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INTL 5570 Comparative Foreign Policy July 10, 2012 Webster University

Canada and TPP 2 CANADA AND THE TRANS-PACIFIC PARTNERSHIP: A TWO-LEVEL GAME INTRODUCTION The Trans-Pacific Partnership (TPP), formerly titled the Trans-Pacific Strategic Economic Partnership, is a free trade agreement currently being negotiated that could represent the world’s largest multilateral free trade bloc in terms of gross domestic product (GDP). This agreement, if successfully ratified, would establish stronger economic ties between various Pacific Rim countries. Originally signed by Brunei, Chile, New Zealand, and Singapore in 2005, the list of members participating in the TPP negotiations has since grown in size to include Australia, Peru, the United States, and Vietnam in 2008, Malaysia in 2010, and Canada and Mexico in 2012. From 2010, Canada had been an observer of the negotiations but could not participate as it had been blocked by New Zealand and the United States from joining the talks. This was due to its domestic agricultural policies and intellectual property rights standards. In addition to the current negotiating parties, Japan, the Philippines, Taiwan, and South Korea have also expressed interest in joining the discussions. Before Canada’s invitation to join TPP negotiations, it found itself in a predicament while weighing the costs and benefits of joining the agreement, which severely delayed its approval by all TPP parties. Like the United States, Canada too wishes to expand its economic foothold in Asia-Pacific markets as the TPP agreement represents 28 percent of world GDP among the first nine members of the agreement (Dawson, 2012) with a potential 40 percent of world GDP when including Canada, Mexico, and Japan (The Economist, 2011), and a greater potential of 60 percent world GDP if it eventually included all Asia-Pacific countries (Fergusson and Vaughn, 2011). This is not to mention the addition of other Pacific states located in North and South America. Even if this agreement were not to reach its full potential and remain as it is with Canada and Mexico included, it would still represent the world’s largest free trade bloc. The current eleven negotiating member countries alone represent 658 million people and a total gross domestic product of $20.5 trillion (Prime Minister of Canada, 2012). Canada does not currently have any established free trade agreements in the AsiaPacific region although it does have two bilateral free trade negotiations in progress with Japan and Thailand. An agreement on the TPP is in Canada’s interest as it could act as a foundation for securing future influence over and drawing economic advantages from rapidly growing Asian markets – including those that are not currently observing or negotiating the TPP. At the same time, Canada already has a multilateral free trade agreement with Mexico and the United States

Canada and TPP 3 under the North American Free Trade Agreement (NAFTA) and bilateral free trade agreements with Chile and Peru. As for the remaining TPP members who have no current trade agreements with Canada, they would represent less than one percent of Canada’s total export market (Doer, 2012). This may seem rather insignificant; however, Japan’s interest in the negotiations is of particular importance to Canada as its membership would represent free trade with one of the world’s largest economies. The ambition to eventually expand the TPP to other Pacific Rim countries, most notably China, would also greatly increase Canada’s access to East Asian markets. Therefore, Canada’s desire to join TPP negotiation talks is to have a significant influence on the details of the agreement, to use the TPP as a step toward tapping into Asian markets, and as a member, ensure that the TPP does not eclipse NAFTA. Otherwise, Mexico and the United States’ membership to the TPP without Canada could render NAFTA less important, potentially damaging the Canadian economy and straining relations between the heavily trade dependent North American countries. Following Canada’s invitation to join the TPP in June 2012, it was unclear as to what conditions, if any, Canada would be forced to agree to in order to join the negotiations. However, as Canada was previously rejected in 2010 for its protectionist agricultural supply management system and standards for intellectual property rights, these were seen as the likely issues that Canada would need to address to in order to join the talks. Canada’s supply management system protects dairy, poultry and egg farmers with high tariffs. Since Canada’s invitation to join, however, Canadian Prime Minister Stephen Harper has announced that no conditions were in fact necessary to join the TPP negotiations and that the Canadian government would continue to protect the interests of the agricultural industry. This being said, Canada’s supply management system and other issues would be brought to the negotiating table along with issues that it has with other TPP members (Curry, 2012). As will be discussed, the manipulation of both domestic and international elements has been responsible for Canada’s joining of the TPP. At this point, it cannot be known what will become of the supply management system and Canada’s intellectual property rights standards, however, this issue demonstrates how foreign pressures and domestic politics are intertwined in foreign policymaking. Furthermore, this issue demonstrates the theory that state leaders must manage these two domestic and international levels of influence in order to produce a successful outcome.

Canada and TPP 4 TWO-LEVEL GAME THEORY As described by Robert Putnam (1988), two-level game theory explains that domestic politics and international relations are intimately linked with one another. In international negotiations, such as in trade agreement negotiations, all involved states attempt to create a common framework where each party can mutually benefit from the final ratification. Also known as a win-set, each party attempts to obtain the most attractive aspects of an agreement in terms of each of their national interests while avoiding negative impacts that the agreement could have domestically. This is the two-level game, which a state must play in order to amplify benefits while reducing cost. On Level I, or the international level, leaders and decision makers are influenced by outside factors such as international governments and politics, foreign protectionist measures, foreign negotiators, and all other international influences. On Level II, or the domestic level, leaders and decision makers are influenced by intra-national pressures such as labor unions, domestic lobby groups, and local governments to ensure that the welfare and interests of domestic parties are being met. According to this theory, Level II will often take precedence over Level I as Level II ultimately holds power over the government and also represents the domestic interests of the various interested parties within a state. Level II, therefore, can restrain a government’s ambition to negotiate or ratify an international agreement as leaders aim to either retain or gain domestic political power. In turn, political actors attempt to create coalitions with supporters and bargain with opponents in an attempt to build support for Level I foreign policy ambitions (Putnum, 1988). Conversely, other states or international organizations push for their interests, which can often be in conflict with a state’s domestic policies or state ambitions. Therefore, the more agreement there is between Level II and Level I on a foreign policy issue, the larger the win-set and so ratification is more likely to occur. It can be argued, however, that a large win-set can also work to a state’s disadvantage as international actors can use a large win-set as a reason to pressure a state into giving greater concessions. In terms of Canada joining the Trans-Pacific Partnership, both levels have influenced and will continue to shape Canada’s role in the negotiations as well as the eventual final outcome of the agreement. Although it is yet unknown as to what compromises Canada and other members will need to make domestically in order to ratify an agreement, the Canadian government has displayed a strong desire to be a player in the negotiations while other member states, particularly New Zealand and the United States, have shown considerable pushback to

Canada and TPP 5 Canada’s domestic policies. In turn, this could lead to the complete rejection of a TPP agreement or produce an unfavorable win-set. LEVEL I: CANADA’S LOBBY OF THE UNITED STATES Canada aggressively and successfully lobbied the United States, and consequently other TPP negotiating members, to extend an invitation to Canada to join Trans-Pacific Partnership negotiations. Although Canadian ambitions to join the TPP were not significantly expressed publicly until recently, documents prepared for Deputy Minister of International Trade, Louis Levesque, as outlined by journalist Jason Fekete (2012), showed that Canada “[had] been closely monitoring the growing economic and political relationship between the U.S. and Japan, a key Asia market the Harper Government wants to increasingly tap.” Further documents revealed Canada’s high interest in becoming a TPP negotiating member as well as meetings with high-level U.S. officials. As these documents outline (as cited in Fekete, 2012), and has become apparent, Canada was successful in lobbying the United States with key messages conveying the economic disadvantages that the United States would face without the participation of Canada in the Trans-Pacific Partnership. As Canada and the United States represent the world’s two largest reciprocal trading partners, the exclusion of Canada in the TPP would jeopardize both American and Canadian jobs while weakening North American influence in the Asia-Pacific region. Furthermore, before Canada’s TPP invitation, it was suggested by the C.D. Howe Institute’s Laura Dawson (2012) that there were three main methods in which Canada could effectively lobby the United States to ensure an invitation to join the TPP, consequently leading to U.S. pressure on other member states to support an invitation. These recommendations included: 1) making a case to U.S. State Department officials that Canada’s participation in the TPP would create a more meaningful agreement among large economies, consequently making a TPP agreement easier to pass in the U.S. Congress; 2) provide evidence that Canada has made progress in addressing trade irritants of interest to the United States; and 3) remind the United States that Canada is committed to strong government procurement, labor, environmental, human rights, and other forms of standards closely in line with American values. Therefore, Canada-U.S. solidarity would provide leverage in TPP negotiations. Although it is difficult to determine to what degree these recommendations were used in Canada’s lobbying efforts, it appears that all three were in fact utilized.

Canada and TPP 6 LEVEL I: RESTRICTIONS ON CANADA Each negotiating member of the Trans-Pacific Partnership is unique and has varying issues to negotiate before ratification of an agreement can be made possible. To the present day, thirteen rounds of TPP negotiations have occurred in various member countries with the most recent round including Canada as a pending negotiator for the first time. As each member country needs to ratify Canada’s acceptance of its invitation, it is speculated that Canada will officially join negotiations in the second half of 2012. Furthermore, Canada is restricted to adopt agreements already reached in previous rounds and will not have veto power on issues presented at rounds after its membership is ratified (Fekete, 2012). This may or may not have a significant impact on Canada’s ability to negotiate at Level I in terms of the already established policies in previous rounds. However, the lack of veto power will undoubtedly strain Canada’s ability to deflect potential policies that are in the interest of a majority of TPP member states but are not in the interest of Canada. Following the 2012 G20 Summit in Los Cabos, Mexico, where Canada was formally invited to join TPP negotiations, Prime Minister Harper stated that “[TPP] negotiations in [the Government of Canada’s] judgment are at fairly preliminary phases right now” (CBC News, 2012). However, the secrecy surrounding the Trans-Pacific Partnership negotiations and the vagueness of what Canada will be obliged to agree to from previous rounds has created skepticism at the domestic level. This skepticism has resulted in debate as to whether the costs of membership will outweigh the benefits. The degree to which Canada is restricted could present challenges, potentially negatively affecting its win-set during future negotiation rounds and final ratification or rejection of the agreement. Canadian Ambassador to the United States Gary Doer (2012), however, has expressed confidence in the negotiations as nothing can be lost or gained until the final ratification of an agreement is made in the best interests of the domestic public. This demonstrates that Level II domestic pressures will ultimately be a fundamental component to Level I international negotiations. This strong Level II domestic pressure will likely contract Canada’s Level I win-set making an international agreement more difficult to establish. LEVEL I: NEW ZEALAND AND THE UNITED STATES An analysis of why Canada was previously rejected from joining the TPP in 2010 can also provide some insight into the major controversies that are expected to occur in future rounds with New Zealand and the United States. As previously mentioned, Canada was originally rejected by New Zealand from joining the TPP because of its strict agricultural policies

Canada and TPP 7 that include high tariffs on imported dairy products such as eggs, poultry, and cheese. Currently, Canada imposes a tariff in excess of 250% on dairy imports (Dawson, 2012). Such a high tariff surely acts as an effective deterrent to purchase imported dairy products among consumers in Canada. This poses as a nuisance for New Zealand as dairy products such as milk powder, butter, and cheese is that country’s largest export commodity (Statistics New Zealand, 2012). The liberalization of Canada’s dairy industry, meaning the elimination of its supply management system, is therefore a very important factor in New Zealand’s decision to support Canada’s ambitions in the Trans-Pacific Partnership. It should be noted that although New Zealand previously dismissed Canada from joining the TPP for Canada’s firm stance on protecting its supply management system, Canada is now prepared to discuss its supply management system in future TPP negotiation rounds. This indicates that modification or elimination of the system is a possibility. The United States also had a role in originally declining Canada’s admission to the TPP due to its intellectual property rights standards. As outlined by Bernard Gordon (2012), the United States is using the Trans-Pacific Partnership as a conduit for protecting American businesses and innovators by implementing strict copyright and patent regulations on the potential TPP trading partners. Critics have argued that the secrecy surrounding the proposed regulations causes a great degree of uncertainty in member TPP states and the general public. This lack of transparency by U.S. President Barak Obama’s administration could result in a loss of confidence in the negotiations, which could represent the loss of securing an established presence for the United States in the Asia-Pacific region. In terms of Canada more specifically, the United States is pressing Canada to adopt internet piracy and intellectual property laws equal to its own (Feneke, 2012). Canada may be able to use this to its advantage as there is considerable domestic and international disagreement on the United States’ attempt to include intellectual property rights laws and copyright standards. Meanwhile, the implementation of such standards is atypical of traditional trade agreements. Although the American push for higher intellectual property rights standards appears to be a point of controversy among other TPP members, Japan and Singapore appear to be in favor of such reforms to protect their own innovative industries (Gordon, 2012). The standards would arguably trump previously negotiated international policies and be controversial while attempting to impose these standards within individual states. Although Canada’s recent amendment to its Copyright Act (2012) strengthened its copyright laws to align with international

Canada and TPP 8 standards, it appears that the United States will attempt to lobby for an even stricter set of standards in TPP negotiations. The Copyright Act amendment was likely a significant factor in the United States’ decision to finally invite Canada to become a TPP negotiating member. However, intellectual property rights standards will undoubtedly continue to be a contentious issue facing Canada and other nations during negotiations. New Zealand and the United States’ concern over Canada’s domestic policies and Canada’s lack of future veto power over TPP negotiations will likely weaken its leverage to effectively manage the demands of Level II domestic pressures. Therefore, the decision making process to ratify a TPP agreement could lead to a conundrum between the two levels, producing a no-win scenario, unless significant domestic policies are modified. LEVEL II: CANADA’S SUPPLY MANAGEMENT SYSTEM Canada’s longstanding supply management system for dairy farmers, which originated in 1970, is controversial in and of itself at the international level as well as the domestic level. It was originally implemented to protect farmers from the supply and demand cycles of volatile markets that previously established agricultural product prices – namely dairy products. Fluctuating prices were responsible for periods of high supply and low prices, followed by periods of low supply and high prices. In order to combat this trend, save farmers from bankruptcy, and to stop taxpayers from continuously subsidizing and bailing out farmers, the supply management system was created. Alan McIsaac (2008) argues that since the supply management system led to a pre-established set market price for the dairy industry, both the dairy industry and consumers have benefited from the predictability and reliability of the system. Furthermore, consumers have benefited from the system’s associated safety standards and regulations while producers of supply managed commodities are arguably one of the most efficient producers in Canada. Prime Minister Harper’s government has had a strong record of defending Canada’s supply management system in previous international trade negotiations and has claimed that it will continue to defend the dairy industry in Trans-Pacific Partnership discussions. The Dairy Farmers of Canada (2012) lobby group, which represents 13,500 farms and 215,000 jobs across Canada, touted the Harper government’s balanced effort to enter TPP discussions without yielding to international pressure to abandon the supply management system. However, the Dairy Farmers of Canada also expects that the government will continue to maintain the supply management system even though the Harper Government has suggested that the

Canada and TPP 9 system’s future could be open for discussion at TPP negotiations. The abandonment of the system would likely lead to severe dissatisfaction among supply management proponents, consequently causing political turmoil for the Harper Government. Former Member of Parliament and executive fellow at the University of Calgary’s School of Public Policy Martha Hall Findlay (2012) argues, however, that the supply management system harms Canada’s free trade options and creates overpriced products for consumers. In terms of trade, Hall Findlay argues that the system “prices milk on intended usage, locks out most foreign products with exorbitantly high tariffs and even determines how much farmers can produce”. Consequently, this trade barrier drives the price of dairy products up for consumers while limiting Canada’s flexibility to negotiate free trade agreements internationally. However, the potential cost reduction for consumers by eliminating the supply management system has been debated by economist Maurice Doyon (2012) who argues that Hall Findlay’s logic in determining the extra amount that Canadian consumers pay for dairy products is flawed. Furthermore, it is argued that Hall Findlay does not take into account other factors that affect price. However, the dismantling of the system could potentially garnish significant political support from the 92% of total Canadian farmers representing all other non-supply-managed agricultural sectors as well. As Hall Findlay (2012) suggests, these farmers often suffer from the inability of Canada to negotiate free trade agreements due to the supply management system and therefore, the supply management system’s protectionist measures on foreign exporters hinder non-supply-managed farmers’ ability to export internationally. It is possible to conclude on this basis that the elimination of the supply management system would be beneficial to a larger majority of farmers and other domestic industries as Canada could more easily negotiate free trade agreements by eliminating this trade barrier. It is also reasonable to speculate that if it were not for the supply management system; Canada could have likely joined TPP negotiations sooner and perhaps have obtained veto power. However, as two-level game theory suggests, domestic pressures will often heavily influence a government’s flexibility when negotiating internationally. LEVEL II: CANADA’S INTELLECTUAL PROPERTY RIGHTS STANDARDS As previously discussed, Canada passed Bill C-11, an amendment to the Copyright Act in 2011, that will allow Canada to ratify the World Intellectual Property Organization internet treaties it signed in 1997, bringing its intellectual property laws up to international standards.

Canada and TPP 10 The aggressiveness by the Harper Government to push this legislation through Parliament as well as lobby the United States for negotiating rights at TPP talks is an indication that the Act’s amendment significantly contributed to Canada’s eventual invitation to join. However, it is likely that the United States will continue to pressure Canada into adopting an even stricter policy on its intellectual property standards. Chief executive of the U.S. Chamber of Commerce Thomas Donohue (2012) stated that although Canada “[proved] its readiness to join the high-standard TPP agreement” by passing new copyright legislation, “issues still remain regarding Canadian policies on intellectual property and supply management”. The adoption of some U.S.-style standards in Canada would likely produce significant domestic pressure on the Canadian government to resist such efforts. In the lead-up to bill C-11, much controversy surrounded the amendment as opponents were concerned that it would lead to strict U.S.-style standards in line with that country’s Stop Online Piracy Act (SOPA) being pushed by the Obama administration. However, Canadian Heritage Minister James Moore (as cited by Payton, 2012) stated that “[the Canadian government has] rejected the American style approaches on massive parts of [the amendment]” and “SOPA was about an international pursuit of piracy with pretty aggressive means that our government is not considering in our copyright bill”. One main difference between the two pieces of legislation is that bill C-11 has internet providers notify rights infringers on the behalf of the content creator while SOPA has the internet provider remove, or block, content at the request of a creator. Concern arises on a number of technical aspects in both bills in terms of restricting access to intellectual property and sharing or copying digital works. However, it has been made clear that the Canadian government opposes the strict U.S.-style measures and considers them drastic. Furthermore, since SOPA led to strong opposition in the United States where a significant number of industries and consumers publicly denounced the Act, this would likely be the case in Canada as well if the government were significantly pressured to adopt such policies. Therefore, if the Canadian government is successfully lobbied by the United States to change its position and create stricter copyright legislation and intellectual property rights reforms, the government would likely be equally pressured by Canadian opposition members and consumers to not comply. This type of conflict could result in political deadlock for the Harper Government while attempting to negotiate between the two levels.

Canada and TPP 11 CONCLUSION: CANADA’S TWO-LEVEL GAME Canada faces a grueling task to complement both international and domestic levels in order to negotiate a favorable outcome if it is to ratify a Trans-Pacific Partnership agreement. Evidently, the highly politicized supply management system and the extent of intellectual property rights standards and copyright laws will be key issues that the government will need to address. Several policies at Level II, or the domestic level, will largely determine the size of Canada’s domestic win-set in relation to the win-set of Level I, or the international level. Undoubtedly, Canadian leaders have already and will continue to establish coalitions with groups at both the domestic and international level to leverage as much support as possible. However, negotiators will need to carefully monitor domestic interests in order to determine what can be negotiated and what cannot at the international level. As Canada has already been successful in acquiring a seat at TPP negotiations, despite previous rejections for its supply management system and intellectual property rights standards, it is apparent that Canada’s lobbying of the United States and amendment to the Copyright Act played significant parts in influencing the other TPP member states to extend an invitation. Therefore, Canadian leaders will likely be forced to make difficult domestic policy choices while attempting to both appease and manipulate these domestic and international pressures. It also appears that Canada’s supply management system will be the most controversial issue that will undoubtedly be heavily argued against by New Zealand and some Canadian domestic groups. The Dairy Farmers of Canada and other supply management proponents will remain firmly committed to the system and heavily lobby for the system to remain implemented. Furthermore, U.S. pressure for stricter intellectual property rights standards will likely continue to be addressed and face opposition throughout TPP members. Canada’s lack of veto power, however, could obligate Canada to adopt stricter intellectual property rights standards in order to ratify a TPP agreement if the United States is successful in lobbying other TPP governments to implement these standards as a condition of an agreement. It remains to be seen what policies Canada and other TPP members will need to implement as negotiation rounds continue. However, as two-level game theory suggests, leaders are continuously dealing with both domestic and international pressures while attempting to influence each level to its best advantage. Although Canada has a strong desire to be a working member of the Trans-Pacific Partnership and use an eventual agreement in order to economically expand into Asia-Pacific markets, domestic pressures may result in an

Canada and TPP 12 obstruction of that goal if other member states, such as New Zealand, are unable to ratify an agreement without Canada’s dismantling of its supply management system. Therefore, unless New Zealand drastically changes its policy toward Canada’s supply management system, it is likely that Canada will need to choose between two main avenues to pursue its TPP ambitions: 1) attempt to determine a way that the supply management policy can be adjusted to accommodate New Zealand and supply management proponents; or 2) strengthen coalitions with and insulate support among supply management opponents and abolish the system completely. In either case, Canadian leaders face great domestic challenges that must be overcome in order to negotiate an agreement on the Trans-Pacific Partnership at the international level.

Canada and TPP 13 REFERENCES Bill C-11: An Act to amend the Copyright Act. (2011). 1st Reading Sept. 29, 2011, 41st Parliament, 1st session. Retrieved from the Parliament of Canada: CBC News. (2012, June 19). Trans-Pacific partners invite Canada to the table. CBC News. Retrieved June 20, 2012, from Curry, B. (2012, June 20). Canada dives into Pacific trade talks – but at what cost? Globe and Mail. Retrieved June 25, 2012, from Dairy Farmers of Canada, Strategic Communications. (2012, June 19). Canada joins the Trans Pacific Partnership [Press release]. Retrieved July 1, 2012, from Dawson, L. (2012). Can Canada join the Trans-Pacific Partnership? Why just wanting it is not enough (Publication No. 340). Toronto: Institut C.D. Howe Institute. Doer, G. (2012, June 30). Canada's input into Trans-Pacific Partnership negotiations [Interview by E. Solomon]. In The House. Toronto: Canadian Broadcasting Corporation (CBC). Doyon, M. (n.d.). Stop lying to Canadians on supply management: A response to the Martha Hall Findlay report [Letter written July 5, 2012]. Retrieved July 6, 2012, from

Canada and TPP 14 n%20supply%20management_Final%5B1%5D.pdf Fekete, J. (2012, June 19). Secret documents show Canada's aggressive campaign to be included in Trans-Pacific Partnership. National Post. Retrieved June 22, 2012, from Fergusson, I. F., & Vaughn, B. (2012). The Trans-Pacific Partnership Agreement (Issue brief No. R40502). Washington, DC: Congressional Research Service. Gordon, B. K. (2012). Trading up in Asia. Foreign Affairs, 91(4), 17-22. Hall Findlay, M. (2012, June 21). Politicians need courage to dismantle supply management. The Globe and Mail. Retrieved June 27, 2012, from McIsaac, A. (2008). The case for supply management. Canadian Parliamentary Review, (Autumn), 18-20. New Zealand, Statistics New Zealand. (2012). Main export commodities. Wellington: Statistics New Zealand. Retrieved from Payton, L. (2012, February 16). Moore defends Canada's 'different path' on copyright bill [Newsgroup]. Retrieved July 8, 2012, from

Canada and TPP 15 Prime Minister of Canada. (2012, June 19). PM welcomes all-member support for entry into Trans-Pacific Partnership [Press release]. Retrieved June 26, 2012, from Putnam, R. D. (1988). Diplomacy and domestic politics: The logic of two-level games. International Organization, 42(03), 427. doi: 10.1017/S0020818300027697 The Economist Newspaper Limited. (2011, November 19). A small reason to be cheerful: An inspiring idea to liberalize transpacific trade hinges on the courage of America and, especially, Japan. The Economist. Retrieved June 20, 2012, from U.S. Chamber of Commerce. (2012, June 19). U.S. Chamber applauds Canada's entry into Trans-Pacific Partnership negotiations [Press release]. Retrieved July 7, 2012, from

Canada and the Trans-Pacific Partnership: A Two-Level Game  

An analysis of Canada's role in the Trans-Pacific Partnership.

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