Tax & Trade Blog
CPTPP Will Open Asia-Pacific to Canadian Business on Dec. 30
On October 29, 2018, Canada became fifth country to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the “CPTPP”), joining Mexico (June 28, 2018), Japan (July 6, 2018), Singapore (July 19, 2018), and New Zealand (October 25, 2018).
Canada’s ratification meant that only one other country needed to ratify the agreement to trigger implementation of the CPTPP. Fortunately, Canada did not have to wait very long because on October 30, 2018 Australia became the sixth country to ratify the CPTTP, triggering a 60-day countdown to the implementation of the agreement on December 30, 2018.
The remaining countries that have not yet ratified the agreement are Brunei Darussalam, Chile, Malaysia, Peru and Vietnam.
The Canadian government has consistently stressed the importance of being one of the first six countries to ratify the CPTPP. In fact, the Standing Senate Committee on Foreign Affairs and International Trade recently released a report in which it indicated that “The committee recognizes the potential benefits of the CPTPP and understands the significance that Canada be among those first six countries to ratify the agreement to ensure that Canadian businesses are not put at a competitive disadvantage,”
The 11 countries that have agreed to take part in the CPTPP represent 495 million people and have a combined GDP of $13.5 trillion. While Canada already has free trade agreements with three CPTPP countries: Chile, Mexico, and Peru, the CPTPP will establish new free trade agreements with seven additional Asia-Pacific countries: Australia, Brunei Darussalam, Japan, Malaysia, New Zealand, Singapore and Vietnam. In 2016, Canada’s bilateral trade with these seven new CPTPP trading partners totaled $71.3 billion.
In terms of providing Canadian businesses with a competitive advantage, when the CPTPP comes into force and joins NAFTA/USMCA and free trade agreements with the European Union (CETA) and South Korea, Canada will become the first and only G7 nation with free trade access to the Americas, Europe, and the Asia-Pacific region.
According to recent Canadian government calculations, once the TPP is fully implemented and all applicable tariff cuts are in place, Canadian exporters could save $428 million per year.
Most of the anticipated CPTPP savings will come with new preferential tariff treatment on exports to Japan ($338 million), Australia ($47 million) and Vietnam ($25 million).
Access to Japan’s large protected market is arguably the most significant benefit of Canada's ratification of the CPTPP. When all the tariff cuts mandated by the CPTTP fully are implemented in the next 15 years, exporters of Canadian products to Japan across various industries are expected to reap significant cost savings. The expected savings to Canadian businesses exporting to Japan include:
- wheat and barley exports ($167 million);
- pork products ($51 million);
- beef ($21 million); and
- wood products ($32 million).
The elimination of tariffs in Japan under the CPTPP will also give Canadian exporters “first mover” advantage in the Japanese market over large exporters in countries like the United States, which do not currently have free trade agreements with Japan.
The CPTPP will also help create a level playing field with export competitors that are also parties to the CPTPP that already have existing free trade agreements with other CPTPP countries. For example, Australia has an existing free trade agreement with Japan that gives it preferential access for several agriculture products that compete directly with Canadian exports that are currently subject to higher tariffs.
Once the CPTPP is fully implemented 99% of Canada’s current exports to CPTPP member countries will enter free of tariffs. Given the significant opportunities that the CPTPP will create, Canadian businesses should speak to experts in customs and trade to determine how they can use the CPTPP to effectively expand and grow their businesses internationally. Time is of the essence, as those who do so in the near future may be able to gain a first mover advantage.
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