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Business Commentary Canada must use its trade weapons to respond to China now

Lawrence Herman is a former Canadian diplomat who practices international law at Herman & Associates. He is also a Senior Fellow of the C.D. Howe Institute in Toronto.

Other than Donald Trump, no one likes trade wars. And to Canada’s credit, this country has never advocated that kind of policy, supporting instead the attributes of open markets and the rules of the world trading order created in the early post-Second World War days, staunchly foreswearing protectionism and the unilateral action that the Trump White House relishes.

But like it or not, we’re four-square in a trade war with China. Canadians should wake up to that fact and put aside our typical naïveté in the hope that things can be worked out with patience and good faith. Good faith has to work both ways – and there’s little evidence of that from the Chinese side. This means the Trudeau government needs to take a tough response to Chinese belligerency and fight back with steely-eyed determination.

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China is retaliating against Canada for the arrest of Meng Wanzhou in the Huawei affair. Having first arrested two Canadians and incarcerated them under appalling conditions, showing little regard for human rights, China then has used cynically specious reasons to block Canadian canola shipments worth $2.7-billion annually alleging some kind of contamination. Exporters of Canadian pork, soybeans and peas are also facing new import obstacles. This isn’t simply coincidence. It’s China using its muscles to force Canada into submission. And we can expect more turbulence in the days ahead.

Former Canadian ambassador to China David Mulroney correctly observed in this newspaper that Canada needs to stop sleepwalking through its dealings with the Chinese in the forlorn hope that some kind of reasonable accommodation can be found if only the two sides sit down and talk this through politely. That won’t work. We need to put aside our gullibility and noble notions about fair trade. We need to take a tough, self-interested stance against the increasingly aggressive Chinese government and its Communist Party dictatorship. While Trade Minister Jim Carr has made conciliatory sounds, there’s no returning to the status quo of calm and traditional trade diplomacy. The fact is the Canada-China relationship has changed dramatically, likely for the foreseeable future.

This means Canada needs to use its own trade weapons to respond with a clear-eyed notion of our national interest in countering egregious Chinese bullying. What are these tools?

Little known until recently, Canada has laws that are even more potent in the Canadian context than the national security laws recently used by Mr. Trump to impose import surcharges against Chinese products. While U.S. law requires detailed procedures and a time frame before the President can invoke national security, Canadian law is much more open-ended and virtually unconstrained.

Under the Customs Tariff Act, the Canadian government has authority to apply whole series of trade-restrictive measures to counter the actions, policies or practices of any foreign government that “adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada”.

The act is unlimited in the kinds of measures that can be deployed, including any level of import surcharges that the federal cabinet deems appropriate. In this regard, it allows the suspending of trade privileges given to China under the WTO Agreement. And it goes beyond applying restrictions to imports to include things such as investments and intellectual property.

The statute also allows these countermeasures to be applied immediately on the recommendation of the ministers of finance and foreign affairs. So there is no time constraint here, in contrast to the U.S. law that Mr. Trump has used to apply import surcharges on China that first requires an investigation and report by the Commerce Department which takes months.

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Canadian law thus is a very potent weapon. All it takes is leadership and clear-eyed determination to use it in the current Canada-China standoff.

This is the same law the Trudeau government used last year to apply countermeasures to U.S. imports following Mr. Trump’s national security actions on Canadian steel and aluminum. If Canada used it against the United States, why would we not use it in the case of China?

Adding to its potency, the statute has a subsection that says that cabinet may make any further regulations it considers necessary for the carrying out of the purposes of the legislation and for its enforcement. In other words, if there is any doubt about the scope of authority under the statute itself, the federal cabinet can make whatever additional regulations it considers to be needed in the circumstances.

So the tool kit is available is powerful indeed. The only question is what Chinese products and investments or other subjects should be covered to make our retaliation as commercially painful as possible. That is a matter for discussion, but looking at the nature of China’s largest exports to Canada, which include goods exported by Huawei – computers and wireless equipment, including software – devising a retaliatory list will be relatively straightforward. The Trudeau government should start that process now.

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