What does the future of the TPP mean for your business?
By: David Hogan and Andre Oliveira
This week, Trump was sworn into office as President of the United States of America. Trump vowed his first order of business would be to pull U.S. involvement out of the Trans-Pacific Partnership (TPP). So, with one of the largest players backing out of the proposed deal, what does this mean for businesses in Canada looking to export/import and/or expand globally?
Here’s what’s being said:
- The TPP would create a free-trade zone for the 12 participating countries, along with “common labour and environmental standards, and measures to protect data and intellectual property of large companies.” – The Telegraph, November, 2016
- For Canada, the TPP was apparently positioned to benefit the pork, beef and canola producers (among others), and “open up more global markets for [items] already manufactured overseas.” – CBC, November, 2016
- During the latest Asia – Pacific Economic Co-operation summit in Peru, it was reported that “several of the Pacific Rim leaders had informally agreed they should press ahead to ratify the free-trade deal to reduce tariffs among the 11 remaining members.” – The Australian, November, 2016
The Richter take:
At this time major announcements regarding the future of the TPP hadn't been made, therefore, we are analyzing each potential outcome.
Since Trump has just signed the notice to remove U.S. involvement in the TPP, it may very well impact Canadian businesses; specifically, compliance with the rules of origin upon exportation to the U.S. The TPP rules of origin propose reducing the threshold of required production within the agreement region as compared to the existing North American free-trade agreement (NAFTA). The TPP would allow Canadian exporters to source additional materials from outside the agreement region while still receiving preferential access to the U.S. market. Canadian businesses exporting to the U.S. may wish to refrain from changing their supply patterns until a decision is made regarding the TPP as a whole.
If the deal should move forward without U.S. participation, Canadian businesses will nonetheless reap many of the benefits of the TPP. Further, relative to the U.S., Canada may have a competitive advantage and an opportunity to capture market share in TPP member markets, given the preferential access provided by the TPP. However this advantage would be diminished to the extent that the U.S. negotiates bilateral trade agreements with TPP members; although such deals could take months if not years to solidify.
Should the TPP collapse upon U.S. withdrawal, we would advise Canadian businesses to explore trading opportunities with other trading partners, including Europe, especially given the recently-signed Canada – European Union: Comprehensive Economic and Trade Agreement (CETA). While CETA faced challenges in the latter part of 2016, it was signed and is set for implementation in 2017. Additionally, businesses may also consider international trade with China, given Canada’s ongoing exploration of a free trade agreement with the country.
Regardless of the outcome, business owners should seriously consider trading opportunities with TPP members, and other foreign markets that may best fit their companies' expansion goals. Currently, Canada’s tariff protection is at a lower level than most of its TPP partner countries. As such, the TPP can be viewed as promising for Canadian industries, with the most significant tariff savings coming from Japan, Vietnam and Australia. This could mean a big advantage for those businesses looking to export or expand into TPP member areas.
Stay tuned for new posts in our The Trump Effect series. Missed a post? Read on here:
Post 1: Insights: The US Corporate Tax Code
Post 2: Should we really expect an influx of U.S. citizens in Canada?
Post 3: Cybersecurity: changes on the horizon
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About Richter : Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedIn, Facebook, and Twitter.