21st Century Trade Agreements: From NAFTA to the TPP

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(Disponible en français : Accords commerciaux du 21e siècle : de l’Accord de libre-échange nord-américain au partenariat transpacifique)

Given the size of its economy and relatively small population, Canada places considerable importance on international trade. It is not surprising that Canada has been negotiating bilateral and regional trade agreements in recent years, especially since members of the World Trade Organization were not able to reach a new global multilateral trade agreement during that time.

Like most international trade agreements, the trade agreements that Canada has negotiated have focused on reducing tariff and non-tariff barriers to stimulate merchandise trade. That said, trade agreements are now increasingly focused on other economic dimensions, such as labour mobility and intellectual property. This comes in response to the rising internationalization of supply chains and the growing importance of other activities, such as trade in services.

Trade agreements recently negotiated by Canada also touch on new social or environmental issues relating to trade. However, while some have characterized them as “21st century agreements,” the question arises: do they differ much from previous agreements?

“21st century agreements”: What are they?

A subject of fierce debate, the implementation of the Canada–United State Free Trade Agreement and the subsequent North American Free Trade Agreement (NAFTA) among Canada, the United States and Mexico paved the way for the negotiation of many bilateral and regional free trade agreements (FTAs).

Among those recently negotiated by Canada, two have received particularly close attention: the Trans-Pacific Partnership (TPP) and the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU). This scrutiny is due to the economic importance of the partners involved and the ambition of these agreements to be recognized as “21st century agreements.”

Generally speaking, agreements such as the TPP and CETA are considered 21st century agreements because they deal not only with traditional issues, such as tariff reductions and other economic dimensions covered in NAFTA, but also with contemporary issues, such as trade facilitation, the environment, support for developing countries, and measures to help small and medium-sized enterprises (SMEs) benefit fully from the opportunities that these agreements create.

In recent decades, the desire to broaden the scope of FTAs has appeared to go hand-in-hand with the reorganization of production activities. This reorganization and the appearance of global value chains have led governments and other players in the international trade arena to take a growing interest in the issues that the so-called 21st century agreements attempt to address.

The broadening of the scope of FTAs explains why countries negotiating bilateral or regional trade agreements now use terms such as “economic and trade agreement” or “economic partnership agreement” rather than the traditional “free trade agreement.”

An evolution, not a revolution

The chapters of the TPP and Canada–EU CETA that deal with “traditional” issues, such as market access, government procurement and investment, have much in common with NAFTA. In fact, the 10 FTAs that have entered into force in Canada since the implementation of NAFTA use a similar model, from the general structure of the text to the language used in most of the chapters.

This can be seen, for example, in the investor-state dispute settlement (ISDS) mechanisms. This type of mechanism, which was introduced in Chapter 11 of NAFTA, also appears in a similar form in most FTAs subsequently negotiated by Canada. However, some investment protection provisions in the TPP and CETA have evolved to address various criticisms.

For example, provisions were added to both of these agreements to make the procedures for ISDS mechanisms more transparent. As well, arbitration tribunals are provided with clearer guidelines so as to prevent overly broad interpretations in such areas as expropriation, and fair and equitable treatment.

In short, the 21st century agreements are not so much a revolution as an evolution of the approach favoured by the countries negotiating such agreements.

Of course, the TPP and CETA do include innovative chapters. But the majority of provisions in the chapters dealing with “non-traditional” issues are not binding. They are generally based on the recognition of certain challenges and on collaboration among the parties. For example, the TPP’s chapter on development deals with the role played by international cooperation and capacity-building to ensure that the agreement fosters sustainable economic growth for each party. From a legal standpoint, however, these provisions do not require the parties to take specific measures, so their effectiveness is difficult to determine.

Numerous chapters dealing with “non-traditional” issues have another distinctive feature: they provide for the establishment of committees to facilitate the exchange of information among the parties and to make recommendations on specific issues.

In conclusion, while the agreements of the 21st century do not seem to be a revolution in terms of trade liberalization, the inclusion of chapters dealing with issues such as development, capacity-building, environmental protection and labour rights shows that countries recognize the importance of these issues. This first step could lay the groundwork for more specific and binding commitments in the future.

Related resources

Global Affairs Canada, Trans-Pacific Partnership, 2015.

Global Affairs Canada, Canada-European Union: Comprehensive Economic and Trade Agreement, 2015.

Meredith, Katie, and Alexandre Gauthier, Canada’s International Trade and Investment Agreements: A Variety of Options, Publication No. 2012-32-E, Ottawa, Parliamentary Information and Research Service, Library of Parliament, 19 July 2012.

Authors: Alexandre Gauthier and Pascal Tremblay, Library of Parliament

Categories: Business, industry and trade

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