Relationship management vital with China

Relationship management vital with China

The stories of Brazil and Australia’s dealings with the Asian giant show how important it is to cultivate relationships

Trading with China often requires unique management, Australia and Brazil have discovered.

But even managed trade fails when China gets angry, at least one of them has already learned.

“The issues Australia faces are exacerbated when the bilateral political relationship sours,” observe Canada West Foundation analysts Sharon Zhengyang Sun and Carlo Dade in a report examining Canada’s prospects at improving the trading relationship with China.

Australia and Brazil are both major agricultural commodity exporters to China, which is why Sun and Dade looked at their experiences with China in recent years.

Canada has had major problems in its exports and relationship with China since 2018, so the experience of similar exporters is worth studying, the authors believe.

One of these nations has seen its booming sales to China collapse as the communist government blocks its products as a way of expressing diplomatic anger and as a means of trying to change its actions. The other nation has seen sales soar as China turns to it in order to lessen reliance on the United States.

The report makes it clear that specific written deals with China are less important than relationship management because China regularly breaches and manipulates the terms of its agreements based on its feelings toward its trading partners.

Australia has a free trade agreement with China, but that hasn’t meant much since early 2020, when China became furious with Australia for daring to call for an inquiry into the origin and spread of COVID-19. China has blocked most Australian beef, barley and other agricultural commodities despite the free trade agreement between them and commitments under the World Trade Organization.

At the same time, Brazilian exports of soybeans, beef, pork and other commodities have surged since 2018 as China looks for alternatives to an increasingly hostile U.S.

“Brazil’s successful engagement with China on agricultural (non-tariff barrier) issues was achieved without a comprehensive free trade agreement,” say Sun and Dade in the appendixes to the When Interests Converge report.

Brazil and Australia rely even more upon China as a market than Canada does. Both have created customized structures and systems to deal with China’s particularities, both within government and among the industries that export to China.

Rather than sticking rigidly to WTO and other general trade rules, Australia and Brazil deal with China in ways that fit its demands but also meet the needs of the exporting nations.

Brazil has practised a policy of “reciprocity,” in which it connects access for some Chinese products to Brazil’s markets to Chinese access for Brazilian goods. That doesn’t always lead to equivalent access for the smaller country to China’s market, but it creates some balance of benefits to the relationship.

“Brazil gave more to receive what it wanted, and accepted that what Brazil can offer to China may not necessarily be equally reciprocated,” say the analysts about access to China for Brazilian meat plants.

“Like Australia, recognizing the need to play by Chinese rules and providing reciprocity on China’s terms has led to successful negotiations.”

In Brazil, senior politicians were employed to manage trading issues, including the Sino-Brazilian High-Level Commission for Concertation and Cooperation, which included the vice-presidents of both countries.

“The support from the Brazilian president in setting a deadline and prioritizing the reopening of China’s market for Brazilian beef (following a BSE situation) was crucial for the successful conclusion of the negotiations.”

Australian industries and government have formed bodies to deal with the intricacies of China trade and created networks of representatives in China to keep close contact with Chinese officials and customers.

“A permanent presence on the ground in China, supported and resourced, builds relationships of trust and value to engage with the Chinese system, particularly when things are not good,” say the analysts.

China employs many non-tariff trade barriers and market access restrictions to manage its domestic economy and to favour or punish foreign suppliers.

For instance, Brazil had ongoing problems getting China to approve the import of meats from dozens of its processing plants, but those problems began to evaporate as China’s trade war with the U.S. flared, and African swine fever ravaged China’s domestic pig herd.

“China relaxed its inspection proceedings and even started doing it virtually via Skype,” noted the report.

Brazil has also scrambled to address Chinese concerns about contamination and disease situations, even if those go beyond internationally acceptable scientific and regulatory requirements.

In 2015, possible dioxin contamination of Brazilian chicken led Brazilian authorities to quickly negotiating extra safeguards, even while an official investigation was ongoing. That prevented $600 million in chicken exports from being blocked from the Chinese market.

“This situation is a good example of successful crisis management strategy. Brazil immediately recognized China’s food safety concerns and was quick in offering additional sanitary guarantees. Such measures undoubtedly reinforced China’s confidence in the Brazilian animal health system,” says the report.

“Unlike Canada, who considers itself to have a world-leading food safety system, Brazil recognized it is not a leader in food safety and was amenable to suggestions in this situation.”

The main gains to Australia from its trade agreement with China appear to be coming from the “consultative mechanisms” and other forums that the deal created, allowing Australian government officials and industry representatives to work closely with Chinese counterparts to ease and expand trade between the nations.

The specifics of the rules-based trade agreement, however, are much less effective because China will use everything from an opaque and inconsistent regulatory system to a host of other non-tariff trade barriers to manage imports in what it perceives as its economic and diplomatic benefit.

That makes relationship management key, said the report.

“Consequently, developing expertise, creating a permanent physical presence and co-operation mechanisms at every level in China is valuable for long-term engagement with China.”

Once the diplomatic dispute erupted in 2020, Australia saw its market access disappear for numerous agricultural commodities, despite these relationships and its trade agreement. It proved that politics can play a pre-eminent role in its economy.

Brazil has worked carefully to improve its diplomatic relationship with China to improve access.

“Brazil and China reaffirmed their commitment to the global strategic partnership in 2019 with new bilateral agreements in areas such as politics, trade and economy, customs, inspection and quarantine, energy, technology and education.”

The two nations have a “Joint Action Plan” and a “10-year Cooperation Plan.” Brazil supported China’s bid for the United Nations’ Food and Agriculture Organization’s presidency in 2019. China has invested vast amounts of money in Brazil’s infrastructure.

The CWF study suggests that Canada can learn from the Australian and Brazilian examples. A policy of enlightened self-interest, which Sun and Dade refer to as a “convergence of interests,” could provide the basis for a renewed relationship in which China wants improved trade with Canada as much as Canada wants improved trade with China.

“We have to structure our trade in ways that it’s not in China’s interests to come after us,” said Dade in an interview.

“Our approach is that if there’s a convergence of interests, China will abide by it because it’s in their interests to do so.”

The report is available free on the CWF website.

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