Canadians Warn Feds on Free Trade With China

NEWS ANALYSIS

Canadian Prime Minister Justin Trudeau is greeted by Chinese leader Xi Jinping at the G20 Leaders Summit in Hangzhou, China on Sept. 4, 2016. A sweeping federal report shows that Canadian businesses aren't sure a free trade pact will solve all the concerns they have about dealing with the Asian giant. The Canadian Press/Adrian Wyld

The Canadian federal government got an earful from the business sector and private citizens on the wide range of difficulties on doing business with China.

On Nov. 10, Ottawa reported on the broad feedback received from its public consultations on a possible free trade agreement (FTA) with China.

The government has to decide what’s in Canada’s best interest in its engagement with China given the Canadian core values of democracy, respect for human rights, and rule of law.

Many Canadians told the government they see “significant challenges” in doing business with China. These include inconsistent rule of law, doubts about China’s willingness to live up to its obligations under a potential FTA, competing against state-owned enterprises (SOEs), and avoiding adverse impacts on Canadian jobs and resources.

“The problem is that the government of China doesn’t respect trade agreements, they don’t respect their WTO [World Trade Organization] agreement. … The minute that an agreement becomes not to their advantage, they simply ignore it,” said former MP and secretary of state for Asia-Pacific David Kilgour in an interview.

“And I think the experience of Australia and New Zealand and other countries has been very much in that line,” he added. China has free trade deals with Australia, New Zealand, South Korea, and Chile.

It’s clear from Canadians’ feedback that the issues of a state-run economy and inconsistent rule of law would be difficult to resolve through free trade negotiations.

Exploratory talks to look into the prospects for an FTA have been going on for over a year. A decision on whether or not to pursue one is expected before the end of the year.

The federal government said it shared the concerns of Canadians about closer ties with China and has, along with other trading nations, raised the issues surrounding poor conduct in global trade with China through various dialogues.

“Given the persistency of these issues, however, it is clear that the status quo is not delivering the best possible outcomes for Canadian businesses and workers,” according to the government’s summary of the feedback.

The general expectation was that, as China grew in size, it would reform politically, said Ian Bremmer, founder and president of global political consulting firm Eurasia Group in an interview with CNBC. Clearly, the expected reforms have not taken place and Canadian businesses continue to face a number of trade irritants.

“They have no interest whatsoever in growing up to be like the Americans or like a free market economy,” Bremmer said.

Unfriendly Business Environment

The pervasive presence of the one-party communist government has resulted in corruption and has blocked the development of a healthy legal framework.

As an example of the resulting inconsistent of rule of law, Canadian stakeholders told the government, “China is still not providing the enforcement and remedial awards needed to ensure the protection of IP [intellectual property] rights.”

Canadian businesses also expressed concerns about the special subsidies, lack of transparency, and preferential treatment given to SOEs. The competitive landscape in China is effectively stacked against foreign firms.

China is beginning to open up its financial sector, but only time will tell the effect of these changes. Through the rapid expansion of credit, China has generated considerable growth; however, the International Monetary Fund has raised this concern with the Chinese central bank. If for nothing else, China may need financial liberalization to encourage foreign firms to finance its future growth.

The Organisation for Economic Co-operation and Development (OECD) ranks China 59th out of 62 countries in terms of openness to foreign ownership.

China intends to be a global superpower to rival the United States. Chinese leader Xi Jinping is preaching the virtues of globalization, which China has taken advantage of at the expense of other countries. In Canada’s case, China’s exports of low-cost, cheaply manufactured goods have driven down margins in Canada and put some Canadian firms out of business.

Canadians have also decried the Chinese regime’s forced labour camps and human rights violations. They’ve given the government plenty of food for thought in its dealings with China.

Omid Ghoreishi contributed to this report.

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