In early December 2017, Prime Minister Justin Trudeau will visit China for the second time since he was elected two years ago. The Liberal government has pledged to open a new era in the Canada-China strategic partnership and has indicated its ambition to develop closer ties with China and to expand trade – notably through a potential free-trade agreement.
China is of critical importance for Canada: it is now one of the most powerful countries on the planet, its contributions to international security and global governance have become indispensable, and its domestic market represents an immense trade opportunity for Canadian companies. And yet, as Canadians accept China’s growing importance, they also have concerns about its governance model and its human rights record. Beijing’s relationship with neighboring countries has also become a source of worry around the globe, and China is increasingly seen as a strategic competitor by Canada’s closet ally, the United States.
Prime Minister Trudeau has made China a key priority for his government, but managing this bilateral relationship has become extremely complicated. How can Canada strike a balance at home and abroad as it charts its China policy? Ahead of the Prime Minister’s visit to China, we asked our China Research Partnership experts to weigh in.
Discussion hosts: Iris Jin, senior program manager, trade, investment, innovation, and Canada-China relations, Asia Pacific Foundation of Canada, and Charles Labrecque, project specialist, Asia Pacific Foundation of Canada.
Justin Trudeau’s next visit to China will be in different global circumstances than were at play during the back-to-back reciprocal visits he undertook with Chinese Premier Li Keqiang in the autumn of 2016. The Trump administration is promoting a protectionist agenda, U.S. global influence appears diminished, and Canada’s trade relations with the United States face increased challenges, especially with NAFTA under threat. China’s President has articulated an ambitious global agenda, promoting innovation, climate change, and globalism (despite significant domestic challenges and obstacles), as well as presenting China’s model of authoritarian government and state-influenced market economics as an alternative model to western liberal democracy. In this context, strengthening Canada’s ties with China becomes even more important, both to support increased diversification in our international markets, and to maintain our ability to advocate with China on global issues of importance to Canada.
Recognizing and adjusting to the importance of China for Canada requires a significant shift of mentality in Ottawa. Canada needs to start treating China as a major relationship to be managed and nurtured consistently at senior levels, not simply around high-level visits. Contact between the Prime Minister and the President should be sustained and regular as global challenges emerge. Canada and China will not always agree on the solutions to these challenges, but China as a global player needs to be part of the discussion, and to be encouraged to be part of the solution.
Effective management of the China relationship requires leadership and a long-term vision for all of Canada. Prime Minister Trudeau should lead a pan-Canadian process, including First Ministers, business leaders, and NGOs, to set a co-ordinated, strategic agenda implemented by provincial and federal government agencies. There will doubtless be issues of disagreement (pipelines comes to mind), but the more different levels of government can increase their co-ordination, the more effective our overall impact in China will be.
Many observers expect that formal free trade negotiations will be launched during this visit. These negotiations, if launched, will be long and challenging, and a number of issues sensitive to each side will doubtless be on the table. According to recent polls, Canadian support for free trade with China is increasing, but not overwhelming, and China’s domestic system, especially its approach to regulations, lacks transparency and consistency, and contains problems that may be beyond an FTA.
There is a good argument for strengthening our economic ties with China, given its current and growing global role in international trade. Instead of launching into a standard, full-blown FTA negotiation, however, Canada could propose an economic partnership agreement, which could serve as a framework for productive engagement on bilateral issues and systemic obstacles, as well as on international issues such as fighting protectionism. Such a framework would help build mutual confidence and knowledge, and could serve as a platform for moving to free trade, perhaps starting with more limited sectoral agreements. It would be a way of locking in wins, for both sides, early, rather than at the end of a long negotiation, while avoiding the heightened controversy of an FTA. It could also be used to strengthen dialogue on regulatory issues and related non-tariff barriers, serving as a constructive way to address systemic challenges of concern to Canadian business.
Strengthening the Canada-China relationship also requires a long-term investment in education linkages. Canada should strengthen its federal and scholarship programs in order to attract emerging leaders from China. Such ties can be instrumental in Canadian successes in the future. Canada also needs significant investment in scholarship programs to send Canadian students to China. This is crucial in developing a corps of future leaders who can apply their China language skills and understanding of the country to business, government, academia, and other endeavours.
We also need to do more to build and make use of China competence in Canada. Scholarships are part of the solution, but not all of it. School curricula need better to reflect our interest in China and Asia, particularly as an increasing number of our students have their roots in that region. More active recruitment of China expertise by governments and companies would help increase this capacity, as would regular exchanges of China experts between the government and the private sector.
Governments have tended to approach China with varying degrees of enthusiasm or skepticism. Both are important. There will be areas where Canada and China share a common agenda, and areas where our different values and priorities may lead to disagreement, especially in such areas as human rights. Maintaining a balanced approach will help Canada benefit from ties with this complex and challenging country.
It is easy to find Canadians who line up on both sides of the question as to whether or not Canada should launch free trade negotiations with China. On the one hand we have those extolling the benefits that a more open trading relationship with China will bring Canada, telling us “Why China Matters” and urging us toward “eyes open” engagement with China. On the other we have others warning us that a standard FTA with China will reinforce rather than change “currently imbalanced and highly deleterious trade patterns with China” and be detrimental to people and to the environment.
Quite apart from a war of numbers between supporters and opponents of a China-Canada free trade agreement, there are a host of interest groups lining up to criticize China, and by extension any effort by the Canadian government to build closer economic relations with the current regime in Beijing. Among the issues that bother Canadians is China’s dismal human rights record, the flexing of its military muscles in the South China Sea, concerns about Chinese investment in Canada, examples of cyber-espionage and intellectual property rights (IPR) theft, and now reports of Chinese influence among elites, educators and others. In fact, we have been offered gratuitous advice by Australia’s former High Commissioner to Canada to “proceed with caution,” and an Australian academic who has just published a book on Chinese influence Down Under is also warning that Canada is “at risk.” Yet despite these concerns, recent polls indicate that public support for negotiation of a trade agreement with China is strong and growing. In a poll conducted in early September by the Institute of Asian Research at UBC, 69% of respondents reported that they strongly or moderately supported negotiation of an FTA with China, with 19% opposed and 12% undecided. More than that, respondents indicated by a large margin that trade and investment should be the top priority of the Canadian government toward China, as did a recent poll by the Asia Pacific Foundation that took the pulse of millennials, who place economics ahead of other issues when it comes to dealing with Asia.
There is no doubt that Canada needs to diversify its trading relationships, the more so now that the Trump Administration is playing hardball on NAFTA using “winner take all” tactics. China, despite a relative economic slowdown and an ongoing slow transition to an economy that will be driven more by domestic consumption than exports, is still the world’s second largest economy and remains on track to the be the largest soon. It is also Canada’s second largest trading partner and runs a large trade surplus in goods. Canada would like to whittle down its trade deficit, expand and diversify exports of goods and services, seek more Chinese students and tourists, and attract inward investment—but of the “right kind.” Will a trade agreement help meet these objectives, and will it address the many non-trade concerns expressed by opponents of closer relations with China?
Let’s first address the objections. A trade agreement with China will not change China’s behaviour toward its immediate neighbours and is unlikely to have much if any influence over how the human rights situation in China develops. It is also unlikely to stop Beijing’s meddling with overseas Chinese communities, and may mitigate but will not stop Chinese cyber-espionage activities conducted for commercial purposes. These activities will continue whether or not Canada negotiates or concludes a free trade agreement with China. They are part of the reality of dealing with an emergent superpower that increasingly marches to its own drummer.
But while an FTA with China will not resolve all the issues arising from the way that China conducts itself internally or externally, you can still have disagreements with a trading partner while building an economic relationship that brings benefits. Indeed, some of the concerns, such as those regarding IPR, investment rules, and even the trade deficit, can be dealt with through an agreement. Trade will expand as Canadian exporters obtain preferential access (or at least equal access with Australian competitors) in China’s huge but still restricted market. Investment both ways will be liberalized. Canada will have to consider carefully to what extent it wants to relax investment review thresholds but, as is the case today, once established in Canada all Chinese investment will have to play by Canadian rules. Even those behemoth Chinese State-Owned Enterprises will have to conduct themselves in the Canadian market like any other investor.
It is impossible at this stage to quantify to what extend Canada will reap economic benefits from an FTA with China, because we don’t know the terms and we don’t know how Canadian business will respond. But the prime benefit is that Canada and China will have negotiated an agreement on the basis of equality. In such an arrangement, the smaller partner always gains since the larger partner, which could normally bring the pressure of its larger economy to bear, is bound by a transparent set of rules. Establishing a framework of transparent rules and predictability, enforced by a binding bilateral dispute settlement process, will enable Canadian business to operate on a level playing field (to the extent that their activities are covered by the agreement.)
This is the same principle that Canada followed in negotiating an FTA with the United States. Instead of U.S. unilateralism and arbitrary decisions, the Canada-U.S. FTA, and later NAFTA, sought to impose a rules-based regime around the trading relationship. By and large, until now, this has worked. China, despite its size and form of government, has a proven track record of respecting its trade obligations, whether bilaterally or through the WTO. Its record is not perfect but is no less imperfect than many other countries, including the United States. The protection and certainty that a bilateral agreement will provide to Canadian exporters of goods and services is the single most compelling reason for Canada to try to negotiate an FTA with China.
No, it won’t resolve the human rights situation in China, at least not in my lifetime, and it won’t change Chinese behaviour in many other areas. But nor will it make this behaviour any worse. These issues will have to be dealt with by other means. What it will do is to provide a degree of improved market access while, most importantly, establishing a set of enforceable rules to govern what is destined to become a more and more important trading relationship for Canada.
The global geopolitical map is in transition. It can be argued that such is the nature of geopolitics, with some periods marked by greater uncertainty than others.
That is certainly the case in the latter half of our decade, with prospects for more to come. China’s domestic trend lines and international ambitions have been clearly articulated in President Xi’s impressively detailed vision and policy statement at the 19th Party Congress, one which did not neglect its international dimensions (see Part XII: “Following a Path of Peaceful Development and Working to Build a Community with a Shared Future for Mankind”). U.S. President Trump’s policy statements are considerably shorter (averaging 140 characters on a smart phone) but provide a vision of sorts: an American-centred reorientation that eschews much of the post-WWII global governance structure that the U.S. devoted much resources to build, to its benefit and to that of the participants in the liberal order. It doesn’t stop there: rising nationalism in Europe; contesting visions for the EU; tensions within NATO; the DPRK nuclear challenge. And for Canada, specifically, a NAFTA re-negotiation whose outcome, as of this writing, is anybody’s guess.
At this moment in time, Prime Minister Justin Trudeau is heading for China, to shape the next phase of Canada’s relations with the twenty per cent of the world’s population that the government in Beijing represents. He can again expect a warm welcome. Chinese culture respects familial ties, as well as the role that the Prime Minister’s father played in 1970 in the progressive opening of the People’s Republic to the world. Good relations are in fact older than that: Canada provided wheat on credit to China, at a time when it was recovering from the human and economic catastrophe that was the misnamed Great Leap Forward. Canada and China agreed that their partnership had become strategic in its breath during the visit of President Hu Jintao in 2005, when Canada was still delivering official development assistance to China and China was adjusting to its new World Trade Organization commitments.
But this time, it’s different. During the years when ‘cool politics’ defined the relationship with Canada, China developed many of the trappings of global power, a process that will continue unabated. Prime Minister Trudeau’s first visit in 2016 was largely housekeeping: resetting the tone of the relationship, addressing difficult bilateral issues such as the imprisonment of Canadian missionary Kevin Garratt on spying charges, and the phytosanitary blocks to canola shipments, announcing seven new visa processing centres to promote tourism.
The upcoming visit is fundamentally strategic, as it may launch discussions for a bilateral free trade agreement. The backdrop, however, includes the need to triangulate a fundamental change in Canada’s relationship with China, all the while shaping an ongoing response to the Trump Administration’s evolving objectives regarding NAFTA, and at the same time, refurbishing our credibility in the Asian region, the sub-theme of the Prime Minister’s participation at the APEC Summit in Da Nang, and the invitation-only East Asia Summit in the Philippines. Part of this extended outreach also included conducting ongoing negotiations on the TPP11.
The policy and communications challenges of balancing national interests against such complex agendas are immense, and rarely free of competing priorities, as was observed over the Canadian no-show at the TPP11 Leaders’ Meeting.
That is not to say that the Government of Canada and its prime minister, cannot successfully weave their way through these various challenges in the pursuit of Canada’s interests.
For starters, it is not necessarily the case that Canada cannot pursue both its strategic relations with the United States and China on parallel tracks.
On the surface, there appears to be a reversal of roles between the super powers, with China pursuing rhetorical globalism, and the Trump administration rhetorical retreat. The situation is not that simple. China’s rising economic influence throughout Asia, with significant ripples in the West, is not matched by a political values agenda, nor at this point by the kind of hard and soft power that can turn the country into THE global leader, as the U.S. had become in the latter half of the 20th century. The seeming inflexibility of China’s political institutions, and the built-in contradictions between maintaining a pitiless surveillance state and leading a Fourth Industrial Revolution of hyper-connectivity, AI, and unrestrained creativity are obvious. Somethings are going to give, and China will make mistakes, as all governments do.
Nor is it certain that the Trump era – four years? eight years? – will be followed by an identical commitment to an ‘America Firstism’ that risks irreparably damaging the liberal order. That order, based on decades of experience, law, and habit, and globally embraced, is more resilient than many people appear to think.
Proposed U.S. defence budgets do not augur a reduction in U.S. military capability – on the contrary. The U.S. economy will remain “yuge” and globalized. Trump’s policy reversals so far – on NATO burden sharing, One China, nuclear capable Japan and Korea – are more impressive than his achievements. And while he seeks to do major damage to NAFTA – and Canada has to be ready for the worst – the U.S. Constitution’s checks and balances still appear to be in working order, with Congress’ ability to put on the breaks unimpeded. On verra. We’ll see.
All this to argue that the Government of Canada’s challenges, as it navigates all of these shoals, are great but not impossible to surmount. On the bilateral fronts, the focus with both China and the U.S. is on trade, where Canadian negotiators are as able as they are hard-nosed, viz. the Canada-EU Trade Agreement (CETA). Fundamental issues such as national security are not on the agenda. Free movement of respective citizens across borders are not on the table – on the contrary. Without being Pollyannaish about this, trade and investment issues are tractable. And if worse comes to worst – no NAFTA, no Canada-China FTA - manageable over the course of time.
What won’t change, even under the worst of circumstances, is the abiding national interest in identifying and pursuing beneficial relations with both the United States and China. Come what may, the U.S. and its vigorous private sector and inescapable cultural output will remain the primary beyond-the-border driver of the Canadian economy, and it is with the Americans that we will have the closest relations and cultural ties, tense and otherwise.
All this will take place in a world where Canada’s openness and connectivity are among our greatest and most productive assets.