The Implications of the Trans-Pacific Partnership on Canada-China Relations

Susan Cui is a BA Candidate at the University of Toronto, majoring in International Relations and Economics, minoring in Contemporary Asian Studies. She currently serves as the Editor-in-Chief of Synergy: The Journal of Contemporary Asian Studies.

Abstract

The Trans-Pacific Partnership agreement (TPP) is a multilateral free trade agreement led by the United States, that aims to further strengthen economic integration in the Asia-Pacific. Its membership consists mostly of members of the Asia Pacific Economic Cooperation (APEC), as well as Canada. Canada was a negotiating member during the final stages of the TPP, although as of yet it has neither signed nor ratified the TPP. The member countries of the TPP account for nearly 40% of global GDP, and about a third of all global trade. The only perceived missing element within this powerful economic agreement lies in one area ― the exclusion of the world’s 2nd largest economy, China, which poses a disadvantage to the growth of the Canadian economy. The implications of the TPP could fundamentally change Canada-China relations in the coming decade. As such, this paper aims to explain why Canada should commit to the TPP agreement, while at the same time exercising caution by establishing a separate free trade framework with China at the first available opportunity.

Keywords: Bilateral relations, trade relations, TPP, Canada, China

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Introduction

The rising significance of the Asia-Pacific in the global economy has brought about an increasing number of multilateral initiatives in the region. One such initiative is the newly negotiated Trans-Pacific Partnership (TPP) agreement, a multilateral free trade agreement that encompasses member states of the Asia Pacific Economic Cooperation (APEC), including Canada as a negotiating member. The global focus on the TPP agreement is largely a result of the expansive economic coverage of the deal, as the member countries of the TPP agreement account for nearly 40% of global GDP, and about a third of global trade.¹ The only perceived missing element within this powerful economic agreement lies in one area: the world’s 2nd largest economy,² China, is excluded, or as some preferred to say, has not yet requested to join the deal.

China has experienced rapid economic growth since its entrance to the World Trade Organization in 2001, when it first opened up its domestic economy to the global markets. As a result, China has seen an increase in its economic power, and its role in the global economic order has consequently shifted, moving to a position of dominance in the world economy and global geopolitics. However, the TPP agreement seems to be a thorn in its eye, as the multilateral free trade agreement in reality, evermore poses to be a geopolitical strategy led by the United States to stem Chinese influence in the Asia-Pacific. While the Chinese government is beginning to adopt a more stringent position towards the TPP, the prospective loss of trade to Canada as a result of not having further entrance into the Chinese market becomes real. On the one hand, the TPP lays out the foundation to economically integrate Canada further with its traditional allies. On the other hand, Canada faces the risk of losing the 45 years of hard-sought relations with China if it signs the TPP agreement.

This paper will argue that the Trans-Pacific Partnership agreement will bring tangible benefits to Canada, in terms of protecting Canada’s preferential market status, and will grant Canada further entrance into Japan, the world’s third largest economy. However, with China not a member of the TPP agreement, Canada bears the threat of a prospective loss of trade. As such, following the signing of the TPP, for both political and economic reasons, Canada should take the first available opportunity to set up a comprehensive free trade agreement with China, whether in a bilateral or multilateral context. Canada’s goal should therefore be to preserve its traditional economic relations with the US, while continuing to move forward with Canada-China relations.

Methodology

The Trans-Pacific Partnership Agreement (TPP) is a multilateral Free Trade Agreement that aims to further liberalise the economies of the Asia-Pacific.³ The framework of Canada-China relations within this paper adheres strictly to economic relations between the two countries, most specifically in the areas of trade relations and strategic economic gains and losses between Canada and China. In addition, this paper will also include some background on political relations, to help understand the current economic relations between the two countries. On a broader scale, this paper hopes to make contribution to the literature on Canada-China relations, through comprehensive coverage and analysis of the debates surrounding the TPP agreement and Canada’s alternative free trade strategy with China. This paper ultimately hopes to provide a situational guideline for the consideration of Canadian policy makers, before Canada signs and moves onto the process of ratifying the TPP. Research for this paper is drawn from recent literature and news articles on the TPP, and has also included perspectives drawn from Chinese and Canadian sources. In this paper, it should be specifically noted that henceforward, the country referred to as China is the People’s Republic of China.

This paper is organized in the following manner: section one is a brief history of Canada-China relations. Section two is a brief description of the TPP, and the implications it has on Canada-China relations. Section three identifies the implications that the TPP has on China’s global position, as well as China’s strategic response to the TPP. Section four identifies Canada’s position on the TPP agreement, discussing benefits and losses, and the TPP’s implications on Canada-China relations. Section five explores the possibility for Canada to form an alternative free trade framework with China. Section six looks at recent developments in the TPP and Canada-China trade relations, and identifies the possible course of action that Canada may need to proceed to best secure its interests in trade relations. Section seven concludes the paper.

Section One: A History of Canada-China Relations

Canada’s relations with China can be traced back to the days of missionaries. Representatives of Canadian Protestant and Catholic denominations and orders travelled to China in the late 19th and early 20th century, with the aim of converting the faith of the Chinese population, and to improve the general well-being of the Chinese.⁴ At the end of World War I, it was estimated that mainstream Protestant churches alone were supporting two universities, 270 schools, and 30 hospitals in China.⁵ In October 1970, as one of the first western countries, Trudeau government on behalf of Canada established the first diplomatic relations with China,⁶ setting the foundation for the next 45 years of official relations between the two countries. In 1971, Canada supported the People’s Republic of China in the succession of the “China” seat on the United Nations Security Council.⁷ In June of the same year, Canada also sent its first official delegation to China, headed by Canada’s Minister of Industry. In 1973, Pierre Trudeau made Canada’s first official visit to China, as the Canadian Prime Minister.⁸ In 1978, Paul Desmarais of Power Corporation founded the pivotal business organization that would later drive the business relations between the two countries: the Canada China Business Council, the first ever foreign business group to be established with China.⁹ In 1986, Prime Minister Brian Mulroney led a small business group to China.¹⁰ During Prime Minister Jean Chretien’s time, he heightened business relations between Canada and China, and made regular trips to China as part of Team Canada missions organized by the Canada China Business Council.¹¹ In 2000, Canada also assisted China in its ascension to the World Trade Organization.¹² Throughout the following decade, private sector relations between the two countries continued to grow. 2015 marked the 45th anniversary of the establishment of official relations, marking a new height in relations between the two countries and the foundation for continued growth in business relations.

Section Two: Trans-Pacific Partnership (TPP)

Although Canada-China relations have now spanned 45 years, relations have been constantly challenged through dynamic domestic and international forces. The latest challenge to Canada-China relations has been Canada’s involvement in the Trans-Pacific Partnership agreement (TPP). The TPP is a multilateral Free Trade Agreement, that was established with the aim to further liberalise the economies of the Asia-Pacific region.¹³ The final negotiating stages consisted of the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, Canada, Mexico, and Japan, as the 12 negotiating members of the TPP.¹⁴ The finalized TPP agreement consists of 30 chapters, ranging from market access negotiations in goods, services, and agriculture in regular free trade agreements, to intellectual property rights, services, government procurement, customs, investments, competition, and labour and environmental standards, all of which aim to raise the bar of the international market.¹⁵

The negotiation of the TPP originated from the Trans-Pacific Strategic Economic Partnership (TPSEP) agreement, initially signed between Brunei, Chile, New Zealand, and Singapore. The TPSEP aimed to eliminate 90% of all tariffs between the four member countries by January 1st 2006, and to reduce tariffs completely by 2015.¹⁶ In 2008, President Bush asked if the US could join the TPSEP with the consideration of an expanded agreement, which was subsequently approved alongside the addition of three more negotiating parties in September 2008: Australia, Peru, and Vietnam.¹⁷ Later in 2008, President Obama succeeded Bush, and continued Bush’s commitment in the TPP negotiations at the APEC summit in Honolulu.¹⁸ In March 2010, negotiations for an expanded agreement officially began; it aimed  to include financial services and investment, as well as regulations on border controls.¹⁹ In 2012, both Canada and Mexico joined as full negotiating parties, followed by Japan in 2013 as the last negotiating party of the TPP agreement.²⁰ On October 5th, 2015, negotiations were finalized, and on November 5th, the full text of the TPP agreement was released to the public of all member states.²¹ The final signing ceremony for the TPP agreement has been scheduled to take place on February 4, 2016 in Auckland, New Zealand.²² The date of the formal signing ceremony will commence a two year period, in which all parties will have to ratify the TPP through their own respective governments, before the TPP as a multilateral free trade agreement can take effect.²³ The biggest problem that the TPP agreement poses for Canada is that China, Canada’s second largest trading partner, was neither invited to negotiations, nor requested membership to the multilateral free trade deal, while Canada itself was a negotiating party of the deal and is expected to sign and fully join the agreement within the time frame of the next 2 years.²⁴

The TPP’s Implication on China

Scholarly opinion on why China is not in the TPP agreement is varied. Some argue that China was not invited to participate in the TPP,²⁵ while others argue that China has not yet taken the initiative to request to join the TPP.²⁶ In either case, what really matters is that the TPP currently does not include China, and will most likely continue to exclude China. The rationale behind this possible situation is simple: China sees the TPP as an instrument of the United States to constrain China’s rising influence in the Asia-Pacific region, and for a good reason it sees things this way. The first suspicious sign behind the TPP agreement was when the US initially joined the TPP negotiations. American negotiators complicated talks by introducing “NAFTA Plus” issues, such as environmental and labour issues, government procurement, and intellectual property enforcement and sanctions. These US-introduced stipulations set a high entry bar to the TPP that China does not qualify for, and would not be able to sustain even if it joined in on the agreement.²⁷ In November 2011, US Secretary of State Hillary Clinton officially announced the Obama administration’s new “pivot to Asia” policy,²⁸ which essentially confirmed possible US motives behind the TPP agreement on the Chinese side, as well as the possibility that the US may use the TPP to control the trade front of the Asia-Pacific region.²⁹ American motives behind the TPP were confirmed by President Obama, when he asked Congress for ratification of the TPP agreement in his final State of the Union on January 12th, 2016: “With [the] TPP, China doesn’t set the rules in that region, we do. You want to show our strength in this century? Approve this agreement. Give us the tools to enforce it.”³⁰ Although some scholars continue to argue that the TPP is simply a trade deal and not an anti-China deal, the series of actions taken by the US since the initiation of the expanded TPP agreement clearly positions China in a cautious position against the US administration and its leadership in the TPP agreement.

China’s rationale behind not joining the TPP agreement is more than political, also including economic calculations. Although joining the TPP will boost China’s economy, China will still experience trade growth without the TPP. However, the reverse may not be true for states that are part of the TPP, who lack further access to the Chinese market. In 2012, goods trade between TPP members amounted to over USD 2.7 trillion, while goods trade between China and TPP members amounted to over USD 1.4 trillion. This accounts for over half of all trade between TPP members, and other members of the Asia-Pacific Economic Cooperation (APEC).³¹ In 2010, the average share of imports from China to TPP members accounted for more than 17% of each TPP member’s total imports.³² In addition, China already has bilateral free trade agreements with four participants of the TPP agreement (Chile, New Zealand, Peru, and Singapore), minimizing its potential market loss.³³ At the University of Western Ontario, Dr. John Whalley and Chunding Li have concluded that the TPP will harm Chinese welfare interests. This can be attributed to a prospective decline in consumption, as a result of increased exports and decreased imports, if China does not join the TPP agreement. However, they also found that China’s exports and total production may continue to increase, due to prospective increases in external demand.³⁴ Dr. Li Xin from the Institute of National Accounts, Beijing Normal University, also found similar results. Dr. Xin found that Chinese exports would be affected by a trade diversion, due to perceived competition from developing states such as Vietnam and Malaysia. However, in terms of labour, for instance, the trade diversion would be negligible due to the size of the Chinese economy and the stringent rules posed by the TPP agreement, which would bind the economic activities of its members to a risky high standard.³⁵ Ultimately, China’s potential economic losses from not joining the TPP agreement are economically insignificant. However, due to the geopolitical implications of the TPP and through considerations of the future of China’s economic development, China has responded to the TPP by setting out its own counter-strategy to maintain its own economic agenda in the Asia-Pacific.

Section Three: China’s Response to the TPP

China’s counter-strategy in the Asia-Pacific against the American-led TPP agreement centres on accelerating its economic integration within the Asia-Pacific, before it is truly marginalized by the effects of the TPP.³⁶ One dimension of this counter-strategy has been to focus on accelerating progress in China’s regional Free Trade Agreements (FTAs), which includes the ongoing China-South Korea FTA and China-Japan-South Korea FTA negotiations (though the latter is facing a stalemate, due to ongoing China-Japan and South Korea-Japan territorial disputes).³⁷ Currently, China has FTA agreements or has entered negotiations for FTA agreements with 6 out of the 12 TPP members, and has entered negotiations with 9 out of the 12 TPP members if including both regional and multilateral FTA negotiations.³⁸ Another dimension of China’s economic counter-strategy has been focusing on creating its own TPP-like free trade zone, through the establishment of the Regional Comprehensive Economic Partnership (RCEP), a proposed 16-nation free-trade zone which will include 10 members of the Association of Southeast Asian Nations (ASEAN) along with China, India, Japan, South Korea, Australia, and New Zealand. If negotiations succeed, the RCEP would be the biggest of such a trade bloc in the world.³⁹ China has also entered into ongoing free trade negotiations with ASEAN and the Gulf Cooperation Council, to counteract possible effects of the TPP.⁴⁰ Overall, in terms of geopolitical coverage, China’s counter-strategy against the TPP has been fairly extensive, although the success of such a counter-strategy is yet to be determined. For Canada, the examination of China’s counter-strategy against the TPP is especially important if it wishes to further explore opportunities to extend its trade relations with China, whether in terms of a bilateral or an already established multilateral frameworks, with or without the TPP agreement.

Section Four: Canada’s Position on the TPP

The importance of the TPP agreement for Canada has been marked by a statement from previous Trade Minister Ed Fasts ― that the deal could be worth around $3.5 billion of additional economic activity for Canada.⁴¹ Since the expanded TPP negotiations started in 2010 and after Canada officially joined the TPP as a negotiating member in 2012, the TPP has been placed under increasing scrutiny by Canadian scholars and the public. Steward Beck, President and CEO of the Asia Pacific Foundation of Canada, has an optimistic view of the TPP. Beck urges the new Liberal government to turn the TPP into a policy victory, and to get the Canadian public on the side of the TPP.⁴² He also points out that the TPP will provide direct economic benefits through reduced tariff and non-tariff barriers, and will open Canada’s doors to major economic partners beyond the United States.⁴³ Beck stresses that Canadians need to understand the losses associated with exclusion from the TPP, and what preferential access to new markets means. In addition, by not being part of the TPP, Canada will greatly jeopardize its existing trade relations with the US and Mexico.⁴⁴

Wendy Dobson, Co-Director of Rotman Institute of International Business at the University of Toronto, also agrees that TPP could be a positive game changer for Canada. However, she points out that this is attributable to the inclusion of services and investment guidelines within the new TPP deal, which can offer a way to address the deficiencies that currently exist within the outdated North American Free Trade Agreement (NAFTA).⁴⁵ Since its implementation in 1994, NAFTA has failed to adjust to various major structural changes and geopolitical shifts in the world market, partly due to a lack of interest exhibited by the current US administration in upgrading the agreement.⁴⁶ Dobson also argues that the TPP is Canada’s most efficient way of deepening its integration with other Asian economies; the other alternative being an aggressive strategy of forming bilateral or other regional economic frameworks to achieve the same level of integration in the Asia-Pacific.⁴⁷

On the other hand, Jim Balsillie, a Canadian businessman who was part of the inception of Research in Motion, has a negative outlook on the TPP. Balsillie argues that the TPP’s guidelines in the intellectual property chapter will largely benefit the US, and will eventually make Canada an underdog in the market of selling ideas.⁴⁸ Grey, Clark, Shih and Associates; a multidisciplinary consulting firm that provides strategic advice on international trade, investment, and regulatory matters, also expressed pessimism on the TPP in a 2012 report. The report highlighted potential economic losses for Canada through the negotiated TPP guidelines on intellectual property, as Canada is not particularly strong in the field of intellectual property.⁴⁹ The organization further pointed out that investment, which is covered by the TPP, has already been addressed under Canada’s extensive network of Foreign Investment Protection Agreements (FIPAs), and therefore the TPP is only duplicating what currently already exist under FIPAs.⁵⁰ For Grey, Clark, Shih and Associates, the only benefits of Canada staying in the TPP are from maintaining preferential trade status within the US,⁵¹ and from additional access to the large Japanese market.⁵²

Kevin Lynch, Tiff Macklem, and Daniel Trefler, all scholars of the Asia Pacific Foundation of Canada continue to hold the same critical view of the TPP agreement. They point out that although the TPP agreement encompasses 12 countries, Canada already has joint free-trade agreement with 2 out of the 12 (US and Mexico), bilateral free-trade agreement with another 2 out of the 12 (Chile and Peru), and is a Commonwealth partner with 5 out of the 12 TPP members (Australia, New Zealand, Singapore, Malaysia, and Brunei). This shows that the TPP hardly consists of any new beneficial partnerships for Canada.⁵³ In addition, authors like Jim Balsillie and Grey, Clark, Shih and Associates, are worried about how Canada will fare under the intellectual property guidelines of the TPP, suggesting that Canadian businesses need to invest more in business-sector innovations in order to prosper under the TPP agreement.⁵⁴ The authors follow the position of Grey, Clark, Shih and Associates, and agree that the TPP only brings two major benefits to Canada: first, it provides larger access to the Japanese market; and second, it eliminates the potential costs of jeopardizing relations with the US, which is a NAFTA partner with Canada.⁵⁵

Overall, the general consensus is that Canada should sign the TPP. Upon examining the arguments in favour of the TPP, it becomes clear that Canada stands to incur trade losses if it chooses not to join a free trade agreement led by the US. This is especially true when one considers that Canada is currently a NAFTA partner with the US, and is heavily dependent on the US market for the majority of its exports. In addition, it is also clear that the TPP agreement will also give Canada unprecedented access to one of the world’s largest markets ― the Japanese market, which will help boost the Canadian economy and allow Canada to make its mark in the Asia-Pacific. However, in order to further integrate itself into the Asia-Pacific, the TPP alone will not be enough, and Canada will need to seek out additional opportunities in the Asia-Pacific region. These opportunities will need to include the possibility of joining either a bilateral or multilateral free trade framework that involves China, Canada’s second largest trading partner, to further advance Canada’s economic interests and eliminate its heavy reliance on the US, its long-term trade partner.

Section Five: Alternative Free Trade Agreement with China

Alternatively, Canada can initiate a free trade agreement with China, in either a bilateral or multilateral context. This will make-up for the loss of potential market gains, as a result of membership deficiencies in the TPP agreement. Wendy Dobson, the Co-Director of Rotman Institute for International Business, points out that Canada’s Asia strategy should focus on pursuing regional and bilateral trade, as well as investment liberalization.⁵⁶ Dobson also states that the options of joining the TPP and pursuing a deeper economic relationship with China are by no means mutually exclusive for Canada.⁵⁷ She referred to the Australian example, which is currently at the negotiating stages with ASEAN, Japan, South Korea, and China on separate bilateral free trade agreements.⁵⁸ Dobson attributed this to a major shift in Australia’s objectives towards the Asia-Pacific over 20 years ago. Australia adopted a model where economic integration with the Asia-Pacific was complementary to its military relations with the US,⁵⁹ an option that Canada can emulate. In addition, China already has bilateral free trade agreements with four participants of TPP: Chile, New Zealand, Peru, and Singapore.⁶⁰ Dobson also points out that in the new era, Canada needs to take into account the relative decline in American economic power alongside its continuing military power, before strategizing accordingly.⁶¹ Another sign that Canada should reduce its economic reliance on the US lies in the rising uncertainty surrounding the ratification of the TPP agreement in Congress, due to domestic political instability within the US, with the upcoming presidential election in November 2016. Many of the US presidential candidates have used the opportunity to criticize the American-led TPP deal whilst campaigning. Most prominently Republican candidate Donald Trump has declared the TPP agreement a “disaster”, while Democratic candidate Hillary Clinton has also voiced opposition to the deal, although Clinton’s tendency to flip-flop on policy issues brings uncertainty to her position on the TPP.⁶² As the future of the TPP is still uncertain from the leader state which initiated the agreement, Canada now has even more reason to consider another economic arrangement with its second largest trading partner and the world’s second largest economy, China, to ensure its economic interests are kept in place.

Canada-China relations has the potential to further advance in the terms of trade because the two economies are currently complementary to each other. If both sides make appropriate concessions, they can achieve a historic deal that would bring distinct trade advantages for both economies. According to data compiled by Dobson on Canada’s Comparative Advantage by Industry in 2011, Canada is competitive in major sectors, particularly in natural resources where China is lagging. Dobson’s data also demonstrates that the two are direct competitors in machinery and electrical equipments, and both are uncompetitive in vehicles.⁶³ Overall, China lacks a comparative advantage in all industries in which Canada is a world leader,⁶⁴ showing a workable area between the two countries if further market access can be achieved. In addition, China currently maintains tariffs in a number of areas, including rice, meat, processed foods, textiles, apparel, and vehicles and parts. On the Canadian side, it maintains a tariff-rate quota management system in supply-managed products, such as beef and wheat.⁶⁵ Both countries stand to gain from mutual reduction from tariffs on principal exports, by establishing closer trade relations with each other. Moreover, there is still the issue of a trade imbalance between Canada and China. This is more problematic for the Canada, which buys twice as much manufactured consumer goods from China than China buys natural resources from Canada.⁶⁶ Between 2005 and 2010, Canada’s trade deficit with China grew by nearly 50%.⁶⁷ To address the long-term issues of an increasing trade imbalance with China, Dobson points out that Canada would need to diversify its bilateral trade relations with China, by exporting more knowledge-based goods and services that China cannot produce, to reverse its trade deficit. This vision of trade specialization between the two economies would only come into fruition, upon closer trade relations between the two countries. Once again, this highlights the need for Canada to form a free trade framework with China, in either a bilateral or multilateral context.

If Canada’s trade relations with China are to move forward in the direction of free trade, negotiations will need to address a few key interests from each side. Canada is interested in trade liberalisation, investor and intellectual property protection, and sectoral priorities. On the other hand, China is interested in facilitating flows of people, food security, market access to energy and natural resources, and the development of services such as education.⁶⁸ China will also seek to obtain recognition from Canada in support of its prospective elevated status in the World Trade Organization, from a non-market economy to a market economy. This will automatically take place 15 years after its accession to WTO in 2016,⁶⁹ although significant barriers are already in sight from key WTO members, rendering Canada’s support critical.

Section Six: Recent Developments

Canada’s Harper government ratified the critical Foreign Investment Promotion and Protection Agreement (FIPA) in September 2014. FIPA was signed with China back in 2012,⁷⁰ demonstrating some progress in bilateral trade relations between the two countries. In January 2016, Prime Minister Justin Trudeau announced his intention to lead a trade mission to China in March 2016, organized by the Canada China Business Council. There has been speculation that the new Trudeau government is seeking a new trade arrangement with China, with the long-term objective of establishing a free-trade deal with China.⁷¹ China has also demonstrated interest in a free trade deal with Canada. A week after Trudeau’s announcement of a prospective trade mission to China, the Vice-Minister of Financial and Economic Affairs of China made a visit to Ottawa, to discuss the prospect of negotiating the first ever free-trade deal with Canada.⁷² If successful, this would be the first free trade deal that China has ever made with a North American country.⁷³ As expected, concessions on the Canadian side are needed, especially on investment restrictions and a commitment to build an energy pipeline to the coast. In return, the Canada China Business Council has estimated that Canadian exports could increase by $7.7 billion by 2030.⁷⁴ The reality of a free trade deal between Canada and China is now closer than ever. If the Trudeau government makes use of this rare opportunity, this could be a policy victory for the government, possibly marking a historical level in Canada-China relations.

As for the TPP, the current Trudeau government has not yet expressed whether it will be endorsing the finalized agreement. Canada’s Trade Minister, Chrystia Freeland, recently stated that the government had not yet decided on whether it will participate in the TPP signing ceremony in Auckland, New Zealand, scheduled for February 4, 2016.⁷⁵ According to press releases, the Trade Minister is still focusing on cross-country consultation of the deal, and plans to ask the trade committee of the House of Commons to prepare a comprehensive cross-country study of the TPP as a priority, before any bills are passed through the House of Commons.⁷⁶ In the end, the initial hesitation of the new Trudeau government should not affect Canada’s commitment to the TPP, especially if US Congress officially ratifies the agreement later this year. If Canada withdraws from the TPP without considering the appropriate consequences, it could face the loss of the US, a historically important ally, as well as preferential economic access to the US market, and a loss of prospective trade gains it may well have achieved in the Japanese market.

Section Seven: Conclusion

As China embarks on a more assertive approach to counteract American influence in the Asia-Pacific, Canada must strive to find a balance between its economic interests, its long-term relations with the US, increasingly important relations with China, and further economic integration in the Asia-Pacific. Signs of China’s assertiveness in recent years should be understood in terms of its rising economic weight, in contrast to the relative economic decline of the US.⁷⁷ As China embarks on establishing its own version of regional economic integration, Canadian policy makers must keep in mind the possibility that perhaps China, and not the US, may be leading the future of Asian economic integration, and plan its strategic framework accordingly. They should also be mindful of the fact that US is a traditional ally of Canada, both politically and economically, and that there may be important economic implications for Canada if it does decide to drop out of the TPP. These implications will also be compounded if both US and Japan end up ratifying the TPP.

In conclusion, this paper has demonstrated that the Trans-Pacific Partnership (TPP) agreement has the benefit of protecting Canada’s current preferential market status with the US, and of allowing Canada to further its access the large Japanese market. Although the agreement does not include China, Canada’s second largest trading partner, Canada can compensate for the prospective trade loss from the TPP by setting up a separate bilateral or multilateral free trade framework with China on the side. The prospect of a bilateral free trade agreement is increasingly becoming more likely, judging from the series of events that lead to the visit of the Vice-Minister of Financial and Economic Affairs of China to Ottawa in January 2016. The establishment of the TPP presents new opportunities for better relations between Canada and China, due to mutual interests in furthering trade relations in the coming decade. China will most likely remain out of the TPP in the near future, as it sees the TPP as an instrument of the US, with the intent of constraining China’s rising influence in the Asia-Pacific. In addition, China is also not expecting significant economic losses by remaining out of the TPP.

Since the TPP’s expanded inception by the US, China has responded to the agreement with its own framework of regional economic integration. This was most prominently done through the establishment of another multilateral free trade framework, the Regional Comprehensive Economic Partnership, alongside numerous bilateral Free Trade Agreements that are either completed or in the process of negotiation. Despite how the TPP has been highly criticized in Canada for seemingly biased intellectual property guidelines and over its membership, the consequences of withdrawing from the TPP could be detrimental to the Canadian economy. This will be especially true, if Canada’s decision makers fail to properly interpret situations, and take rash action before taking into consideration all foreseeable consequences. On the other hand, a separate free trade agreement in either a bilateral or multilateral context with China will decrease Canada’s reliance on the US market, better specialize Canada’s economy, allow Canada further access to the Chinese market, and help to improve the current trade balance with China. Ultimately, Canada’s decisions regarding the TPP and a potential FTA with China will depend on priorities defined by Canada’s top decision makers, and possible situational changes surrounding the TPP membership.

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The content of this article does not represent the positions, research methods, or opinions of the Synergy Editorial Committee. We are solely responsible for reviewing and editing submissions. Please address all scholarly concerns directly to the contributor(s) of the article.

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Susan Cui is a BA Candidate at the University of Toronto, majoring in International Relations and Economics, minoring in Contemporary Asian Studies. She currently serves as the Editor-in-Chief of Synergy: The Journal of Contemporary Asian Studies.

Endnotes