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Canada can avoid offending U.S. by pursuing sectoral trade with China: report

Last Updated Oct 10, 2018 at 4:40 pm EDT

OTTAWA – Dozens of experts are urging Canada to choose a surgical, sector-by-sector approach when it comes to expanding its trading relationship with China rather than a sweeping free trade deal that could risk provoking the United States, says a new report.

The Public Policy Forum paper, to be released Thursday, lays out a suggested blueprint for Canadian policy-makers at a time when Ottawa has struggled in its efforts to deepen business ties with the Asian superpower.

The study will also arrive after Canada recently agreed to a free trade pact with the U.S. and Mexico, a deal that includes a controversial new clause requiring the countries to notify each other if they enter into trade talks with a “non-market” economy.

The clause makes no specific mention of China, but the provision is being widely viewed as an attempt by Washington to single out Beijing.

Even with these new constraints, the report advises Canada to chase several targeted arrangements covering numerous sectors ranging from agri-food, to natural resources, to education.

A more-focused approach was preferred by most of the experts consulted for the report — even before the North American trade deal and the clause were announced last week. Many of them believe it would help Canada avoid the long, complicated process of hammering out a far-reaching trade agreement with a country as complex as China.

“We settled on a set of recommendations built off the foundation of sectoral agreements, rather than comprehensive free trade, as the best means for realizing quick and significant gains,” reads the report, which is based on input from more than 70 experts, including business executives, government officials, environmentalists, Sinologists and former prime ministers.

“A sectoral approach also provides the benefit of creating a pathway to a more diversified and growing trade portfolio for Canada that does not run afoul of the virtual veto given to our North American trading partners.”

The document, the culmination of consultations over the last 18 months, argues that Canada cannot afford to ignore China’s size and rapid growth.

As an example, the report said in 2000 China made up just four per cent of the global economy compared to the U.S. share of 31 per cent. Today, China accounts for 15 per cent and the U.S. 24 per cent.

Ottawa must engage with China if it’s truly focused on trade diversification and on moving away from its heavy dependence on the U.S. market, the study said.

For instance, it noted that 75 per cent of Canada’s merchandise goods go to the U.S. In the United Kingdom, however, less than 50 per cent of its goods go to the European Union, which is about the same size of the American market.

As Canada looks to diversify, Public Policy Forum President Edward Greenspon said the consultations argued Canada can do more business with China”in such a way that should not offend the United States.”

Greenspon said in an interview that 4.3 per cent of Canada’s export basket goes to China. In comparison, he said 8.4 per cent of U.S. exports go to China, which means Canada could double its exports before its engaged at the same level as the U.S.

“So, there’s room for growth without provocation,” he said.

The document said a minority of the participants thought the sectoral approach was not ambitious enough. But they found common ground on many points.

Beyond the sector-by-sector approach, the document offered about a dozen other recommendations for Canada in its engagement with China. Here are few:

— Strike a new deal on a co-operation arrangement in areas of shared global interest, including environmental protection, climate change and the governance of international institutions.

— Take steps to ensure more clarity, transparency and predictability when it comes to Canada’s foreign investment regime, including national security reviews.

— “Radically raise Canada’s game” in understanding and interacting with China — for all levels of government, the business community, financial sector, civil society and higher education.

— Direct infrastructure spending, including financing through the Canada Infrastructure Bank, to improve inadequate transport and port facilities on the Pacific coast because the country is squandering export opportunities for industries like agri-business, forestry and energy.

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