NAFTA isn’t the only game in town; CPTPP also important

Although the North American Free Trade Agreement is all over the news and the somewhat rocky nature of our relationship with our largest trading partner receives much attention, Canada’s relationship with Pacific Rim countries has opened new doors for the Canadian agriculture sector.

With the somewhat awkward title of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the deal gives Canada’s agriculture industry preferential access to all signatory countries, including Japan, Vietnam, Malaysia, Australia and New Zealand.

The agreement is now before Parliament for debate and passage.

Although some tariff barriers are dropped immediately upon entry into the agreement, the word “progressive” in the title refers to elimination of several others over a number of subsequent years.

For instance, Japan will cancel tariff barriers on 32 percent of agriculture and agri-food products at the outset, nine percent of items will still have tariffs but at a preferential rate and the remaining tariffs will be eliminated or reduced over the next 20 years.

Japan is our largest trading partner within the region, purchasing $4.3 billion in agriculture and agri-food products a year between 2014 and 2016. Our total exports, including to the other countries in the same period, amounted to $6.9 billion annually.

Vietnam will, at implementation, drop 31 percent of its tariffs, and a further 67 percent of products will become duty free over the following 15 years. Malaysia will drop 92 percent of its tariffs upon entry into the program, and seven percent will become duty free over 15 years. Australia will drop all tariffs immediately, except for one line, which will be cancelled over the following four years. Similarly, New Zealand will eliminate 99 percent of its tariffs at the beginning with the remaining tariffs disappearing within five years.

To place these changes in context, Japan, Malaysia and Vietnam currently place tariffs on Canadian agricultural products of 17.3, 17 and almost 11 percent, respectively. However, this hides the fact that some tariffs are almost prohibitive to Canadian products. Japan places up to a 20 percent tariff on pork, including sausage, and 38.5 percent on fresh/chilled and frozen beef.

The Japanese pork tariffs will be eliminated within 10 years while the beef ones will be reduced to nine percent within 15 years. This market will also increase Canada-specific quotas for wheat and barley, and the mark-ups on these items will be reduced by almost half.

Canada already has free trade agreements with Mexico, Peru and Chile, but this new agreement will expand export opportunities to these countries.

Currently, our top trade exports are canola, wheat, pork, soybeans, malt, durum, beef, canola oil, lentils and oddly enough, frozen french fries. The new agreement will not only open new markets for our agricultural products, but the food processing and beverage industries are also expected to make gains.

Supply managed dairy, poultry and egg sectors, which represent a huge hurdle in NAFTA talks, will be given new access to CPTPP countries through volume-limited quotas to be phased in over 13 years.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.

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