Spotlight on TPP: Agreement key for services superpower like Canada
Canadians generally perceive themselves as natural resource exporters, but that perception is stale-dated — notwithstanding the prominent role played by the energy sector and other resource industries over the past decade. From insurance to healthcare, four out of five Canadians are employed by the services sector — and this share has been climbing for decades. The reality is that Canada is a dynamic, high-value services economy, and those services are increasingly being sold to the world.
Services are a big deal for Canadian trade and wealth creation, but have gone largely unnoticed — until now. Forthcoming Conference Board research shows that when the full supply chain contributions of services are accounted for, nearly half of Canada’s value-added exports are services. This is almost triple the export share that is commonly reported using conventional data sources.
Tradable services (activities that can be delivered and sold across borders) provide high-quality jobs. Services can be exported directly — for example, management, insurance, and engineering services sold abroad — but high-quality services can also make our goods more competitive in global markets through design, branding, and after-sales services, to name a few. Jobs in tradable services are generally higher paying than manufacturing jobs, and make use of Canada’s highly educated population.
Canadian companies also sell services abroad through foreign affiliates created via outward foreign direct investment. Given the nature of services, it can be far more effective to have an on-the-ground presence abroad where a firm intends to sell its services. Services account for 43 percent of all sales by Canadian foreign affiliates, a share that has grown substantially since the 2008–09 recession.
And there is scope for even more services trade. One avenue that could open new doors is a leading-edge trade deal known as the Trans Pacific Partnership (TPP). The negotiations aim to create a high-standard and comprehensive agreement, opening up trade in nearly all goods and services and establishing rules that go beyond those set out under the World Trade Organization or NAFTA. There are 12 partner countries, including the U.S., Japan, Australia, New Zealand, and Canada, as well as several fast-growth Latin American and Asian markets.
It is the most ambitious trade negotiation under way globally today.
The TPP is a key policy priority for U.S. President Barack Obama. Congress has just given Obama the authority to negotiate trade agreements without members of Congress amending them (they can only vote yes or no). This provides momentum for the TPP to be concluded. TPP partners will now take the negotiations even more seriously, knowing that anything they negotiate will not be changed by the U.S. Congress. A new round of negotiating is scheduled for the end of July.
Canadian media and the public have focused largely on how the deal will mean opening up Canada’s long-closed dairy market. But there is much more at stake. A key reason Canada has a huge interest in these talks is because the TPP aims to break new ground in opening doors to selling services globally, where Canada is already competitive.
Canada has a strong interest in being at the TPP table to set the new global trade rules on services. Our strong services foundation means our companies have much to gain, both today and in the future, from more transparency and fewer barriers to selling services globally. Moreover, the U.S. is Canada’s key services market — and if Canada is not in this deal, others could get better access to the U.S. than Canadian companies.
Canada is now a services powerhouse, both at home and in international trade. The TPP will be a precedent-setting deal that aims, among other things, to open the door to more sales of services in the U.S. and globally.
Canada needs to have an active voice at the table, recognizing what is at stake for our massive and growing services economy.