Washington Insider: Canada Considers China Talks

Bloomberg is reporting this week that Canadians are still thinking about reaching out to China on trade.Part of the reason is that the U.S.-Mexico-Canada (USMCA) trade deal – which still must be signed and ratified to take effect – includes a clause that would force any one of the U.S., Canada or Mexico to notify the others if it were to launch trade talks with a non-market economy, such as China. It then needs to provide text of any deal in advance; if a deal actually takes effect, the other countries can quit the USMCA deal and instead strike their own two-way deal.The Canadian government and some trade lawyers have argued that the provision is “largely symbolic” since any country can quit the USMCA on six months’ notice for any reason. Others have said it sends a signal and undermines Canada’s authority to strike its own deals.Interest in stronger links to China is not new in Canada, Bloomberg notes. China is Canada’s second-largest trading partner, behind the U.S. and ahead of Mexico. Prime Minister Trudeau took office in 2015 with “high hopes on China that have since fallen flat.” Early effort to launch exploratory trade talks with the country collapsed during a visit last year and Canada later rejected a takeover of Toronto-based Aecon Group Inc. by a Chinese state-owned enterprise. China then criticized the “politicization” of the negotiations.More recently, Canada has been modestly engaged in an internal debate regarding its future ties with the Asian powerhouse. The idea was that “there is a new urgency to diversifying our trade” and a survey assessment was made by the Public Policy Forum. A final report is expected in the near future, co-author Kevin Lynch told Bloomberg on Wednesday. This work has been underway for some time – since well before the new “modified NAFTA” clause.“It certainly came as a surprise to many people and it really is an interesting intrusion on Canadian sovereignty,” Lynch said, adding he doesn’t think sectoral agreements would trigger that clause.The government released a summary of the survey last week, and noted that it included more than 600 stakeholders and other groups. The most heavily consulted business stakeholder group was agriculture.In general, the government says that Canadians “have mixed feelings about a trade deal with China, seeing opportunities to sell to a major market while worrying about "inconsistent rule of law."It said that while “intrigued by the potential of China as a market for goods such as crops and oil, Canadians worry about the country’s state-run economy and its legal system, particularly a lack of enforcement of intellectual property rights. The consultations also found concern about labor and human rights, as well as the environment,” Bloomberg said.The summary report highlighted that Canadian concerns about the rule of law in China “were widespread,” with stakeholders saying any trade deal would need a robust dispute settlement measure. The agriculture and forestry sectors largely want a pact, while Canada’s metals sector hoped any deal would “meaningfully address Chinese over-production” of aluminum and steel, the summary said. Respondents “expressed concern” that China’s “unpredictable and opaque regulatory environment” stymies foreigners looking to do business and asserted that in some cases, these rules are a de facto means of protectionism. Lower tariffs in some cases are secondary to clearer regulatory regimes, it said. “Not all stakeholders are confident that an FTA with China would be able to meaningfully address the full spectrum of challenges faced by Canadian businesses trading with China,” the summary report said.James Moore, a former Canadian industry minister who sits on Prime Minister Trudeau’s NAFTA advisory council, has warned against Canada-China trade talks, saying it would undermine Canada-U.S. relations and potentially hurt the USMCA talks.Trudeau’s government nonetheless continues to signal interest in China, Bloomberg says. Pierre-Olivier Herbert, a spokesman for Trade Minister Francois-Philippe Champagne, said last week that “a comprehensive relationship” with China “is in the best interests of all Canadians,” but gave no indication when Canada would make a decision on whether to proceed.“We will continue to consult Canadians to ensure that any possible future economic discussions with China are informed by their views and by Canada’s interests in pursuing a rules-based, progressive and strategic trade agenda throughout Asia-Pacific that helps create new opportunities for growth and puts our middle class values front and center,” Herbert said.So, it looks like the odds are against any strong effort by Canada to reach out to China just now, although the potential for “collateral damage” to elements of the USMCA deal from the growing trade fight with China appears to be lingering and possibly intensifying. These are trends U.S. producers should watch closely as they emerge, Washington Insider believes.