Ottawa will pursue a free-trade agreement with China in a bid to boost Canada’s exports of food and crops to the world’s second-biggest economy, said Lawrence MacAulay, Minister of Agriculture and Agri-Food.
The Canadian government’s strategy appears to defy the intent of the recently negotiated United States-Mexico-Canada Agreement (USMCA), which gives members the right to end the deal if one of the signatories reaches a separate trade pact with a “non-market country,” in which government control overrides market forces. This is understood to mean China, according to some trade experts.
“Entry by any party into a free-trade agreement with a non-market country shall allow the other parties to terminate this agreement on six-month notice and replace this agreement with an agreement as between them (bilateral agreement),” says article 32.10 of the USMCA.
In a media call to discuss a recent trade mission to China, Mr. MacAulay said the clause does not limit Canada’s ability to reach trade deals with any other country and noted the North American free-trade agreement, which the USMCA will replace, contained a withdrawal clause.
“They cannot exclude Canada, and it’s important to note that in the former NAFTA deal if one country did not like what the other countries did they had the opportunity to give the six-month notice and remove themselves from NAFTA. That still exists here. It does not inhibit us from dealing with China or any other country around the world,” he said. “There is no difference in the writing of the USMCA and NAFTA as far as Canada making a deal with any country around the world. … It certainly does not mean we cannot have a comprehensive trade deal with China.”
However, there are notable differences: USMCA grants other members the right to review any trade agreement text, and requires a signatory to provide partners with three-months’ notice of the start of negotiations.
Peter Clark, a trade consultant in Ottawa, said it is wrong to play down the importance of the clause. “Basically, what it gives the United States the right to do is, if they don’t like the deal with China they can say, ‘we want to pull out of [USMCA] or renegotiate [USMCA],’ ” Mr. Clark said. “The words are there, they wanted the words there, and they mean what they mean.”
China, the most populous country, is the world’s third-biggest buyer of food, agricultural and seafood, which are key exports for Canada. Mr. MacAulay said boosting sales to China and its growing middle class is vital to the Canadian government’s plan to double total agricultural exports to $75-billion a year by 2025. The 10-day trade mission that ended last week – Mr. MacAulay’s fifth as agriculture minister – saw the signing of 18 food and agriculture agreements worth more than $353-million.
Mr. MacAulay said Canada and China agreed last week to continue “exploratory discussions toward a comprehensive trade agreement” during meetings between ministers and Chinese trade and government officials. Both sides also agreed to double agricultural trade by 2025 and work toward better economic and commercial co-operation, Mr. MacAulay said on Monday.
“With each visit we are strengthening our trade relationship, sector by sector,” Mr. MacAulay said. “There is no question China is an important market for our Canadian food.”
Canada has recently reached free-trade agreements with Pacific Rim countries (excluding China), Europe, as well as Mexico and the United States. The USMCA was negotiated at the insistence of U.S. President Donald Trump. He has slapped tariffs on trading friends and foes alike, and has ignited a trade war with China, accusing the country of unfair practices that kill U.S. jobs.
Sarah Pittman, an analyst with the Canada West Foundation, said fears of the “non-market country” clause are largely overblown. China is already Canada’s second-biggest trading partner, without any free-trade agreement. Canada has used diplomacy and business or government engagement to boost trade volumes with China, Ms. Pittman notes.
Pascale Massot, a political studies professor at the University of Ottawa, said the clause is more about “posturing” by the United States than blocking Canada’s right to trade with other countries.