Canadian Prime Minister Justin Trudeau completed his second official visit to China in December 2017. On this occasion, Chinese Premier Li Keqiang remarked that China-Canada relations were entering a “golden stage” and that it was “rare to have such a close, intimate relationship where we have mutual exchanges of visits along with such dialogues.”
Bilateral trade had gained attention as the major focus of Trudeau’s five-day trip. While business leaders and political observers had expected a major breakthrough on the front of trade that had hit USD 66.4 billion in 2016, both countries however simply agreed to continue their “exploratory discussions toward a comprehensive trade agreement.”
In addition, China and Canada clinched the following deals: an agreement to expand trade in agriculture, an action plan on energy cooperation, and a memorandum of understanding for a joint learning initiative. However, free trade talks — the putative big chunk of diplomatic parleys — were put off over Canada’s insistence on the inclusion of progressive issues in the trade agreement. Prime Minister Trudeau stated: “Canada is committed to moving forward on progressive trade deals that involve things like chapters on gender, on the environment, on labor.” He further said: “China is very aware that this is a precedent as they move forward with their first trade deal with a G-7 country and there’s a desire to make sure we get it right.”
First, this move highlights the intended emphasis on Canada’s distinctiveness as a G-7 country with a repugnance to be in pursuit of gross trade interests. Concomitantly, it serves to mute the possible criticism that Canada had rushed into free trade talks at the expense of “Canadian values.” With this, Trudeau has heeded domestic opinion. It may be recalled that in April 2017, Canada’s national newspaper The Globe and Mail conducted a survey that revealed that “eight in 10 Canadians think any free-trade conditions should be tied to human rights.”
Second, it was meant to convey consistency and commitment in pursuing a progressive trade agenda that was underscored as crucial to the North American Free Trade Agreement (NAFTA) in Trudeau’s address to the US audience in September 2017. Third, insistence on progressive issues was deemed important to ensure a level-playing field for Canadian businesses because laxity in these areas is perceived as bolstering China’s trade competitiveness.
If a China-Canada FTA ever comes into being, it will be a landmark development in their bilateral trade ties. China is already Canada’s second-largest merchandise trade partner. However, it is a moot question whether an FTA will result in a win-win outcome. For one thing, an FTA with China is considered facilitative of Canada’s trade diversification especially when NAFTA seems to be in deep water. Other than that, it will be interesting to watch whether Canadian businesses penetrate the Chinese market in newer areas and reap the benefits of China’s huge middle-class base.
As we know, Canada mainly exports natural resources, including wood pulp and oilseeds, to China, whereas China’s exports to Canada largely comprise manufactured goods such as mechanical appliances and electrical equipment. In this regard, Gwyn Morgan aptly remarks: “Since natural resources are globally traded commodities that already move tariff-free, free trade would provide absolutely no benefit to resource exporters.” Furthermore, while 12 percent of Canadian imports come from China, only four percent of Canadian exports head for China.
Trudeau’s tenure has been marked by repairing and deepening ties with China, as seen in Canada’s joining the China-led Asian Infrastructure Investment Bank and in the approval of Norsat’s takeover by China’s Hytera Communications.
For China, benefits from an FTA with Canada could include: recognition as a market economy (which is the case with China’s FTAs with other countries such as New Zealand, Australia, and Iceland); increased access to the Canadian market for high-value industries; easier facilitation of high-tech exports from Canada; liberalization of Canada’s investment thresholds; and “increased labor mobility of Chinese workers into Canada.”
An FTA with a G-7 country would also further raise China’s economic profile in global politics, in addition to solidifying China’s footprint in North America, while the Asian, African and European continents have already come under the ambitious Belt and Road Initiative (BRI) launched by Chinese President Xi Jinping in 2013. In the words of Guy Saint-Jacques, a former Canadian ambassador to China: “We would be the first G7 country to negotiate a free trade agreement, and this would confirm that they are the new champion of globalization now that the US is retrenching.” This would carry geopolitical significance in terms of China’s hyperactive strategic global engagement in contrast to the US retraction under the Trump administration. As the Chinese Ministry of Commerce states on its website:
"The Chinese Government deems Free Trade Agreements (FTAs) as a new platform to further opening up to the outside and speeding up domestic reforms, an effective approach to integrate into global economy and strengthen economic cooperation with other economies, as well as particularly an important supplement to the multilateral trading system."
If neither side agrees to budge, clearly the deal will not be inked. If, however, China’s negotiating style succeeds, there could be a dilution of progressive issues in terms of the incorporation of vague clauses in the actual FTA agreement, which could leave room for maneuvering should China wish to find a way out. In any case, Canada’s prime concern would be to ensure compliance insofar as the lack of trust prevented free trade talks with China during the preceding administration led by Stephen Harper. Rachel Curran, a former policy director to Harper, explained: “Our view was that China does not — and will not — play by the same rules as everyone else and so free or fair trade is essentially impossible."
In contrast, Prime Minister Trudeau has been more positively inclined towards China. His tenure has been marked by repairing and deepening ties with China, as seen in Canada’s joining the China-led Asian Infrastructure Investment Bank and in the approval of Norsat’s takeover by China’s Hytera Communications, which will facilitate technology transfer to China. Nevertheless, the lingering suspicion over free trade has been fanned by Canadian consultants and academia who recommend caution in the national interest.
For instance, Charles Burton, associate professor of political science at Brock University, contends that China’s threat to ban imports of canola seeds from Canada had compelled Canada to continue transferring high-tech military applications to the Chinese military. He further argues that in contrast, the United States had exercised restraint, abstaining from leveraging its economic power over Canada to pressure it to be a party to its overseas military operations.
In any case, the acid-test of the deeper economic ties will lie in mutually satisfactory gains and mutual understanding, which eschews capitalizing on the vulnerabilities of either party. As such, technicalities of an agreement or institutional mechanisms are not enough to ensure compliance, but rather building and honoring trust is essential for a durable relationship, including commercial ties.