January 25 – What the TPP Means for U.S. and Canadian Winter Wheat

One of the big themes of the World Economic Forum has been global trade. While 11 nations are finalizing a free trade agreement known as the Trans-Pacific Partnership, many countries are wondering what the United States is thinking.

One of the big themes of the World Economic Forum has been global trade. While 11 nations are finalizing a free trade agreement known as the Trans-Pacific Partnership, many countries are wondering what the United States is thinking.

Eleven countries of diverse economic power are finalizing a massive free trade agreement.

We’ve got Japan, Canada, Australia, Mexico, Malaysia, Singapore, Chile, Peru, Vietnam, New Zealand… and Brunei.

Absent is the United States. Last year, President Trump pulled the U.S. out of negotiations, nearly killing the Trans-Pacific Partnership from even happening. But the 11 countries moved on and reached a deal.

The biggest winners of this deal will be farmers of countries taking part in the deal.

The biggest losers will likely be the farmers from one country: The U.S., which will still face tariffs and lack commonality in laws and regulations. Any U.S. loss will likely be the gain of Canada, and other major grain exporters.

 In the wheat sector, there will likely be significant changes to market share across these participating nations.

As we’ve noted before, the biggest threat to U.S. exporters is the loss of market share in Japan at a time that the nation is seeing a spike in demand for wheat noodles.

Canadian and Australian producers will likely be the biggest beneficiaries.

As noted below, Canada already provides a robust amount of wheat to Japan, with a five-year average of 1.552 million metric tonnes. But there are other key markets that could benefit Canadian producers.

Notably, Canada could experience a boost in demand from Mexico, particularly at a time that NAFTA is on the rocks. In addition, Canadian exports to Vietnam rose sharply in 2016/17. Canada can also use this trade deal to bolster its supply to smaller import markets like Malaysia and Singapore.

Finally, keep a close eye on shipments to Chile and Peru. The United States has been attempting to market wheat to South American countries due to its retreat from the Middle East last year. However, its lack of participation in the TPP coupled with Canada’s existing relationships with Chile and Peru could limit America’s export upside.

Although President Donald Trump has signaled his willingness to join an improved TPP, there is little likelihood this far into the game that signatories are going to revisit and renegotiate this deal.

With wheat tariffs expected to decline for Canadian and Australian wheat by $65 per tonne to Japan, the stars are aligning for Canada to benefit at the expense of U.S. wheat exports.

 

Canada, Trans-Pacific trade members agree to revised deal without U.S.

MONTREAL—Canada and 10 other Pacific Rim countries have finalized an international free trade deal without the U.S. Prime Minister Justin Trudeau said it proves the federal Liberal government can achieve progressive trade agreements.

The revised Trans-Pacific trade deal, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, was reached in Japan today and announced by International Trade Minister François-Philippe Champagne.

Trudeau made the same announcement at Davos in Switzerland.

“It’s a great day for progressive trade around the world,” said Trudeau.

The deal comes as a significant political and psychological boost to the Canadian team in Montreal as a sixth round of trade talks with the United States and Mexico to rewrite the North American free trade pact get underway in earnest.

“Canada has shown that it can and will work hard to set the terms of trade so the middle class can compete and win on the world stage,” Champagne said in a written statement.

Trudeau told an elite global business audience in Davos: “The agreement reached in Tokyo today is the right deal.”

“Our government stood up for Canadian interests, and this agreement meets our objectives of creating and sustaining growth, prosperity and well-paying middle-class jobs today and for generations to come,” Trudeau added.

Trudeau said that, while trade deals help strengthen the middle class, leaders must “make sure the benefits are shared” among all levels of society, a theme he pursued throughout the speech.

Champagne said the revised TPP deal achieves a “significant outcome” on culture “as well as an improved arrangement on autos with Japan, along with the suspension of many intellectual property provisions of concern to Canadian stakeholders.”

Dias later tweeted his feelings: “A new TPP deal? What B.S. . . . . Let’s be clear, the TPP is the worst trade deal ever!”

Teamsters Canada spokesman Christopher Monette echoed the concerns for auto, dairy, transportation and construction workers here, saying the TPP deal will lead to a “race to the bottom” for workers in North America as they try to compete with cheap labour supply in Asia.

Government officials credited the work of Trudeau’s special envoy Ian McKay, head of the Vancouver Economic Commission, who has deep knowledge of business in Japan and is fluent in Japanese for helping break the impasse on TPP.

The TPP news comes as Canada is trying to push back against recent U.S. spin that Canada is blocking progress at the NAFTA table.

Federal officials speaking on background told the Toronto Star that Canada is open to compromise on several U.S. “poison pill” proposals pushed by American negotiators when the sixth round of talks formally gets under way.

The message is an effort to project what Foreign Affairs Minister Chrystia Freeland Monday has said is Canada’s constructive and creative approach to this round after the last one ended in bitter recriminations.

With five so-called “poison pills” blocking progress, two sources told the Star that Canadian negotiators are willing to make “substantive” progress on three areas, but that all depends on the Americans’ willingness to move, too.

“What will really determine the round is if the U.S. is willing to move a little bit, because, if they come in and they still hold the position that we want other countries to make concessions to us and we will give nothing up in return, then we’re probably not going to make much progress. That has been their position all along on those five key areas,” said the official.

Two Canadian officials say Ottawa is open to: U.S. demands for a periodic review of the deal, but not a five-year kill or “sunset” clause; changes to the dispute resolution process to settle corporate trade challenges under the so-called chapter 11 of the current deal, and higher demands for North American content in autos and auto parts.

But Ottawa still views the U.S. demand that 50 per cent of all automotive manufacturing be made-in-America as a non-starter, and one that could drastically harm the industry.

A Canadian official said Ottawa is heeding auto sector warnings that automakers will simply disregard the new rules, reduce their manufacturing in North America, seek to source cheaper materials outside the NAFTA zone, and pay the 2.5-per-cent tariff now applied to imports of more cheaply-made autos brought into North America for retail sale. Unifor President Jerry Dias, which represents auto-workers, has predicted this for months and suggested the NAFTA deal will die a welcome death, but auto workers won’t be helped by this.

NAFTA now requires 62.5 per cent of autos and auto parts to be made in North America for tariff-free status, but does not specify how much must be made in any of the three countries party to NAFTA.

A Canadian official, speaking on background, said that there have never been country-specific rules of origin requirement in any free trade agreement.

“It’s not about ideology or politics,” the official said.

Ottawa remains staunchly opposed to U.S. demands on agriculture, which one official described as aimed at dismantling Canada’s supply-management system for products such as dairy, poultry and eggs.

On agriculture, Canada has an ally in Mexico, which is also resisting several U.S. proposals, and which has strong leverage, as it is the biggest market for U.S. corn producers, for example.

Mexico is likewise an ally for Canada at the trade table when it comes to opposing U.S. demands to open up national and sub-national government procurement business to American companies, while the U.S. would shut out foreign bidders from its state and municipal contracts.

Mexico and Canada appear aligned in opposition to continuing U.S. demands to end the current state-to-state dispute resolution mechanisms contained in chapters 19 and 20 in the NAFTA. Those provide for bi-national panels to settle challenges over broad claims that a country isn’t respecting free trade rules, such as pertain to the continuing softwood lumber battle between Canada and the U.S.

But when it comes to the mechanism in chapter 11, a section that allows investors to sue when they feel they’ve been unfairly treated by a foreign government regulation or policy action, Ottawa says it is open to improvements through establishing professionally trained panels of trade judges to assess claims.

Canadian sources said the U.S. is demanding that there be an “opt in” system, one that would give investors the right to turn to their domestic courts, instead. That would only weaken the independence of the dispute settlement process, say Canadian officials.

“They’d expect the U.S. would opt out, but Canada and Mexico would opt in,” said one official.

Canada will once again get high-profile help from former Progressive Conservative prime minister Brian Mulroney, who has been talking up NAFTA to Trump privately as well as to other American officials.

The powerful Senate committee on foreign relations, chaired by Republican Sen. Bob Corker, has invited Mulroney to address the committee on Jan. 30, a Canadian official confirmed today, adding the Canadian embassy in Washington is prepared to support Mulroney “in any way.”

Despite U.S. President Donald Trump’s contention last week in a tweet that “NAFTA is a bad joke,” his White House press secretary Sarah Huckabee Sanders told reporters Monday that “we actually feel like things are moving forward” at the NAFTA re-negotiation.

“We’re going to continue in those negotiations.”

But she re-iterated that the president “is going to make sure he gets the best deal for America and American workers. That’s still the focus.”

Chief negotiators will be in Montreal today after two days of preliminary talks began Sunday.

International Trade Minister François-Philippe Champagne said Monday Canada insists a new deal include environmental and labour protections and more opportunity for young people, women, and Indigenous people.

Until now, Canada’s proposal to include a chapter on Indigenous people’s rights in the trade deal had been discussed by the chief negotiatiors. Now the talks will move beyond them.

Tuesday’s talks include negotiations focused on the environment, financial services, temporary entry rules, investment, digital trade, customs and trade facilitation, good regulatory practices (transparency), technical barriers to trade, state-owned enterprises and sanitary and phytosanitary (plant-based) measures.

H/T: OurWindsor.ca
About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.