Nov 10, 2017 | 21:14 GMT

3 mins read

Vietnam: TPP Talks Break Down After Canada Appears to Balk

Forecast Update

In Stratfor's 2017 Fourth-Quarter Forecast we wrote that the remaining 11 countries negotiating the Trans-Pacific Partnership would try to devise a path forward after the United States abruptly departed the trade agreement in January. The path will be made more difficult, however, by other member states' protectionist reservations.

Trade negotiations between the remaining eleven countries trying to cobble together the Trans-Pacific Partnership (TPP) hit a major snag this week. The remaining members of what is now being called the TPP-11 have managed to preserve the trade pact since the United States, which initiated the deal, pulled out in January. On Nov. 9, the Japanese minister in charge of TPP announced that all sides had reached an agreement in principle and would sign the trade deal on the sidelines of the Asia-Pacific Economic Cooperation (APEC) forum in Vietnam. But just one day later, Canadian Prime Minister Justin Trudeau skipped the TPP-11 leaders meeting, and New Zealand Prime Minister Jacinda Ardern said that the TPP members had indefinitely postponed the talks. It is unclear whether Canada is responsible for the delay, but circumstances suggest that is the case.

If Canada is indeed wavering on the deal, its indecision should come as no surprise. Trudeau had been hinting all week that Ottawa had reservations about signing the agreement, following weeks of reports that progress had not been made on Canada's concerns. Canada has found TPP — and other trade deals — troubling for domestic political reasons. The relationship between the central government and the provincial governments in Canada has long shaped the nation's trade and economic policies, with provincial capitals wielding outsized influence.

For many provincial governments in Canada, including Ontario and Quebec, the dairy sector is a point of contention in many trade negotiations. Canada's dairy sector has a long history of government intervention and strict supply chain management dating back to the post-WWII period. Canadian dairy has become more liberalized in recent decades, but international pressure to accelerate this process has caused Canada to balk in the past. For instance, the Canadian government's offers to implement supply quotas for EU countries prompted pushback from the provinces that nearly derailed the Canada-EU trade agreement. Likewise, the dairy sector has been at the center of Canada's unease with the TPP trade talks. Other areas of disagreement such as protections for Canadian cultural products (particularly film and television, a key concern for Quebec) and corporate intellectual property likely also contributed to Trudeau's last-minute reservations.

The other major problem for TPP is obvious: The United States was the driving force for the deal until it withdrew from talks. TPP hinged on the idea of using access to the U.S. market to entice nations such as Vietnam to make deep trade and economic policy reforms. The TPP-11 countries have continued to negotiate the trade pact in the hopes that a future U.S. administration would reconsider joining, but the incentive to make painful concessions and reforms has diminished in the absence of U.S. assurances.

This latest stumbling block for the TPP-11 casts doubt on whether the trade pact can recover. For China, the potential collapse of the TPP-11 provides opportunities for the country to shape the balance of regional trade agreements to be more in line with its interests. And Beijing will use every means available to position itself rhetorically as the champion of free trade, as the United States pursues a more protectionist tack.           

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