Does Canada’s reversal of the Aecon sale to a Chinese firm spell the end of our free trade aspirations with China?
As the much-feared scenario of a trade war with the United States — Canada’s biggest trading partner — is now turning into reality, a free trade agreement with China is vital to Canada’s future economic prosperity.
We should not let the bitter taste of Canada’s recent decision to block the sale of construction firm Aecon to Chinese interests taint our relationship with China. The timing is ideal.
China is transitioning to more of a consumer economy, and exploratory talks launched in fall 2016 between the two countries are at a critical juncture. We need to act now to launch formal negotiations in order to be able to sign an agreement within three years.
China is the world’s second largest economic power and already Canada’s second-largest trading partner. With a market of 1.4 billion consumers, a burgeoning middle class and rapid urbanization, China presents Canadian businesses with tremendous opportunities.
There’s a lot of room to grow Canada’s trade volume with China; we have only a 2% share of China’s international trade and a trade deficit of over $43 billion. A free trade agreement with China could boost Canadian exports by $7.7 billion and GDP by $7.8 billion by 2030, creating 25,000 jobs.
It would also allow Canada to grow its exports in key industries such as mining, energy, agriculture, manufacturing and technology — industries that are still extremely dependant on the U.S. market.
Lastly, a free trade agreement with China would obviously benefit Canadian industries and consumers, who would be able to pay lower prices for imported goods and services.
What’s in it for China?
Well, China is interested in Canada for its high-quality agri-food products and natural resources, such as uranium, which it needs for its nuclear power plant construction program.
It also covets our clean energy technology and services, including tourism, transportation, finance, commercial services, engineering, computing, medicine, culture and education. With a Chinese-Canadian community of 1.3 million people, Canada is in a particularly good position to deliver services to Chinese consumers.
There are promising signs that China may be willing to deal.
At the April 2018 Boao Forum for Asia, Chinese President Xi Jinping vowed a “new phase” of opening China’s economy, including lower tariffs for auto imports, greater openness by Chinese firms to foreign investment and a relaxing of rules restricting foreign capital in China’s automobile, shipbuilding and aerospace industries.
This could open up very interesting opportunities for Canadian businesses to make direct investments in China and provide access to its massive public procurement system.
While there is no question that it would be in Canada’s best interests to embark on free trade negotiations with China, we must go about it with a fair bit of pragmatism, caution and clear-headedness, and there must be a well-developed legal and political framework.
The greatest challenge will be to establish genuine trade reciprocity with a country where the rule of law is not always obeyed and there is a power imbalance.
Despite promises of liberalization, Chinese state intervention still prevents healthy and fair competition between Canadian and Chinese companies. Nor would a free trade agreement magically do away with unfair trade practices such as dumping, intellectual property violations, forced technology transfers and cyber espionage.
As with the free trade agreement between Canada and the European Union, the government should provide support mechanisms for Canadian industries that would be at risk of being destabilized by Chinese competition.
There will also need to be an excellent dispute settlement process, as well as continued good political relations between both countries’ leaders.
While exploratory talks between Prime Minister Justin Trudeau and his Chinese counterpart in Beijing last December — as well as the failed Aecon sale episode — would suggest difficult negotiations lie ahead, Canada needs to capture the momentum so it can play an active role in the transformation of China’s economy for the benefit for its businesses and consumers.
Tangentially, increased interconnectivity between the two countries would also promote Chinese participation in developing the market system — a fundamental ingredient for political progress in China.
Both countries have much to gain from a fair free trade deal.
Senator Paul J. Massicotte is a member of the Senate Committee on Foreign Affairs and International Trade. He represents the Quebec division of De Lanaudière in the Senate.
This article appeared in the June 13, 2018 edition of The Hill Times.