Amid the continued efforts of the Trudeau government to negotiate a free trade deal with China, a recent report suggests that a free trade agreement with the world’s most powerful economic force should be a “non-starter” for Canada right now.
The report, released Thursday by the Macdonald-Laurier Institute, examines China’s previous trade deals to depict how they’re often designed in favour of the Asian manufacturing giant. Furthermore, the report highlights the ideological differences that could become obstacles to achieving true free trade between Canada and China.
“We need a reality check,” writes Munk Senior Fellow Duanjie Chen, the principal author of the report.
“Given the Chinese government’s command power over its economy, its persistent violations of World Trade Organization (WTO) rules, and underhanded actions against the interests of its existing Free Trade Agreement (FTA) partners, Canada should not rush headlong into FTA negotiations with China,” she continues.
China’s history with free-trade agreements sets a negative precedent
Thus far, China has signed 14 free trade agreements and is currently negotiating eight others. Of these agreements signed, six of them were with developed countries; Australia, Iceland, New Zealand, Singapore, South Korea and Switzerland.
Historically, countries who engage in free trade with China have not obtained the access to the Chinese market that they’d hoped for, but were instead saddled with decades of tariffs and other non-tariff conditions that prevented them from engaging in true free trade with the superpower.
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Charles Burton, a senior fellow at the institute’s Centre for Advancing Canada’s Interests Abroad, told Global News in an interview that cases such as Switzerland’s 2013 deal and Australia’s 2005 deal should give Canadian officials pause.
“The Swiss government agreed to immediate access for Chinese goods and services, tariff-free in Switzerland, but the access of Swiss goods and services in China would be on a phased-in basis and would still maintain blacklist areas that don’t allow the Swiss goods and services to get a level playing field in that market,” Burton explained.
A report from the Centre for International Governance Innovation (CIGI) from 2017 corroborates this, stating that “in many cases, the time periods for phasing in tariff eliminations are quite long, from 10 to 20 years.”
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The Swiss agreement, for example, calls for almost 100 per cent of tariffs on Swiss imports of goods from China, and the elimination of tariffs on 84 per cent Chinese imports of Swiss goods.
In addition, while tariffs on the majority of goods exported from Switzerland were set to be reduced year after year for a period of 15 years, tariffs on goods exported from China to Switzerland were immediately dropped when the agreement came into effect.
What’s more, Burton explained that the might of China’s economy makes it difficult for nations to push back.
“I think the main message for Canada is that time and time again, the Chinese government is able to not fulfill their negotiated agreements in an honest way, and the advanced industrial nation really has no effective recourse against this because of the asymmetrical power relationship between the two countries,” Burton explained.
onservative Party of Canada leader Andrew Scheer has made similar claims about why, under a Tory government, Canada would not pursue a free trade agreement with China.
“When you’re dealing with a country like China, with state-owned enterprises, without the same commitment to the rule of law, with all kinds of things like non-tariff barriers, I don’t believe we’re ready for that,” Scheer said during a Q&A session in mid-March.
Canada and China have incompatible political and economic ideologies
The report highlights what Burton describes as “the fundamental incompatibility between our two systems.”
Primarily, the findings state that China is a systematic violator of World Trade Organization (WTO) rules, which compel the government to inform the WTO of subsidies and support for state-owned enterprises.
Some of what China has failed to disclose to the WTO include the regime’s growing assistance of state-owned enterprises over the years, subsidies to industries in the advanced technology, automotive and fishing space, strict price controls and general considerable involvement in the economy.
Furthermore, China’s punishing import duties serve to block foreign manufacturing for the purpose of protecting the domestic manufacturing industry.
The report also notes that the trade deficit between Canada and China has been growing steadily since 2010. Canada’s annual trade deficit with China exceeded CAD$44 billion as of 2017, an amount greater than Canada’s overall trade deficit of $42 billion.
“I think arguably the reason for Canada’s very large trade imbalance with China is because China has not been abiding by its commitment to the WTO,” Burton said, “because there are so many sectors that are blocked off, so many non-tariff barriers and so many difficulties for Canadian companies to maintain their intellectual property and proprietary manufacturing processes in China.”
Scheer has also expressed his concerns about China’s approach to the international economy.
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“We have to also recognize that the government in China has a much different worldview than we do. There is not the same dedication [to] the democratic institutions or principles that we have,” Scheer said during the same Q&A.
“They play by a different set of rules.”
Chen notes in her writing that “Canada and China are two worlds apart in terms of their economic systems and value systems,” and that giving China greater access to the Canadian market would amount to a national security threat.
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Former Canadian Prime Minister Stephen Harper said in an interview with Fox News this past December that an example of this threat can be seen in one of Canada’s existing partnerships — with the Chinese telecom firm Huawei.
“If we don’t take on this problem now, in the long term, this is going to get worse and frankly, we’ll get to a point in the long term where China cannot be taken on and it is determining the rules of the global system in arbitrary ways that simply suit its own interest,” Harper said at the time.
Harper went on to say that western allies need to address “Chinese rule-breaking,” which have allowed the Chinese to “frankly exploit a trade relationship.”
Free trade with China could alienate Canada and the U.S.
As tensions between Canada and the United States have continued to heat up since President Donald Trump took office, there has been much talk about engaging in trade talks with other countries to reduce Canada’s trade dependency on the United States.
Edward Greenspon, co-chair of Publicly Policy Forum, told Global News after the new USMCA agreement had been signed that trade with China is an available and obvious path to achieving this goal.
“If you want to diversify, and if you want to create jobs and opportunities and higher incomes for Canadians, you can’t do it unless you’re trading with nations that are growing faster than you and are large in scale, and that brings you to China,” Greenspon explained at the time.
However, clause 32 of the agreement requires all signatories to inform each other should they engage in free trade talks with a “non-market” economy, which is interpreted as referring to China. Should this take place, each party has the right to withdraw from the agreement.
“If Canada, before the U.S.-China trade matter was resolved, did negotiate a free trade agreement with China it could have a serious impact impact on our relationship with North America, particularly in the United States,” Burton explained.
Furthermore, “Canada has to be compliant with that clause that we, after all, did agree with.”
Now, none of this should be taken to mean that Canada shouldn’t engage in trade with China at all. Burton, the Macdonald-Laurier Institute report and both the former and current Conservative leaders agree that Canada’s relationship with China should be nurtured, stopping short of a free trade deal.
“China should be wanting to engage in trade with Canada because it’s in China’s interest, and certainly we do benefit from the Chinese goods and services that we receive,”Burton explained.
“I think there is certainly a lot of potential for high-quality Canadian products in the minerals and agricultural sectors that we could be selling more to China if we were more aggressive in that market,” he continued.
He added, however, that Canada should — in partnership with its WTO allies — work to encourage China to engage in free, fair, honest international trade.