Prime Minister Stephen Harper appears to have gotten pretty good at the art of the free-trade deal.
I say “appears” because so much of what led to the Trans-Pacific Partnership (TPP) occurred far from view. And most of what we know about the biggest tariff-cutting exercise since NAFTA comes by way of vague press releases. Nor were Harper and his trade minister, Ed Fast, great about explaining why the TPP was so important. The press only started reporting seriously about the negotiations within the past few weeks, as an agreement appeared at hand.
So we are working with imperfect information. The details will only come to light as legislatures dig into the final text. Yet based on the broad strokes of what we know, the TPP is a win for Harper. It’s more than the fact that he signed the agreement, which will keep Canadian businesses on a level playing field with rivals in places such as Australia and Peru. That, arguably, was the easy part. Harper’s masterstroke is that he also has created the political conditions for acceptance at home. The five years of negotations that led to the TPP will have been wasted if the pact ends up stalled in parliament. That seems unlikely, at least in Canada. It could have been otherwise.
An impression had been created in recent weeks that these were the end of days for supply management, Canada’s unique approach to subsidizing the production of milk, eggs, chicken and turkey. The United States, New Zealand and apparently every other country in the 12-nation TPP was insisting that Canada remove the tariff wall that allows it to control supply and prices of those commodities. That wall remains largely in place. Harper agreed to allow tariff-free imports of milk worth 3.25% of the market. That could put downward pressure on prices, which would hurt marginal producers. But the overall industry should be able to handle the competition—especially with the help a $4.3-billion adjustment fund for supply-managed industries that Harper announced Monday.
We’ll have to wait for the histories of the TPP to know if the situation ever was as dire as was suggested. Most of the countries involved in the talks had a group of farmers they were trying to protect. All appear to have agreed to move on by offering only token sacrifices. This will allow Harper to tell voters that he saved supply-managed farmers from disaster. It’s a variation of the under-promise-over-deliver strategy that Paul Martin used to pile up “surprise” budget surpluses during the late 1990s and early 2000s.
The other thing Harper did was throw the losers a life line, an underused tactic in policy. Few new policies spread the benefits equally. University of Toronto law professor Michael Trebilcock won the Donner Prize for public policy in 2014 for a book that described how the best initiatives included compensation for the segments of the population that would be hurt. Trebilcock advised joining TPP while compensating dairy, poultry and egg farmers for their losses. It worked. Canada’s dairy lobby essentially conceded Monday that the federal government had done well to keep supply-management system intact.
These are the kinds of things politicians must do to keep special interests from sabotaging policy that serves the greater public good. Canada’s business pundits like to prove their free-market credentials by saying hateful things about the dairy industry. Many will have wanted Harper to use the TPP to dismantle supply management and present himself as the champion of cheaper pizza. But such a strategy would have endangered Canada’s chances of joining the TPP. Desperate farmers would have done everything in their power to block the agreement, and in an election year, they would have found politicians eager to take up their cause. Instead, the head of the dairy lobby on Monday thanked the government for doing the best it could.
The TPP still faces a political test. Tom Mulcair, the opposition leader, said he was prepared to renege on the agreement if he becomes prime minister. That position reflects the opposition of some makers of automobiles and automotive parts and their unions. The TPP would reduce tariffs on cars and automobile parts from all TPP nations, removing an advantage North American companies had in their home countries over Asian competitors.
This defensive reaction resonates more than it should. The Detroit Three and their suppliers in Canada and Mexico have gotten plenty of help from the Federal Reserve and ultralow interest rates. (The Bank of Canada has done its part by sinking the value of the dollar, a crutch for some exports of automotive parts, although not all.) It also is a dated way of thinking about the automotive industry. Parts and pieces fly around the world before they are eventually assembled together to make an automobile. Writing at Maclean’s, Trevor Tombe, an assistant professor of economics at the University of Calgary, showed that Canada’s automotive industry should benefit from the TPP. That’s because imports will be cheaper, making Canada’s makers of higher end parts and automobiles more competitive.
Harper will need to stress these points as his opponents attack the agreement. It is a debate he should be able to win, especially as he stresses the potential benefits for other industries. Pharmaceutical companies, growers of grains and pulses, and the providers of services such as banking and insurance have emerged as sources of strength for Canada since the financial crisis. All will benefit from the TPP.