Canada should seize opportunity for FTA with China

Canadian Prime Minister Justin Trudeau arrived in China on Sunday on a five-day official visit. Given that the US is implementing trade protectionism worldwide and trying to revise the North American Free Trade Agreement (NAFTA), Trudeau’s China trip offers a good opportunity to promote economic cooperation between China and Canada, and possibly to pursue talks on a China-Canada Free Trade Agreement (FTA).

The NAFTA negotiations are currently at a stalemate. The US aims to reduce its trade deficit with Mexico and Canada, and its main focus is the automotive industry, but the other two countries oppose this. NAFTA was signed during the Clinton administration to enhance economic ties through regional organization while using the cheaper labor of the two neighboring countries. Canada and Mexico were attracted to it since NAFTA gave them access to the US market.

Now the trend of trade protectionism is rising in the US. The administration of President Donald Trump is pursuing so called “fair trade” terms with its trade partners worldwide. But Trump believes the US shouldered excessive market obligations under the original NAFTA agreement. The US is the largest market among the three countries with a population of 300 million, compared to Mexico’s 130 million and Canada’s 30 million. Trump also wants to solve the problem of the hollowing out of US industries by companies moving operations abroad, and hopes to encourage investment and manufacturing to flow back to the US, creating jobs for American people.

So there are great uncertainties over the future of NAFTA. Investment from the US might withdraw from Canada, and the US might restrict market entry. In June this year, the US launched an anti-dumping investigation into Canadian softwood lumber and imposed anti-dumping tariffs, bumping the total duties to between 17.41 percent and 30.88 percent, together with an antisubsidy duty levied in April. And in October, the US Department of Commerce announced plans to raise the tariff on Canadian Bombardier C-Series jets to 300 percent. If the US keeps elevating trade tariffs and pulling back investment, the Canadian economy will take a hit.

The economic growth of China has been impressive and the country has become Canada’s second-biggest trade partner after the US. To depend solely on the US market would be to put all the eggs in one basket. Trudeau’s trip to China, especially his visit to Guangzhou, has shown Canada’s intention to strengthen economic and trade cooperation, which will give it more bargaining chips in the NAFTA talks. Under pressure from the US, it is important for Canada to establish closer economic ties with China, as it will reduce risks for the Canadian economy. In response to the trade protectionism that the US exerts on its trade partners, China and Canada should strengthen their economic and trade cooperation even more. It would benefit both sides if China and Canada could open FTA negotiations and make some progress during Trudeau’s visit. ChinaCanada economic and trade cooperation will not conflict with US-Canada cooperation, and China should also understand that the NAFTA revision will not profoundly affect the US-Canada alliance.

China has always had a strong will to develop trade cooperation with Canada, and hopes to build an FTA similar to the agreements signed with Australia and New Zealand.

So far, the idea is in the exploratory discussion stage. It faces many obstacles down the road, especially on the Canada side, as the country has shown it has some concerns.

Aspects that might affect the discussions include human rights, institutional transparency and intellectual property protection. But these worries are familiar and should not be deal breakers. The Chinese government has made active efforts to tackle these problems. Next year will see the 2018 CanadaChina Year of Tourism, which will be a good opportunity to boost understanding between the two countries. Another concern is that looser labor and environmental standards in China might attract investment from Canada and thus be detrimental to Canada’s own industries and employment. However, cooperation with China also offers potential prosperity. According to one estimate by the Canada China Business Council, Canada’s exports to China could rise 50 percent from the current $20 billion, and create jobs in the automotive, chemical and seafood industries.