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New TPP could hurt NAFTA talks because of impact on U.S.: auto sector

Last Updated Feb 21, 2018 at 6:20 pm EDT

President of the Automotive Parts Manufacturers' Association (APMA) Flavio Volpe speaks to the media on the second day of talks during the sixth round of the North American Free Trade Agreement in Montreal, Wednesday , January 24, 2018. American imports into Canada could fall by $3.3 billion under the recently rebooted Trans-Pacific Partnership, the federal government has concluded, sparking fears the new pact could hurt the ongoing NAFTA renegotiation. THE CANADIAN PRESS/Graham Hughes

OTTAWA – American imports into Canada could fall by $3.3 billion under the recently rebooted Trans-Pacific Partnership, the federal government has concluded, sparking fears the new pact could hurt the ongoing NAFTA renegotiation.

The text of the 11-country Pacific Rim trade deal — a pact President Donald Trump pulled the United States out of last year — was released late Tuesday, but a Global Affairs Canada analysis of the deal also delves into the impact on the North American Free Trade Agreement talks, which are to resume in Mexico City next week.

The Trump administration has blasted trade deficits with Canada as an underlying reason for wanting to renegotiate or tear up NAFTA. The Canadian government rejects that position, saying the statistics don’t back the U.S. deficit assertions.

But the most recent analysis of the new TPP — known by the acronym CPTPP — predicts lower U.S. imports into Canada.

“Under the CPTPP, Canadian exports to the United States are not expected to change significantly as the United States is not party to the CPTPP. However, there would be a decline in imports by Canada from the United States, resulting from erosion of U.S.’s NAFTA preferences in the Canadian market,” the analysis says.

“Total Canadian imports from the United States are projected to fall by $3.3 billion, led by a decline in automotive products imports.”

Flavio Volpe, the president, of Canada’s Automotive Parts Manufacturers Association, says that will hurt Canada at the upcoming NAFTA round, where auto remains a major obstacle between Canada and the U.S.

“The report states that U.S. imports into Canada would drop $3.3 billion, mainly in automotive. If true, that is a gap smart U.S. negotiators could then be seeking to close in NAFTA 2.0,” said Volpe.

David Worts, executive director of the Japan Automobile Manufacturers Association of Canada, said he saw no connection between the two trade deals.

Worts said the government’s analysis of the CPTPP doesn’t take into account the bilateral side letter on autos between Canada and Japan that he said recognizes U.S. safety standards in Canadian-built vehicles and has an enforceable dispute-settlement mechanism.

“These are significant improvements over the original TPP,” he said.

But that side letter and others with Malaysia and Australia have yet to be made public. International Trade Minister Francois-Philippe Champagne has said a side letter with Japan guarantees greater access and enshrines a dispute resolution mechanism.

The New Democrats criticized what they said was the late release of the text ahead of a planned signing of the deal on March 8.

“The multiple side letters that have been completed, including ones relating to protection of our culture and automotive sector, will not be released until after the official signing of the deal,” said Tracey Ramsey, NDP trade critic.

The government’s analysis also says, “production in the automotive sector is expected to rise very modestly, by $206 million.”

The analysis concludes: “The impacts on the automotive sector are slight, with a small increase in output and exports.”

Volpe dismissed those predicted gains as insignificant. He said the gain would amount to only $171 million by 2040.

“Contextually, the Canadian auto sector ships about $85 billion in goods annually. This 22-year increase represents approximately 0.2 per cent on that number and when one accounts for inflationary dynamics, this represents a serious decline in real dollars.”

The government analysis also concluded that the agreement would generate long-term economic gains for Canada totalling $4.2 billion, up from the $3.4 billion that was expected under the old TPP. The increase is due to improved access to member nations in the absence of U.S. competition.

The analysis also said the gains would cover a broad range of sectors, including some agricultural products such as pork and beef, wood products, machinery and equipment, and transportation equipment.

Canadian food producers are enthusiastic about the new TPP and the government’s predictions of increased pork and beef exports to Japan. The analysis predicted pork exports to rise by $639 million, or 36.2 per cent, and beef to increase by $378 million or 94.5 per cent.

John Masswohl, the international relations director of the Canadian Cattlemen’s Association, predicted Canada would make gains in Japan at the expense of the U.S., which exports about $1 billion a year worth of beef to that country.

“We feel pretty good about being able to take a chunk of that from them.”