it finds itself in under Chapter 11 of NAFTA, with the largest number of lawsuits aimed at environmental regulations.

Since its creation, Canada has been taken to the international arbitration tribunal 35 times, compared to just 20 times for the U.S. and 22 times for Mexico. Payouts to investors have totalled $172 million over the 23 years NAFTA has been in effect.

Canada has also been the subject of more than 70 per cent of lawsuits since 2005, with foreign investors seeking a total of $6 billion in damages, according to a 2015 report by the Canadian Centre for Policy Alternatives. Of the decided cases, the Canadian government won seven and lost six. Mexico has won six and lost five. The U.S. meanwhile has never lost a case under Chapter 11.

Under Chapter 11, the NAFTA signatories have given their “unconditional, prior consent” to submit investor claims to binding arbitration, allowing them to sue governments without going through that country’s court system, nor do they need permission of their own governments in order to do so.

But ISDS appears to be a something of a boogeyman to Canadians. Schwanen thinks Canada’s experience with ISDS under NAFTA could have tainted the public’s opinions of the international arbitration mechanism.

“The panel can be very creative about what’s fair and unfair to a foreign investor,” he says of the NAFTA tribunal.

But in Canada’s trade agreement with the EU, there’s also an ISDS clause, which Schwanen says built on the shortcomings of how ISDS was structured under NAFTA. Canada has shifted to becoming a net foreign investor, with pension programs like the CPP and teachers’ pension plans investing billions of dollars abroad.

“In a lot of countries, the domestic court system is not an independent one, and that’s why you want these kinds of international panels to arbitrate cases,” he says.

The CPP’s investment board notes it currently has $264.7 billion in foreign assets, with $56.2 billion invested in Asia.

The Canadian government won’t get everything it wants in the TPP or NAFTA negotiations. But the concessions in negotiates for itself in the former will undoubtedly impact its hand in negotiating the latter.

“This actually lets them come back and say we haven’t agreed to them in the TPP and we’re not going to agree to them here,” says Tribe. “It’s important to figure out what’s best for Canada.”