TPP study sees net ‘neutral’ effect on dairy sector

(Keith Weller photo courtesy ARS/USDA)

An economic impact study on Canada’s participation in a Trans-Pacific Partnership (TPP) trade deal finds losses in Canada’s dairy sector would be “offset” by gains for dairy processors from cheaper dairy imports.

The study, prepared for the federal government by its Office of the Chief Economist and released Friday, notes Canada has offered expanded access for imports of dairy, egg and poultry products from TPP member nations, over and above its commitments through the North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO).

Among the TPP member nations, Canada already has free trade deals with the U.S. and Mexico under NAFTA and separate trade pacts with Chile and Peru.

A TPP deal, which Canada has already committed to bring back to Ottawa for review, including all 12 partners would also give Canada free trade agreements (FTAs) with Japan, Australia, Malaysia, New Zealand, Singapore, Vietnam and Brunei Darussalam.

The impact study looks at projected economic impact for Canada if it chooses to be a party to the TPP — and the impact if it opts out of the deal — on the assumption that all of the 11 other member countries remain in the pact.

In the case of Canada’s dairy sector, assuming its current supply management system is “strictly preserved” — that is, if market prices stay the same in Canada after a TPP deal takes effect — “the net effect of an increase in dairy import quotas on the Canadian dairy sector would be neutral,” the impact report said.

Canadian imports of dairy products from TPP countries, mainly from the U.S., would increase by US$500 million, the report said.

A net increase in imports of international dairy products would be about US$358 million after a TPP deal, the report said, after deducting the “displacing effect” for imports from the rest of the world, mainly dairy imports from the European Union.

“There could be some losses in Canadian dairy production” from the TPP, the study said, “and subsequently losses in economic welfare from producers’ perspective, but these losses could be offset by gains elsewhere in the sector benefiting from imported dairy products.”

That assumption, the study said, is based on the “majority” of the additional TPP-related milk and butter import quotas going into value-added processing.

“Room for liberalization”

For export sectors overall, the TPP’s “central benefits” to Canada include “a guarantee of preferential market access to the seven new FTA partner countries.”

A TPP deal would give $428 million per year in tariff savings to Canadian exporters shipping to those seven countries, mainly from Japan, Vietnam and Australia. The resulting boost in exports to those countries would be US$2.2 billion per year, the study said.

The “most significant new export opportunities” would be in Japan, with an expected increase of US$1.1 billion per year in exports led by pork, beef, and wood products, the study said. Other gains would come in food and automotive products to Vietnam and machinery and equipment exports to Australia and Malaysia.

Canada has “overall lower levels of tariff protection” than most TPP countries, the study said, so “holding other conditions constant, liberalization under the TPP should provide a net advantage for Canada.”

Most TPP countries have low tariffs on average, the study added, but “there is still considerable room for liberalization for Canada’s trade with the seven new FTA countries and for liberalization of some sensitive agricultural products in all TPP countries.”

For example, the study noted, Vietnam’s simple averaged applied tariff is 10.6 per cent, and Japan’s tariffs on fresh/chilled and frozen beef are 38.5 per cent.

Not joining TPP, meanwhile, “would put Canada in a disadvantaged position relative to other TPP competitors in these markets,” the study said. “In particular, the cost of losing export opportunities for agricultural products to Japan would be substantial.”

For example, the study said, if Canada opts out of the TPP, Canadian beef exports to Japan could drop by more than 66 per cent and pork exports by 13 per cent.

Also, the report warned of an “erosion of Canada’s NAFTA preferences in the U.S. and Mexican markets” as those countries favour trade with other TPP nations. That erosion, the report said, “will occur regardless of whether or not Canada chooses to be a party to the TPP agreement.”

However, the study also expects Canada to see “positive export gains in the U.S. market driven by TPP-induced income growth in the U.S.”

For example, Canadian exports of “some agricultural products to the U.S. are projected to grow even though there are no new additional market commitments from the U.S. in these sectors.”

Across all sectors, the study found, opting out of the TPP would “present several risks to Canada’s economic well-being, which could lead to total (gross domestic product) losses of approximately $5.3 billion.” Joining a TPP deal, meanwhile, would “boost Canada’s GDP by a permanent 0.127 per cent above baseline, generating GDP gains of $4.3 billion” by 2040.

“Little good news”

The federal New Democrats’ trade critic, Essex MP Tracey Ramsey, said Saturday the impact study offers “little good news to reassure Canadians that this deal will benefit them.”

A TPP deal, she said, “will damage important industries while driving down wages and putting corporate interests ahead of citizens’.” Canada’s auto sector, she said, “has already been penalized by bad trade deals” and would see “a decline in investment and production” under TPP.

“Despite this, the Liberals are pushing ahead (on a TPP deal) and have also made no clear commitment to supply management.” The government, Ramsey said, “needs to provide more evidence that this deal can benefit Canadian workers before the deal is ratified.” — Network

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