For a Successful Canada-China Trade Deal, Avoid Artificial Deadlines - By Philip Calvert

    By Philip Calvert on May 5, 2017

    The opinions expressed by authors in these commentaries do not necessarily represent the views of the China Institute or the University of Alberta.

    Updated May 9, 2017

    Canada’s Finance Minister Bill Morneau recently said that the Liberal government is bringing “urgency” to the preliminary discussions with China, and wants to “demonstrate progress in our first mandate” (“Ottawa Eager to Conclude China Trade Deal within Two Years”, Globe and Mail April 24).

    China’s trade negotiators may be very happy to hear this. With China pushing for an early deal, any political signaling by Canada that we want a conclusion by 2019 plays into the hands of Chinese negotiators, whose leaders are not constrained by electoral cycles, and can take a longer-term approach. So this is not the time for Canadian politicians to be setting timeframes, especially ones related to the mandate of the current Liberal government, or to be talking about “urgency”. This kind of talk inadvertently adds time pressure to the work of Canada’s trade negotiators, putting them in a less advantageous position.

    There is no rush to conclude an FTA. Canada and China are now at the stage of exploratory talks to determine not only the scope of a possible agreement, but indeed whether such an agreement is possible. It’s not a time when negotiators put all their cards on the table, but it’s the point when they decide whether they’re playing five-card stud or draw poker. Or if they’re playing at all.

    A recent survey by the Canada-China Business Council talks about reaching an agreement within five years, which is about right. When the two countries launch formal talks on a free trade agreement, as seems likely to happen, it will begin the most complicated and politically sensitive trade negotiation since the Canada-US Free Trade Agreement. This requires a measured approach that should, ideally, look beyond a traditional FTA to forging a broader economic partnership framework that would create a better platform for addressing the specific complexities of each economy and its impact on bilateral and global trade.

    However the FTA is framed, though, when negotiations start, each side will have a long list of demands. China will undoubtedly be pushing for Canada to lift its differential treatment of state-owned enterprises investing in Canada, to relax national security restrictions on investment and technology exports, and to allow for more temporary workers from China. Canada should be looking not only at tariff barriers, but at the systemic obstacles faced by Canadian businesses in China, including lack of transparency, heavy and unreasonable regulatory burdens at the national and provincial levels, and foreign exchange restrictions. Clauses dealing with the environment and labour will have to be negotiated, and the issue of human rights has been put into play as well. Even a more limited, sectoral agreement, which in principle is a good option, would require a careful balancing of the priorities and demands of each side, and would need a built-in agenda for further talks.

    These are tough and sensitive issues. Some compromises will need to be made. Some demands will be non-starters.

    On top of this, Canada will have to manage the public relations aspect of negotiating an FTA with China.  According to a recent poll by the Asia-Pacific Foundation, Canadian misgivings about closer economic ties with China are lessening, thanks in part to the increased protectionism of the Trump administration   Their level of comfort with  an FTA with China, however, while trending upward, is still only at 55 percent.  A 2017 survey conducted by the University of Alberta’s China Institute (report forthcoming) found a similar level of support—56 percent— for an FTA in Alberta, and 48 percent support for Chinese investment in the province, with slightly higher support of 51 percent for Chinese investment in the resources sector. Support for these kinds of economic ties is noticeably growing, but not yet strongly positive. Given the sensitivity with which many Canadians view relations with China, the government will have to demonstrate leadership and a commitment to consultation and sustained engagement to ensure that the entire process is not derailed.

    The Canada-US trade relationship will also complicate the situation.  A substantial renegotiation of NAFTA seems in the cards, and this will involve hard negotiations on a range of sensitive of issues, such as dispute settlement and Canada’s supply management system.  It will require an investment of a great deal of energy and resources, especially when added to the implementation of the Canada-EU trade agreement. Canada would also have to manage any signals from the US that undercut, or disapprove of, the FTA talks with China.

    None of these issues are easy to address and all of this will take time. The last thing Canadian negotiators need is a public indication that they are under some kind of pressure to deliver a result—whether comprehensive or sectoral—by the next election. Such pressure risks a half-baked result that does not sufficiently reflect Canada’s interests.

    Back in 2001, in the final hours of negotiations for China’s accession to the WTO, Canadian negotiators were prepared to walk away from the table rather than accepting a last-minute deal between China and another player that would have disadvantaged Canadian private sector interests. Canada’s message was that we were prepared to wait to get an agreement that met our interests, even if it took months. Our demands were met; the last-minute deal was dropped. Canada will need to keep this approach in mind as we enter into negotiation with China, and to remind our politicians that a good deal is better than an early deal.

     

    Philip Calvert, former trade negotiator and diplomat, is a Senior Fellow at the China Institute. He has served in Beijing for 10 years and most recently, he spent 2012-2016 as Canada's Ambassador to Thailand, Cambodia and Laos.