On October 25, 2018, the legislative bill to implement the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Canada received royal assent. The CPTPP is a free trade agreement (FTA) that Canada signed with 10 other countries on March 8, 2018. The agreement encompasses one of the largest trading areas of the world and is worth approximately 13.5% of global gross domestic product (GDP).
Now that Canada and five other signatories have ratified the CPTPP, the CPTPP is scheduled to enter into force on December 30, 2018 between six CPTPP countries (Canada, Mexico, Australia, New Zealand, Singapore and Japan).
The 11 members of the CPTPP are Canada, Australia, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
The goal of the CPTPP is to increase preferential market access to new markets by eliminating or reducing tariffs. According to the Office of the Chief Economist at Global Affairs Canada, preferential market access under the CPTPP is expected to result in export tariff savings of $428 million per year1 for Canadian exporters and provide Canadian exports a cost advantage compared to exports from non-CPTPP countries. Additionally, eliminating tariffs will help level the playing field with Canada’s export competitors who already have FTAs with CPTPP signatories. Certain tariff reductions will be immediate while others are phased in over time.
The CPTPP is currently undergoing ratification and implementation processes in each of the member countries. It will enter into force 60 days after at least six members have notified the Depositary in New Zealand that they have concluded the ratification processes in their respective countries.
Six member countries (Canada, Mexico, Australia, New Zealand, Singapore and Japan) have now notified the Depositary. As a result, the CPTPP will enter into force for these six countries 60 days following the latest notification, which has been identified as December 30, 2018 (according to an Australian government press release).
For each of the remaining CPTPP signatories, the CPTPP will enter into force for those countries, 60 days after the member country notifies the Depositary that it has concluded its ratification process.
The CPTPP addresses key issues across a wide range of industries: digital trade, intellectual property rights, state-owned enterprises, non‑tariff barriers, technical barriers to trade, sanitary and phytosanitary measures, regulatory coherence, labour and environmental standards, goods, services, investment and government procurement.
There are numerous opportunities for trade and investment in the rapidly-growing markets of the Asia-Pacific region. The CPTPP will give Canada greater market access in this key region and increase Canada’s GDP by approximately $4.2 billion by 2040,2 according to projections based on studies conducted by the Office of the Chief Economist. This growth will mainly be driven by exports of goods and services as well as increases in investment.
Imports by Canada from existing FTA partners are projected to fall as previously non-FTA partners expand their market share in Canada. Canada’s export gains under the CPTPP may also be partially offset by a decline in exports to Canada’s existing FTA partners, such as Chile, Mexico and Peru.3 Nevertheless, many importers and exporters are likely to benefit when the CPTPP enters into force as it provides a generous framework of tariff reductions or eliminations for its members.
For example, Canadian exports of the following CPTPP qualifying goods will become duty-free immediately upon entry into force, as shown in the table below:
Overall, total Canadian exports to other CPTPP countries are projected to increase by $2.7 billion or 4.2%,4 with the largest gains expected in Japan, Australia, Vietnam and Malaysia. These exports will range from pork, beef products, vegetable oils, wood products, non-ferrous metals, chemical products, machinery and equipment, transportation equipment, automotive products and food products.
Canadian importers and exporters to CPTPP member countries should prepare for the anticipated benefits when it enters into force on December 30, 2018.
In addition, Canadian and Mexican importers/exporters should consider the synergies in the new United States-Mexico-Canada Agreement (USMCA) when reviewing required changes to rules of origin to benefit from tariff preferences across these trade agreements. Some of the rules of origin and other provisions will be more aligned between these two newer agreements.
While the USMCA has not yet entered into force and still requires work, using the CPTPP as a framework to consider some of the changes that may be required in your business if the USMCA enters into force will be both efficient and productive.
PwC can work with your company to:
As the CPTPP enters into force with all member countries, there will be more growth opportunities for small and medium-sized enterprises – making it even easier for first-time exporters to grow their companies abroad in new markets.
We can help you grow your business both in Canada and abroad.
1. “Economic impact of Canada’s participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership,” Office of the Chief Economist, Global Affairs Canada (February 16, 2018).
2. Ibid (note 1).
3. Ibid (note 1).
4. Ibid (note 1).