On Wednesday, August 15, the Honourable Ed Fast, Canada's Minister of International Trade, released the long-awaited Canada-China Economic Complementarities Study. A joint product by Canadian and Chinese officials as mandated by Prime Minister Harper and President Hu in June of 2010, the study lays out an approach to future work on the basis of matching Canadian and Chinese needs and capabilities in specific sectors of highest promises.
Predictably, it draws short of outlining a comprehensive North American or even Canada-Europe style Free Trade Agreement (FTA) - nor indeed is this presaged in any direct fashion. Most informed observers will agree this would be a model not ready for prime time given the nature of the relationship and the gap in our economic systems. Nevertheless, the approach taken by the study rests on solid ground for a number of reasons.
These reasons include the scale of unrealized potential in the relationship, whether in trade or investment both at low levels in our respective statistics. It properly envisages a maturing relationship between Canada and China, extending beyond exports alone to that of investment in both directions, services sector improvements, and innovation partnering.
Other reasons for moving ahead that are reflected in varying measure in the study include an understanding of China's emerging global profile, its scope and something of its dynamics. It takes account of the transitions and restructuring underway within China of importance to Canadians as China and moves to meet domestic demand requirements and streamline its economic governance. For a summary of these changes, readers might wish to look at the 2011 World Bank/Development Research Centre of the State Council, PRC publication China 2030published at the end of 2011. The Economic Complementarities Study does not go to this level of detail, but it does show some of China's ever greater role in shaping indeed driving global value chains, and how this frames the economic relationship, the challenges and opportunities therein but, above all, the realities in which Canadian and Chinese firms now operate.
While acknowledging that tariffs and quotas do affect trade in specific areas, notably in the food sector, the study properly lays emphasis less on border measures than on the need to resolve technical and administrative barriers, for example, affecting product standards, and to deal with policy deficiencies in areas of investment rules, capital market regulations, intellectual property protection, and licensing.
The study highlights areas of potential for tie-ups in third countries of mutual benefit matching Canadian and Chinese capabilities. And the study wisely mentions infrastructure development in both countries, as an opportunity for commerce development and as a constraint that must be addressed if the immense potential for growth is to be realized.
Moreover, and perhaps to varying degrees, the sectors chosen are ones of clearest opportunity are identified as:
- Agriculture and agri-food (including fish and seafood);
- Clean technology and environmental goods and services;
- Machinery and equipment;
- Natural resources and derived products;
- Services;
- Textiles and related products; and
- Transportation infrastructure and aerospace
Some sectors not on the list may have wished to be included, perhaps feeling the opportunities have been overlooked or understated. On the other hand, not all industries or firms within the list will feel equally positioned to compete with Chinese entities in Canada or prepared to pursue market and investment opportunities in China.
Given the high profile of the oil and gas sector lately - or perhaps because of it, some will find its brief treatment in the study as odd, given the clear scale of opportunity. There is mention of the need for infrastructural improvements and there is reference to the rapid growth of Chinese investment in the oil sands - and also welcome reference to ongoing and potential work in renewables. However, one might have expected stronger treatment of the specific issues involved, or simply in charting more proactively ways forward for the energy agenda, whether conventional or otherwise.
Curiously, there is also but the most passing of reference to the education sector. Educational services is a sector of substantial economic benefit and more general strategic importance for Canada, and one in which Canada has capability and China has continuing and ever more sharply-defined needs.
But a start is necessary, and focus and priorities are essential. This study does the job in outlining an approach towards building, as it states, "a rules-based economic environment in which our businesses and citizens can prosper".
For China, a deepened economic relationship with Canada is more important to them than we sometimes give ourselves credit for or that our Chinese friends always appreciate. Canada represents a potentially important part of economic solutions to a number of challenges faced by China in the coming years, at both macro- and micro-levels. The study begins to capture this and identifies specific sectors and sub-sectors where opportunity is significant.
For Canada, the study properly followed up - much more on that below - promises a substantive complement to the many visits made to China by senior federal ministers and provincial premiers.
Can we better connect trade negotiations and commercial promotion activities to the realities of doing business with China? Can we adjust assumptions and adapt playbooks that worked elsewhere to these realities? It is clear that, with China, conventional free trade prescriptions are less relevant than building strategies to overcome informal barriers to business development? As above, this is covered in the Study but will require more focus and not a little innovation.
Can we tackle some of the parallel issues on the home front affecting or competitiveness as laid out in the paper by Messrs Burney, D'Aquino, Edwards and Hampson Winning in a Changing World: Canada and Emerging Markets, 2012 - issues of innovation, productivity performance, and infrastructure renewal backed by updated and competitive tax policies, customs practices and regulatory reform? Can we design an innovative bilateral agenda and negotiating strategy that reflects the fragmented, multinational character of contemporary production systems as suggested by Michael Hart in his CD Howe Commentary Breaking Free: A Post-mercantalist Trade and Productivity Agenda for Canada, 2012?
The Canada China encounter will or should help drive discussions within Canada over net benefit in our investment policy, infrastructural development that at once responds to emerging global shifts, environmental concerns, intellectual property strategies, demographic changes, and human resource development imperatives.
It is an open and reasonable question whether Canada, this time, can or will sustain the effort necessary over the period that is required to realize success. Indeed, some fear that the current focus on China and Asia is a passing fancy that we have seen before. It is indeed an approach that our friends in Asia Pacific know from Canadians in the past - good people, well-meaning, but rather easily distracted.
There is, however, also reason for optimism. The substantive importance of China's emerging, and indeed "emerged", role in the global economy has passed a threshold of plausible deniability. It is no longer something that Canada can just put off to another day. China is here and part of the setting in which sectors, individual firms, and households operate whether or not they are directly involved in trade and investment activities with China.
Western Canada, in particular, "gets it". Expanding ties with China is an area where the West can and indeed does lead the rest of Canada. While the China Institute records substantial support in Alberta for closer ties with China (Albertans' Views on China: Results from the 2011 Alberta Survey; October 2011), recent Asia Pacific Foundation of Canada (APFC) surveys ( for eg; 2012 National Opinion Poll: Canadian Views on Asia, April 2012) have shown persistently more mixed views about China and the rest of Asia. Nationally, awareness of Asia's importance to Canada has grown but, particularly in Ontario, attitudes still reflect either greater trepidation over perceived competitive threats or simply lesser enthusiasm. "Cool feelings" among Canadians are consistently more pronounced in regard to China. Again, western Canada leads countrywide trends in its support for stronger transpacific ties.
The issue is indeed follow-up - its speed, its scope, and its high-level engagement by the federal government, provincial and territorial governments and, above all, by Canada's private sector.
What is important is the early delivery of clear signals. This is important to both the Chinese side and to Canadian communities involved and affected. These signals need to confirm determination to move on the tasks laid out in the Economic Complementarities Study. As written and albeit in rather general terms in places, the Study contains ample material for promotional, cooperative, and problem-solving endeavours. But this needs to be converted and consolidated into a workable, action-oriented forward agenda with key outcomes and with a clear roadmap.
This process may fall under the ambit of the existing, deputy minister-led Canada-China Strategic Working Group. This is not yet clear. However, to achieve much needed full-time attention and coordination - and above all momentum, the case is strong to designate special negotiators for each side. For Canada's part, this individual should be given substantial inter-departmental, oversight responsibilities, with a mandate to engage industry stakeholders and provincial ministries. The entire process would benefit from strong analytical support throughout and by an integrated secretariat to sustain the pace and coherence of work undertaken. Ministerial engagement and leadership will be essential at all stages.