Canada, Mexico Invited to Join Pacific Trade Zone

Joining the Trans Pacific Partnership will prove highly advantageous if Canada it is to diversify its exports.

Within the space of four years, the G20 has gone from perhaps the most relevant to a largely irrelevant multilateral forum. The leaders’ conference in Los Cabos, Mexico this week produced precious few results except one important bit of news: Canada and Mexico were both invited to join the Trans Pacific Partnership trade agreement.

The TPP is the most ambitious scheme for trade liberalization among nations that border the Pacific rim, except China. The organization hopes to eliminate all commercial tariffs by 2015.

The partnership began six years ago as a free-trade agreement between Brunei, Chile, New Zealand and Singapore. Australia, Japan, Malaysia, Peru, the United States and Vietnam are on track to join. The Philippines, South Korea and Taiwan have also expressed an interest in joining.

For Canada, which seeks to expand oil and other exports across the Pacific to make its economy less dependent on American consumption, membership will prove highly advantageous if the TPP progresses.

“This is a further example of our determination to diversify our exports and to create jobs, growth and long-term prosperity for Canadian families,” the country’s prime minister Stephen Harper told reporters in the Mexican beach resort of Los Cabos on the sidelines of the G20 summit.

Harper and American president Barack Obama said in a joint statement that the two countries share the goal of “expeditiously” reaching a “high standard agreement that will build on the commitments of NAFTA,” the North American Free Trade Agreement that has phased out most trade barriers between the Canada, Mexico and the United States since 1994.

The TPP will put pressure on aspiring members to reduce protectionist measures. Canada would likely have to eliminate a farm support program that limits domestic production of dairy, eggs and poultry to match demand as well as high tariffs on imports to protect agriculture.

For Harper, a conservative leader who won reelection just last year, the political costs of scrapping farm support will probably be bearable. President Obama, who faces a tough reelection battle later this year, will be harder pressed to convince his base that freer trade with Asia is in the interest of American workers.

Manufacturers that were once headquartered in the industrial heartland of the United States, parts of the Midwest and northeast of the country that are now known as the Rust Belt, have shifted production overseas, often to China or other low wage countries in East Asia as well as Mexico. Blue collar voters in states like Ohio and Virginia are critical of the president’s economic policy and could deliver the election for his Republican challenger Mitt Romney if they shift their support in November.

Chinese membership seems unlikely in the short term given the nation’s illiberal economic policies. To get in, it would have to foster more competition between private companies and its state-owned monopolies, allow more direct foreign investment and improve protection of intellectual property rights.

China has made little progress in these areas but if the rest of the region, including North and Latin American nations, were to become a free-trade zone, it may encourage the Chinese to open up their economy at a faster pace.