Could the TPP boost Canada-Mexico relations?

Much ink has been spilled about the TPP agreement reached between Canada and 11 other trans-Pacific partners in early October. Minister for International Trade Chrystia Freeland has been travelling across the country, listening to groups both for and against the agreement as Canada decides whether or not to ratify it. Among the criticisms are complaints that it will open Canada’s auto industry to too much competition from Japan, that it will play to U.S. strengths in intellectual property, and that it will give investors too much power to sue governments. Supporters talk about new markets in Japan, Vietnam and Southeast Asia, as well as protecting Canada’s access to the U.S. market. However, there has been almost no attention on an important dimension of the TPP: its impact on Canada-Mexico relations. 

Canada and Mexico have been NAFTA partners for over 20 years and have a bilateral diplomatic relationship that recently celebrated its 70th anniversary. The TPP offers these two nations a new opportunity to strengthen their collaboration, to go further in the integration of their regional value chains and, in this manner, to maximize their economic and social benefits. The first challenge is to create a better understanding in both countries regarding the opportunities and positive economic impact that the TPP might generate for each of their economies.

Building capacity together

Canada and Mexico have a solid relationship, carved out over many years. They are each other’s third largest bilateral trading partner. Canada is in fourth place in terms of foreign direct investment (FDI) in Mexico and there are around 3,600 Canadian companies operating in Mexico. Mexico is the second largest auto parts supplier to Canada and had FDI in 2014 of around $884 million (stock) in Canada.

Despite these numbers, there is even more room to build capacity together and the TPP is a great opportunity to do so. According to the report Forging a New Strategic Partnership between Canada and Mexico, authored by Canadian Chamber of Commerce Chairman Perrin Beatty and Andres Rozental, Mexico’s former deputy foreign minister and a member of the Centre for International Governance Innovation’s operating board, these two nations “should realize that despite the growth in bilateral trade and investment, they may be leaving economic opportunities lying on the table.” In their view, the TPP could be a good opportunity to create synergies and maximize benefits. Likewise, Laura Dawson, current Director of the Canada Institute at the Wilson Center in Washington, DC, has noted that “Canadians have been slow to recognize the opportunities Mexico provides.” These words could equally be applied to Mexicans about Canada.

The opportunity to create initiatives together through the TPP could not come at a better moment considering that both governments are trying to relaunch their bilateral relationship. Last November, during the meeting of the Asia-Pacific Economic Cooperation (APEC) in Manila, the Minister of the Foreign Relations Secretariat of Mexico and her Canadian counterpart reiterated the agreement reached between the Prime Minister of Canada and the Mexican President with regard to starting a new age in the relationship; they welcomed the TPP and made the commitment to promote more collaboration between them to achieve greater innovation and competitiveness in the region. Moreover, the announcement made recently by the government of Canada about its decision to eliminate the entry visitor visa for Mexicans gives a special driver to the bilateral relationship.

Based on this, Canadians and Mexicans should take advantage of the renewed desire of both governments to grow their collaboration even more and pursue a number of bilateral initiatives that already exist between them. The TPP is an ideal showcase to put in practice the progress and experience that they have built together such as the Canada-Mexico Partnership, the North American Leaders’ Summit, the North American Competitiveness Workplan (NACW) and of course NAFTA.

Relevance of the TPP

With regard to the relevance of the TPP, Canadians and Mexicans should be aware not only of the fact that the TPP represents a potential market with more than 800 million people, 40 percent of world GDP and 25 percent of the total trade worldwide, but that the TPP also helps protect the NAFTA privileges of both nations. As a concrete example of this, the Mexican sugar industry, thanks to Mexico’s participation in the TPP negotiations, was able to counter the interests of Australia in penetrating the U.S. sugar market. Mexico is thus assured to keep its exports of sugar to the U.S. safe through a quota system allocating around 1.5 million metric tonnes, while Mexico’s negotiators succeeded in limiting the quota set for Australia to 65,000 tonnes per year.

As well, the TPP offers both Mexico and Canada the prospect of a foothold in Asia and the chance to be on the ground floor as the trade architecture of the region is constructed. According to the World Bank, the TPP is a mega-regional trade agreement (MRTA), giving it the potential to impact global trade and change the rules of international trade. The TPP countries achieved in the final text the inclusion of the goal to eliminate obstacles to trade and to reduce to almost zero about 18,000 tariff lines. Additionally, the TPP nations agreed to new rules that no FTA before had included in areas such as intellectual property, e-commerce, competition, small and medium enterprises (SMEs), state owned enterprises (SOEs), labour and environment, all of which have the potential to further promote economic growth and prosperity.

The TPP opens six new markets for Mexico: Australia, Brunei, Malaysia, New Zealand, Singapore and Vietnam, which equal 155 million people. While these are not large economies, the economic dynamism that each of them offers adds value to the agreement. For example, Vietnam is the only TPP nation graded as lower-middle-income; however, its participation is justified not only because of the size of its population, but also by its economic growth, which reached 7.1 percent on average from 2001 to 2011. For Canada, the TPP opens the same six markets as it does for Mexico and, in addition, the Japanese market, with 125 million people, representing the third most important economy in the globe with a GDP valued at 4.601 trillion in 2014.

Special attention should be given to the new relationship and preferential access that both Canada and Mexico will gain with Japan. In the case of Canada, it is a trade relationship that has been sought in bilateral talks since 2012. The new government of Prime Minister Justin Trudeau has declared its interest in strengthening the trade relationship with Japan and has defined Japan as a priority market through the new Global Markets Action Plan. On the other hand, for Mexico the new opening to Japan through the TPP is an opportunity to deepen a relationship that has been growing steadily in the last few years; Mexican exports to Japan in the last 10 years have almost doubled, while imports have grown by 34 percent. Canadians and Mexicans should respectively give more attention and value to this trading relationship, that the TPP opens and deepens for them. Some sectors where Canada and Mexico might find opportunities are information and communications technology, aerospace, agriculture, processed foods, automotive, education, life sciences, seafood, forestry, wood products and mining.

Ratification

Trudeau’s government has not yet taken a position on whether or not to support Canada’s accession to the TPP. Cross-country consultations are taking place and the government will be waiting until the TPP text is tabled in parliament before taking its final position. On the other hand, in Mexico it seems that the government took into account the most sensitive themes such as automotive tariffs, textiles and agricultural products. For instance, in the auto industry Japan pressed to reduce the level of local (TPP) content for auto parts for cars manufactured in the North American region to just 30 percent. At the end of negotiations, the percentage of regional content for vehicles that are traded between TPP nations was set at 45 percent. Although lower than the 50 percent requested by the Mexican automotive industry, they were comfortable with the final number. The Canadian auto parts industry is split on the issue, with parts of the industry welcoming new export opportunities and others opposed to the drop in local content requirements from the previous NAFTA standard.

Part of the success of Mexico in achieving consensus was the creation of an Advisory Council focused exclusively on the TPP negotiations. It was composed of leaders from the most influential business organizations, among other experts. In addition, Mexico created the “room next door” to streamline communication between the Mexican negotiators and the representatives of industries. As a result of this process, business leaders have expressed publicly their support for the TPP, considering it beneficial for Mexico’s economy. Now, the government will have to convince the majority of the Congress (Senate) about the benefits of the TPP and obtain its ratification. The Minister of Economy has already started talks and discussions with the different parties in the Mexican Congress.

Prepare to compete

The discussions to ratify the TPP in both nations will likely be much in the public eye in the following weeks and months, and will hopefully include participation and expressions of opinion from interested parties across society. This new stage also demands that Mexicans and Canadians not only prepare themselves to compete fully, but also to build capacities together in specific projects, either in private institutions or the public sector. A great example of the kind of collaboration that both nations might explore was given recently by Mitacs and Conacyt, two leading institutions from Canada and Mexico, respectively, that promote research and training linked to industries and innovation. They agreed to support up to 60 graduate students in the next three years to carry out research internships with local companies in Canada and Mexico. As evidenced by these kinds of examples, the TPP offers a great opportunity to deliver on the desire to further integrate and consolidate the value chains between these two reliable partner nations. The momentum in the bilateral relationship could not come at a better moment. The TPP offers a solid platform on which to achieve these goals.