The Trans-Pacific Partnership: Don’t Forget Canada and Mexico

March 27th, 2013

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This piece was originally published on GE’s “Idea’s Lab” website.

Japan’s recent announcement that it’s seeking to join the Trans-Pacific Partnership (TPP) trade negotiations has created quite a stir in trade circles.

Adding Japan and its $4 trillion economy to the TPP talks would substantially boost the economic and political importance of any eventual trade deal and create major new export opportunities for the United States and the 10 other TPP countries. But, as Third Way noted in a recent letter to Congressional trade leaders, TPP negotiators also face a huge challenge in assuring that Japan’s strong tradition of shielding its farm, manufacturing, and services sectors doesn’t derail the goal of creating a truly comprehensive, high-standard agreement that broadly opens up Asia-Pacific trade.

Seemingly lost in all the recent buzz about Japan is another important TPP development–the admission of Canada and Mexico to the TPP talks last fall. This less-heralded development is highly significant, particularly for the United States and our producers and workers.

But why? Isn’t the United States already linked to Canada and Mexico under NAFTA? How would the TPP improve things?

As explained in a new Third Way report, adding Canada and Mexico to the TPP is especially important for the United States because the NAFTA marketplace is so highly integrated:

The three NAFTA countries work together to co-produce an astonishing array of products–from cars, to electronics, to pasta. Cars jointly produced in Canada and the United States, for instance, contain parts and subassemblies that have crossed the border an average of six times.

Exports from Canada and Mexico often contain an extraordinarily high level of “embedded” U.S. content. For example, one study estimates that 40% of Mexico’s exports to the United States is actually U.S. content.

Because of this significant integration, the United States often wins when Canada and Mexico succeed in global markets. Adding Canada and Mexico to the TPP can boost this mutual success in four important ways:

First, by opening new Asia-Pacific markets to exports from Canada and Mexico, the TPP would also increase exports of embedded U.S. content. For instance, every $5 of Mexico’s global exports of electronic equipment contains on average $1 in U.S. content.

Second, the TPP’s emphasis on eliminating border barriers and meaningless regulatory differences could make North America’s integrated producers more internationally competitive. It’s estimated, for instance, that inefficiencies at the border currently add an additional $700 to the cost of vehicles co-produced in North America.

Third, global companies are increasingly looking at a wide array of factors in deciding where to locate production. By making North American supply chains more efficient and providing preferred access for North American products in important foreign markets, the TPP could give North American producers additional advantages over competitors in locations like China. This could help reinforce the emerging trend of “re-shoring” manufacturing to America.

Fourth, the TPP talks provide opportunities to modernize NAFTA’s labor and environmental provisions and to re-open NAFTA issues that impede regional trade–including Canada’s restrictive farm programs and Mexico’s intellectual property enforcement.

In developing trade initiatives that support economic growth and good jobs, policymakers must better understand how companies work across borders to create and deliver global products and services. A recent, landmark analysis of global value chains vividly drives home this point, and its compelling data shows that the United States, Canada, and Mexico are uniquely positioned to share in each other’s global trade successes.

For this reason–and many others–it’s good for the United States that Canada and Mexico now have seats at the TPP negotiating table.