The Economic Impact of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on Canadian and Saskatchewan Economies: A Computable General Equilibrium-Based Analysis
Canada has recently concluded negotiations on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with ten Pacific-Rim countries. The CPTPP is a multilateral free trade agreement formerly known as the Trans-Pacific Partnership (TPP). The CPTPP’s provisions for market access include lowering trade barriers and eliminating investment obstacles among member countries. In a nutshell, CPTPP addresses trade barriers (NTBs), labour movements, investment protection, environmental standards and telecommunication services. The potential impacts of the CPTPP can be organized into six categories: stimulating competition, encouraging technology and investment flow, enhancing access to all CPTPP countries, generating new opportunities for different economic sectors, generating price advantages for some Canadian exports, and creating benefits for Canadian businesses and workers. This study assesses the likely economic impact of the CPTPP agreements on Canada’s national economy, and on Saskatchewan’s provincial economy in 2030. This was accomplished by building two static Computable General Equilibrium (CGE) models: national and subnational, with a particular focus on agricultural sectors. The data for these models were obtained from the Global Trade Analysis Project (GTAP) database. The approach of the subnational CGE model was based on splitting Canada’s national database into two databases: Saskatchewan, and the rest of Canada. In this process, Saskatchewan was treated as a separate trading entity with interprovincial and international trade flows, which accounts for the province’s total trade. The study modeled the estimated impact of the CPTPP on both Canada’s and Saskatchewan’s Gross Domestic Product (GDP), exports, imports, and other main economic indicators. To fulfill the objectives of this study, three scenarios were simulated: One, Baseline scenario, where a growth projection model was developed to simulate the economic and trade growth in 2030 among the CPTPP countries, the United States and the rest of the world without the CPTPP. In this scenario, the natural growth for all the regions based on past performance in terms of population, labour force, and capital was accounted for. Other trade agreements between member countries, which will be implemented over the coming decade, was also accounted for in this analysis. Two, In the second scenario called CPTPP scenario, it was assumed that the CPTPP would be fully implemented. Trade barriers were reduced/eliminated between CPTPP member countries as per CPTPP agreement. The goal of this analysis was to capture the potential impact of CPTPP on the members’ economies in general, and on Canada and Saskatchewan economies in details. Three, In the third scenario named TPP, the former TPP agreement was simulated. The goal of this simulation was to evaluate the potential impact of the former TPP if it had been implemented and compare it with the CPTPP impact on Canada and Saskatchewan economies. All scenarios were simulated under the assumption that the North American Free Trade Agreement (NAFTA) is in place. The national and subnational models indicated that the CPTPP would generate long-term economic gains for Canada and other CPTPP members. Furthermore, the study showed that that the economic gains for Canada and Saskatchewan under CPTPP are greater than TPP. This can be attributed to the fact that Canada’s trade with the US is already liberalized as part of NAFTA, thus CPTPP would open new key markets such as Japan (the world’s third-largest economy) for Canadian product, while keeping a strong liberalized trade relationship with its largest trade partner, i.e., the US. The national model-based analysis suggested that if the CPTPP is fully implemented, Canada’s total agricultural imports and exports would increase by 1.22% and 4.78%, respectively, over the baseline scenario; net increase in Canada’s total trade is projected under this scenario. In terms of commodity breakdown, meat and dairy products were expected to be most affected. In contrast, the economic gains for Canada if the TPP had been implemented would be relatively less than CPTPP. Overall, Canada’s GDP gains would total 3.9 billion USD under the CPTPP, compared with 1.4 billion under the TPP. The subnational model results showed that CPTPP impact on Saskatchewan would be more noticeable than on Canada. Under the CPTPP scenario, Saskatchewan’s total agricultural imports and exports (including interprovincial trade) were projected to increase by 6.02% and 5.64%, respectively, relative to the baseline growth projection scenario. Most of this expansion is due to the growth in agricultural trade with Japan. An improvement in Saskatchewan’s agricultural trade balance was also projected under the CPTPP simulation. Similar to the national model, the economic gains for Saskatchewan if the TPP had been implemented would be relatively less than the CPTPP. Saskatchewan’s GDP gains would total 1.1 billion USD under the CPTPP, compared with 679 million USD under the TPP. This study shows that trade liberalization can affect regions within a country differently depending on their trade relationships, areas of specialization in trade, and their level of dependency on sectors subject to relatively deeper liberalization. Therefore, subnational analysis of trade agreements impact is a valuable approach to capture these differences and to assess the national trade agreements and trade liberalization impact on internal or interprovincial trade flows within a country, which would also be subject to change by these trade agreements.
Computable General Equilibrium (CGE), GTAP, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Trans-Pacific Partnership (TPP)
Doctor of Philosophy (Ph.D.)
Agricultural and Resource Economics