Supply management hurting major transpacific trade opportunity: Experts Eight Asia-Pacific countries will meet in March to negotiate a trade agreement as Canada sits on the sideline. By Laura Payton Published January 6, 2010

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Even as Prime Minister Stephen Harper works to turn Canada's diplomatic and economic focus more towards Asia, the government may have missed out on a key chance to shape a new and expanding transpacific trade agreement. And experts say a major reason may have been Canada's ongoing insistence on protecting supply management.

The Trans-Pacific Strategic Economic Partnership Agreement, or TPP, began as a four-country Pacific free trade agreement that came into force in 2006. Initially it encompassed only New Zealand, Chile, Brunei and Singapore. However, those countries want to expand to more markets. Canada could have joined years ago, but has so far remained on the sidelines while its major competitors jump on board.

"Canada would have been the biggest economy in that group if we had joined [with the original four]," said Yuen Pau Woo, president of the Asia Pacific Foundation. "The prime minister has said Canada's destiny will increasingly be dependent on transpacific trade and investment. He's just stating the obvious. I don't have to quote the prime minister on this."

Getting involved earlier would have allowed for more input over future membership, as well as the framework and issues to be discussed. But Mr. Woo says the most substantive reason Canada hasn't already joined the partnership is the government's support for supply management. Only a handful of Canadian agriculture sectors—dairy, eggs and egg-hatching, chicken and turkey—are supply managed. The system assigns quotas to producers, managing production and keeping farms profitable. However, it also keeps prices high for consumers and, most importantly from a bargaining perspective, represents a major barrier to foreign imports.

The government has consistently repeated its pro-supply management policy, arguing it's not up for debate in bilateral or multilateral trade talks, and in 2005 the House of Commons passed an all-party resolution supporting supply management.

"Most trade policy experts, even in Canada, believe that we won't be able to maintain the system," said Mr. Woo. "It is a small fraction of the population in a geographically-narrow slice of Canada that benefits from supply management and we are already seen as trade pariahs in the international community because of our inflexibility on this issue."

Since 2006, Australia, Vietnam, Peru and even the US have joined the talks, but Canada continues to hold out. The Americans are pushing for South Korea, Japan and Malaysia to join the next-generation agreement, which would further increase the TPP's value for Canada. There is also talk of the TPP becoming a starting point for a free trade agreement for the Asia Pacific region.

Of the eight countries entering negotiations in March, Canada has free trade agreements with Peru, Chile and the US. Talks with Singapore were launched in October 2001, but have been stalled since August 2007. The TPP would be the first trade deal Canada would sign with any Asian partner.

"If the TPP does evolve into a substantial transpacific trade deal, it's imperative that Canada is part of that grouping," says Mr. Woo.

Justin Brown, the Australian High Commissioner, says his government would like the TPP to have an ambitious negotiating agenda.

"The biggest issue for Canada is supply management, obviously," he acknowledged. "When you talk about ambition, you mean comprehensiveness, and all the countries that are part of these negotiations have to go into them trying to get the biggest deal possible. So to the extent that Canada's got a problem with supply management, then that's obviously an issue it will have to wrestle with in determining how it approaches the TPP."

When deciding whether to participate in the TPP, Canada not only has to consider the importance of lowering trade barriers in the region but the need to keep up with the US and its trade agreements to avoid ceding a competitive edge. However, the Department of Foreign Affairs and International Trade has to decide where to put its resources and TPP isn't necessarily a priority, argues Dan Ciuriak, a former negotiator in the department.

Canada started negotiations on a comprehensive economic deal with the EU last fall and is finalizing the framework for talks with India. And even without signing onto the TPP, Mr. Ciuriak expects Canada will see a benefit if the region aligns its various bilateral trade agreements, simplifying things for other trading partners. For now, Mr. Ciuriak believes the government can wait and see what happens.

"We have other irons in the fire that we have to attend to. If, in due course, the TPP architecture is open, Canada can dock to it at any point in time that we choose to. We can wait and see how it shapes up," he said.

Canada is closely following developments on the TPP, a spokeswoman for Trade Minister Stockwell Day wrote in an email.

"If the TPP continues to develop and starts to lay the ground rules for trade and investment across the Asia-Pacific region, there would be a strong strategic argument for Canada to participate in the negotiations," Mélisa Leclerc wrote, adding increased membership and comprehensive scope would make it a "promising platform for regional integration."

"In that light, we are watching developments closely and reflecting on whether we could add value to these negotiations."

Mr. Brown says Mr. Day has been in contact with the Australian government and indicated Canada is interested in the TPP.

"My understanding is that Canada does want to be involved as quickly as possible, so it's now up to it.... If it wants to proceed, it has to signal that quickly and then the other members have to decide how they want to proceed."

lpayton@embassymag.ca