COOL and TPP: Friends with them or friends with others: what direction is the US going to push Canada’s agriculture and farming?

So would you like to have a dependable and relatively submissive extra-10 percent clamped onto your economy as you fight for global power and influence?

Or would you prefer to push that 10 percent away, to allow it to get much closer to overseas and potentially hostile economic and strategic competitors, preferring to play the “maitre chez nous” game and forget about much boosting your influence beyond your borders?

That’s the underlying dynamic I think is playing out in the U.S. political, economic and agriculture demimondes as both the response to the Country of Origin Labelling (COOL) issue and the Trans Pacific Partnership. The U.S. has been able to use COOL to harass and shrink Canada’s and Mexico’s share of domestic U.S. meat markets, but has been ultimately been found cheating (with no further excuses allowed) and now needs to decide how to respond: defiance or compliance.

In a different way, the U.S. is having to decide whether or not Canada’s supply management strangulation of dairy product imports justifies booting Canada out of the TPP negotiations. Canada isn’t cheating on supply management, because it’s an openly administered system that was deliberately kept outside of the Free Trade Agreement in 1988 and NAFTA in 1994, but it definitely locks U.S. and other dairy exporters out of most of our market, which doesn’t seem very fair to them. Canada’s dairy protections are a big deal to some northern U.S. congressfolk and they don’t want to accept Canada in the TPP if the U.S. and other exporters don’t get “meaningful” access to Canada’s dairy market.

Americans are profoundly split on these issues, and there is lots of self-interest underlying many individuals’ positions. Some politicians and industry groups are beholden to one set of farmers, processors, exporters or marketers and sing their tune. That goes both ways on this issue. But at a deep level, it seems to me to be more an issue of whether the U.S. wants to be the world’s free trade champion and the leader of the world’s free nations (both economically and politically), or simply the world’s sole superpower that negotiates from a position of strength. Being the free trade champion requires sometimes losing economic battles if your industries aren’t the world’s best. Being the power-based superpower means sometimes losing battles or being cut out of situations when somebody doesn’t feel intimidated or enticed, or is actively antagonistic.

It seems like U.S. president Barack Obama and his sometimes enemies, the Republicans, are on the side of trying to be the world leaders on free trade, and then to connect that to loose overseas strategic alliances, as on China’s periphery. They think setting a U.S. dominated trade deal based on free trade will benefit the U.S. in the long run and tie countries to it – rather than to a potentially hostile power like China.

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Others, like quite a few Democrats, seem to fear international agreements the same way lots of Canadians have over the decades. The agreements are suspected of being ways to undermine economic and social policy achievements of the national government and be prone to manipulation by foreign powers and collaborationist domestic players. They favour one-off deals that don’t just trust free trade to raise all boats, but nail down specific agreements that make sure certain gains are guaranteed and a quid-pro-quo situation emerges.

So how will that affect the resolutions of TPP and COOL? I suspect the free traders in the U.S. will win, mostly because it’s actually in their overall best interest. The U.S. is an economic powerhouse and a fabulous winner in free trade in most industries most times. It also wants to get itself enmeshed in trading relationships with countries like Canada, Japan and Malaysia in order to form common economic interests – which then act as a shield against countries like China. That’s what it has done over the decades around the world to softly wall off foreign antagonists.

COOL just doesn’t fit with a law-abiding, free trade state, so that stinky legislation will probably be wafted out the window in the next few months, and everyone will feel free to breath again. It was never more than a thinly-disguised attempt to block markets to Canadian and Mexican farmers and few have ever openly defended the idea of being anti-trade. Now the disguise is gone, definitively, there’s not much left to defend.

Supply management obviously doesn’t fit well with a free trade deal – of any sort. It’s not free trade. It doesn’t tend to be compliant with any notion of free trade. But it probably doesn’t need to. The Americans – most of the important ones, anyway – badly want TPP to work out and be a success. They want to expand America’s economic sphere of influence for economic reasons and to draw countries more tightly into its orbit rather than China’s. That probably allows the Canadian government to be relatively stubborn and obstinate on supply management and get away with it. Do the Americans really want to freeze Canada out and encourage the Canadian government to sign bilateral deals with China, Russia, wherever else in response? The U.S. didn’t seem too happy when China began showing an interest in owning chunks of the oilsands. The incentive to limit, slow or discourage China’s involvement in Canada’s economy weakens if the U.S. spurns Canada and humiliates its government. Why wouldn’t Canada wean itself off (total) dependence on the U.S. if the U.S. seems an unhappy and harassing partner? That’s what a lot of Canadians have always asked.

So, as I humorously wrote about last week, (Getting Tipsy about TPP and TPA) I suspect Canada won’t have to give up too much supply management in order to not get booted from TPP, and with COOL a deal will probably come forward soon to clear that air. It’s in the U.S.’s best interest to tie down Canada as an extra 10 percent to its economy, rather than see it become a more independent economy that might begin finding other friends more friendly.

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About the author

Ed White — Ed White has specialized in markets coverage since 2001 and has achieved the Derivatives Market Specialist (DMS) designation with the Canadian Securities Institute.

Also by this author

  • George Boatright

    There are three things this Alaskan prefers to see on products: Made in the USA, Made in Canada, and Made in Mexico.

  • ed

    Everyone in these nations that sign into the TPP should have their minimum wages lowered to the lowest labor rate on the planet whether it be $1.00 per day or what ever. As close to “FREE” trade as possible. Don’t laugh, they had that in an earlier draft. That should reduce the price of products such as milk as low as you can get it. That would work right! Then again, no one would be able to afford milk, so it wouldn’t work. The advantages in trade agreements sure are hard to measure. Operation TPP — Taking Profit from Poverty. Acronyms are COOL but not always fair too.