Beware of trade deals with aggressive China
Canada’s interests far better served by NAFTA, writes Danny Lam.
Canada and the United
States historically enjoy close security and economic ties. Since 1994, NAFTA and prior free trade deals resulted in Canada being the United States’ second-largest trading relationship after China.
The Trudeau government has sharply diverged from the U.S. in recognition of the military and economic threat from the People’s Republic of China (PRC) and its allies, North Korea and Pakistan.
Militarily, China has emerged as a heavily armed competitor to the U.S. with imperial ambitions. China is actively making and enforcing irredentist claims that include vast stretches of the South China Sea and the Indian subcontinent. Russia’s land grab in Ukraine pales in comparison.
Economically, China is a non-market economy where predatory behaviour by heavily subsidized and protected “local” and national champions and rampant investment in excess capacity is commonplace. For foreign firms in China, unfair competition, including demands for forced technology transfers and widespread piracy of intellectual property is the norm.
The China market of the 21st century, rather than a great opportunity to expand trade for Canada, is increasing in both formal and informal protectionism compared to a decade ago. What about opening Canadian markets to China?
Chinese demands for a free trade deal with Canada are telling: market economy status, unrestricted access for their goods and services, ending of Canadian export controls, no restriction on investments, ban on national security exceptions by Canada and freedom to import Chinese nationals to Canada.
Predatory behaviour by heavily subsidized Chinese exporters has hurt North American industries such as steel, aluminum, chemicals and renewable energy, and is now threatening auto manufacturing, aviation, telecommunications and other hightechnology industries.
Chinese exporters are adept in circumventing antidumping and countervailing duty actions by diverting exports to third countries and exploiting rigidities in regulations with minor changes or modifications.
Similarly, Chinese investments are increasingly targeting North American firms with military and economically sensitive technologies, valuable intellectual property and know-how. They acquire the knowledge and then often move the firms to China and shut down the operation or replace workers with Chinese employees.
NAFTA and other free trade agreements were made before China became a major military and economic threat to Canada and the U.S.
In the 15 years since China joined the World Trade Organization, despite the expansion of trade and the growing wealth and power of China, political and economic reforms have not only stalled but regressed. China remains a one-party state where both political and most economic power is monopolized by the Chinese Communist Party.
If the Trudeau government accedes to Chinese demands in the rush for a free trade deal by 2019, it will cause the U.S. and all traditional allies of Canada to rethink their close ties with Canada.
U.S. NAFTA negotiators will be gravely concerned with China using Canada or Mexico as a back door and will make every effort to close existing loopholes and demand tight co-ordination of anti-dumping and customs enforcement. These matter more than abolishing dispute settlement.
The Trudeau government has the option of greatly strengthening Canada’s negotiating stance by proposing to work closely with the U.S. and Mexico to ensure NAFTA is, and will remain, a benefit for Canadians, Americans and Mexicans, but not China.
Canadians, and our government of the day, need to be concerned that we are risking what we have — our largest and most profitable trading partner, the United States — for the speculative promise of better access to the Chinese market.