Politics

John Ivison: How Canada can trade with China without setting off the U.S. tripwire

Canada plans to diversify away from its trade dependence on the
United States in the wake of recent local difficulties with
President Donald Trump.

In the summer cabinet shuffle, Jim Carr became the minister for
the newly minted portfolio of “international trade
diversification.”

But those plans have hit a snag. Trump quite likes Canada being
reliant on America as a destination for three- quarters of its
exports — it makes it much easier to leverage what he called
“the power of tariffs.”

As such, a clause was written into the new trilateral trade
agreement with Canada and Mexico that essentially gives him a
veto over this country’s future trade relations with China.
“Entry by any party into a free trade agreement with a
non-market country shall allow the other parties to terminate
the agreement,” says clause 32.10 of the new United States
Mexico Canada Agreement.

The Trudeau government dismisses the significance of the
clause, saying any of the partners could quit the USMCA at any
time. The Chinese don’t see it that way, condemning a
“hegemonic action … that blatantly interferes with the
sovereignty of others.”

This presents a dilemma for Canada. It needs the new USMCA. But
if this country is serious about reducing its dependency on an
American administration that treats its allies and its enemies
in much the same fashion, it also needs to improve its trade
links with China, which accounts for one-third of the world’s
growth.

The Public Policy Forum, an Ottawa-based think-tank, says it
has the answer to what it called “an unprecedented ceding of
sovereignty” — sectoral agreements between Canada and China in
areas like agri-food, natural resources, education and tourism
that do not offend the new USMCA clause because they do not
constitute a comprehensive free trade agreement in World Trade
Organization terminology (since they cover “substantially all
trade”).

The new Forum paper is the result of 18 months of consultations
with industry, government, environmentalists and union leaders
(amongst others). Chaired by Edward Greenspon, Forum’s
president, and Kevin Lynch, vice-chair of BMO Financial, the
consultative group heard that the sectoral approach has worked
well in the past — the Canada-U.S. free trade agreement built
on the auto pact between the two countries.

Canada exports $23.6 billion to China — 4.3 per cent of all our
exports — compared to the 8.4 per cent of U.S. exports that go
to China. “We don’t believe a sectoral agreement would be a
tripwire. At least until we hit 8.4 per cent, we should be OK,”
said Greenspon. “That’s another $25 billion of exports.”

The potential for growth is apparent: only 10 per cent of
companies with fewer than 500 employees export at all, and only
10 per cent of them export to Asia.

Internet sales platforms like Alibaba offer easier avenues to
reach foreign markets.
At the same time, previous studies have shown much of China
wants what Canada is selling, as it moves from an export-based
economy to one centred around consumer spending.

The report suggests the sectors most complementary to Chinese
demand are agri-food, forestry, clean technology, life
sciences, engineering services, tourism, education and
research.

The
USMCA deal presents a dilemma for Canada’s Minister of
International Trade Diversification Jim Carr.
Sean Kilpatrick/The
Canadian Press

It suggests sensitive areas like technology transfer and
national security should be avoided. “Selling lobsters, filling
hotel rooms, shipping timber or oil and gas don’t pose direct
security threats to Canada or its allies,” it says.

Not everyone agrees that negotiating with the Chinese makes
sense. In his new book, Right Here Right Now, former prime
minister Stephen Harper said his government declined to even
enter into free trade talks with China after a pre-study in
2012. “Canada is simply not in a position to get a good deal
bargaining one-to-one with the People’s Republic,” he said.

He pointed to the consequences of China being allowed to join
the World Trade Organization in 2001, which offered the country
wide-ranging access to Western markets — access that was not
reciprocated in the Chinese market. “Not surprisingly, China
has racked up enormous trade surpluses… it has cost the U.S.
millions of well-paying jobs,” he said.

The Forum study makes clear that Canada must be cautious,
incorporating clear dispute settlement mechanisms into any
sectoral agreement, as well as adjustment policies for
industries that are adversely affected.

The authors point out that more than 60 per cent of Canadians
are open to increasing trade with China, as U.S. protectionism
grows. “We have experienced the train wreck of being dependent
on a single country that is no longer benign,” said Greenspon.
“We now have a minister of international trade diversification
(Jim Carr), but he can’t be minister of trade diversification
without China.”

• Email: jivison@postmedia.com |
Twitter: IvisonJ

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