BLOG: Getting into China’s favour is a long row to hoe

The Canada-China dispute is unfortunate, especially if you’re a Canadian farmer.

When Prime Minister Justin Trudeau’s government took power, strengthening the Chinese-Canadian trade relationship was a priority, demonstrated by many visits to China by high-level officials as well as multiple rounds of face to face free trade agreement exploratory discussions between the countries.

In Canada, a exploratory committee was established to examine the feasibility of an FTA with China.

However, the Global Affairs Canada briefing notes provided to The Western Producer through an Access to Information and Privacy (ATIP) request shows the process of establishing a FTA with China was going to be a tough sell in Canada — even before China overreacted to Canada’s detention of Ming Wanzhou, an executive of Chinese telecom giant Huawei, at the request of US authorities.

Feedback given to the government in a 2017 public consultation on a possible FTA show Canadian businesses largely support a FTA with China, but it’s unclear how fundamental differences in how the two economies operate can be overcome.

There was widespread concern by respondents about China’s willingness or ability to adhere to the rule of law and to the obligations of an FTA, especially considering the complex nature of the Chinese economy with state-driven industrial policies and its market-dominant state-owned enterprises.

Canadian companies pointed to the prevalence of non-tariff barriers in China, including a lack of transparency and predictability as well as very specific technical barriers such as standards and sanitary and phytosanitary measures, according to the briefing notes.

There are also concerns over significant problems regarding intellectual property enforcement and the complex investor-state dispute settlement across the many jurisdictions in China, which can make it difficult for foreign businesses — especially considering Chinese norms tend to avoid legalistic confrontation.

The briefing notes show Canadians are concerned an FTA could further widen the trade deficit and lock in current trade patterns, harm Canadian manufacturing jobs and lead to increased investment by Chinese companies in Canada’s natural resources sector.

Concern was expressed in the 2017 public consultations that an FTA agreement could cause an influx of low skilled foreign workers into Canada to work at projects purchased by Chinese state-owned enterprises.

Canadian companies raised further concerns over ongoing non-market economy conditions in the Chinese economy, including concessional lending by state-owned banks and the widespread provisions of subsidies.

Overcapacity of the Chinese steel industry and the ability to conduct anti-dumping investigations to maintain the effectiveness of the trade remedy system were also raised as trade concerns.

A common theme of respondents to the public consultation was that an FTA needs to have protection for Canadian values in terms of labour and environmental standards, but a feasible path that China would be willing to take to alleviate these concerns has not been articulated.

It’s unsurprising that China took a gloves-off approach to the Wanzhou detention, including quickly detaining two Canadian citizens, Michael Koori and Michael Spavor, and attacking the Canadian position in the state owned press.

China has failed to establish its own extradition treaty with Canada, which would be a tough pill to swallow for the Canadian public, considering the human rights history of China and the opacity of the country’s legal system.

“China is very interested in pursuing an extradition treaty with Canada to deal with allegedly corrupt officials and “economic fugitives.” However, Canada not only lacks a treaty negotiation mandate but also has various concerns with the Chinese legal and judicial system and China’s human rights record,” the briefing notes said.

Canada also irked China by signing the United States-Mexico-Canada Free Trade Agreement, which includes a provision that prevents Canada from negotiating an FTA with any non-market economy, meaning China — an apparent attempt by the U.S. to bring Canada off the fence in the world’s largest economic rumble.

Canada’s signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement between Canada and 10 other countries in the Asia-Pacific region, was largely constructed to serve as a counter balance to the growing Chinese economic clout in the region.

Canada consistently sides with western bloc trade deals and rule of law principles over trade with China, and this has not gone unnoticed.

On May 30, 2018, The Globe and Mail published an article written by Lu Shaye, Canada’s ambassador to Canada, who panned the Canadian government’s rejection of the acquisition of the Canadian construction company Aecon, by the China Communications Construction Company on national security grounds.

“China does not agree with politicizing and wantonly using the concept of national security and opposes adopting discriminatory policies against Chinese enterprises. Canada’s rejection of Aecon shows that Chinese enterprises are suffering from unfair treatment — and it’s not the first time,” Shaye said.

Shaye rejects the idea that western standards are global standards in terms of investment, trade and protection of intellectual-property rights.

“Such logic seems domineering and centres around the idea that westerners have the final say on international rules. On the contrary, I think that global standards are by no means western standards,” Shaye said.

China consistently resists any outside influence on its domestic governance, and it strongly opposes any restrictions placed upon its state-owned enterprises in the countries in which it does business.

Canadian officials are currently deciding whether to join Australia and the U.S. in banning Huawei from participating in the development of 5G networks on the grounds of national security, and it seems there is little mandate within Canada to let the guard down when it comes to Chinese state-owned companies.

This is not surprising because China has not demonstrated it wants to join the international rules-based system and institute an effective discourse on values, including human rights.

In fact, China has made it clear it’s not interested in hearing another speech by Canadian politicians on the merits of the rule of law or the importance of it moving toward a westernized view of governance or of human rights.

China takes the approach that it’s a tiger and that its trading partners have to play by its rules if they want to do business, rather than the other way around.

This approach has worked well for the country, especially in trade with vulnerable or emerging economies that become indebted to Chinese interests.

However, China cannot be ignored, especially by a commodity exporting nation such as Canada.

Prior to Wanzhou’s detention, much optimism had been shown by Canadian officials over the trajectory of trade between the two countries.

During Chinese agriculture minister Han Chang-Fu’s trip to Canada in October 2018, federal Agriculture Minister Lawrence MacAulay said Canada has increased agricultural exports to China by almost 50 percent in the past four years to almost $10 billion per year. He also said Canada is hoping to double the amount of agriculture exports to China within 10 years.

An article published last December in the state owned news agency, Global Times, quoted a manager surnamed Jiang at a Qingdao-based agricultural corporation: “We may not import oilseeds from Canada in the future if Canada continues meddling in China-U.S. political affairs. We can turn to domestic suppliers as a back-up,” Jiang said.

There have recently been reports that canola shipments to China have been delayed and that the flow of Canadian oilseeds into China has softened, which is weighing on canola values.

It’s likely Agriculture Canada has already lowered its 10-year growth projections for exports to China, and it’s unlikely there will be any further talk of an FTA with China anytime soon.

The best thing Canadian producers can hope for is a smoothing of bilateral relations without at an FTA, which has served both countries well in the past.

With the posture that Chinese officials have taken, one could almost forget the trade deficit between the two nations works in China’s favour.

According to Stats Canada, Canada exported $28.8 billion worth of goods and services to China in 2017, and imported $45.4 billion of goods and services from China, leaving a trade balance of $16.6 billion in China’s favour.

 

Canada and China come down on the opposite side of many geopolitical issues, but there are many instances where our strategic positions align.

Canada is resource rich and wants to be a long-term and reliable supplier of high-quality agricultural goods to China, which needs raw material and has many mouths to feed.

There is little doubt the current dispute between the two countries has already irreparably damaged their relationship, and it will take a long time for trust to again build between the two nations.

Canadian business are hesitant to travel to China, and according to China’s state-run newspapers Chinese consumers are avoiding Canadian goods.

The trading relationship history between Canada and China is of hard-fought-for, slow incremental gains, which have huge potential upsides but constantly need attention.

According to Stats Canada, bilateral total trade in goods between the two countries increased from $11 billion in 2001 to over $64 billion in 2016. 

Frank and open dialogue is hard with China but it’s worth it because like it or not, we are dealing with a tiger we cannot ignore.

robin.booker@producer.com

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