Pact with China promises $7B gain
Study provides impetus for eager Liberals
The first study to quantify the benefits of a free- trade deal with China suggests Canada could see i ts exports rise $ 7.7 billion over the next 15 years — growth of nearly 45 per cent over current levels.
The Canada- China Business Council/ Canadian Council of Chief Executives survey, to be released later this week, explored whether a free- trade deal with China makes sense. The model suggests the answer is a resounding yes, with up to 25,000 new jobs being created in such sectors as automotive, chemicals and seafood by 2030. The authors were at pains to point out these are very conservative estimates.
The survey will provide impetus to the Liberal government’s enthusiasm for a trade deal with the Chinese.
Under the previous Conservative government, Stephen Harper said he wanted to see “clear benefit for both sides.”
The Tories were always wary of Chinese enthusiasm to secure access to Canadian resources. “We have a willing partner on the Chinese side, which is often an indicator of how much the other side will benefit,” said Adam Taylor, a trade consultant at Ensight and former communications director to Conservative trade minister Ed Fast. “The full benefit to Canada was not fully explored.”
Back in 2012, the two sides carried out a study that concluded there was “untapped potential for further growth” in sectors such as agriculture, clean technology, natural resources, services and aerospace.
The next step was expected t o be t he l aunch of exploratory talks, but before an announcement could be made, China’s state- owned CNOOC Ltd. intervened with a $ 15- billion bid for Calgary- based oil company Nexen.
Harper approved t he Nexen deal but made it clear “this is not the beginning of a trend, this is the end of a trend” — a sop to his Conservative base, which was suspicious of China and rankled by lack of reciprocity in investment policies.
There followed reports of widespread i ndustrial espionage by Chinese companies in Canada, and the moment was gone.
The Liberals’ return to power has created the opportunity to reset that relationship.
The Chinese often dwell on the past when making decisions in the present, and the Trudeau name has carried great weight since the current prime minister’s father opened diplomatic relations with the People’s Republic in 1970.
The other major shift since 2012 was the conclusion of a free- trade deal between China and Australia, one of Canada’s biggest competitors as a source of natural resources and financial services expertise. The deal was 10 years in the making but, when fully implemented, it will see 95 per cent of Australia’s exports gain tariff-free access to China.
“That hits right at the heart of Canadian sectors like coal that are all at once at a three-per-cent disadvantage,” said Sarah Kutulakos, executive director of the Canada China Business Council.
The Harper government was always concerned about “reciprocity” — the opening of China’s economy to Canadian companies — but Kutulakos said Australian banks and insurance companies will now have preferred access to the Chinese market under the new trade agreement. So, she said, “why are we at the back of the bus?”
Canada currently exports about $ 17- billion worth of merchandise to China — paper, ores, wood, minerals — and imports nearly $ 60 billion of goods.
Critics of a China deal complain about the continued threat from stateowned enterprises if current restrictions are lifted; the prospect of floods of cheap labour ( the Australian deal allows the granting of visas to Chinese nationals); and the persistent violation of intellectual property laws that have seen counterfeiting of everything from BlackBerry devices to Canada goose parkas. Under the World Bank’s governance indices, China is considered a medium- range risk for corruption, regulatory quality and the rule of law.
Steel producers, textile manufacturers and the automotive unions can all be expected to howl in protest.
But Kutulakos said the Australia deal suggests Canada can hold out in areas where it believes it will be disadvantaged, such as by the influx of state-owned enterprises. “The Australians gave up very little on investment policy,” she said.
The benefits to i ndustries like pork, lumber and canola are obvious. As trade consultant Peter Clark wrote three years ago when it looked like a deal was possible: “Free trade with those countries whose food needs exceed their production cap- acity are made for Canada.”
The Liberals are keen to open up economic opportunities in Asia, particularly with China and India. Chrystia Freeland, the trade minister, said she has already had “productive meetings” with China’s commerce minister.
Trudeau’s team are also mulling the relaunch of prime ministerial- led Team Canada trade missions that were out of fashion in the Harper years but have proven effective for the British and Australians.
However, the fruits of such negotiations are unlikely to be enjoyed by the government in its current mandate.
Personal relationships and patience are more important to doing business in China than low tariffs. I was in Shanghai three years ago with a number of Ontario agri- food producers, including Charlie Pillitteri, chief executive of Pillitteri Estates Winery, who said he visited China for a decade before it started paying off. But when it started paying off, it paid off big, with exports of $ 150- a- bottle ice wine tripling in volume.
“The Chinese want to buy into the Canadian lifestyle. They love everything about us,” he told me, as he wondered why more firms don’t try to break into a market that is still growing, despite its recent travails. “We don’t show. We need to get out more,” he said.