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Business Commentary Canada should engage with Taiwan and others given our China troubles

Ottawa has trodden very cautiously in its relations with Taipei for too long.

CHRIS STOWERS/Getty Images

Hugh Stephens is an executive fellow at the School of Public Policy at the University of Calgary and a distinguished fellow at the Asia Pacific Foundation of Canada.

Given the difficult situation between Canada and China since the arrest of Huawei executive Meng Wanzhou, and China’s retaliation by detaining two Canadians and blocking or impeding the entry into China of several Canadian exports, commentators have suggested ways Canada could push back. Among them is a reassessment of our relations with Taiwan.

This is the right policy proposal – but we must be careful not to do it for the wrong reasons. We shouldn’t seek to do more with Taiwan to strike back at China. We should do it because it is in Canada’s interests to engage more fully with Taiwan, which we can do within the existing confines of our one-China policy. For too long, we have trodden very cautiously in developing relations with Taiwan lest we annoy China and imperil Canadian economic prospects in its market. Now is the time to take a more balanced approach, one that has the added benefit of being consistent with Canada’s self-proclaimed “progressive” values. Encouraging Taiwan’s accession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) would be one element of this strategy.

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While Taiwan is a member of the World Trade Organization (membership is not contingent on being a sovereign state), most of the trade liberalization initiative these days resides with bilateral or plurilateral negotiations that allow participants to remove trade barriers selectively, bilaterally or within a regional agreement. However, Taiwan has found it difficult to reach such agreements because of China’s opposition, despite the fact that China has its own economic partnership with Taiwan.

In the past, a country that had a bilateral trade agreement with China was considered to have the “licence” (from China) to negotiate trade arrangements with Taiwan as long as they were not government-to-government. That was the pattern followed by New Zealand, which signed a free-trade agreement (FTA) with China in 2008 and with Taiwan five years later. As China’s attitude to Taiwan hardens, it is not clear whether this level of tolerance still prevails. Even if the pattern of “China first, Taiwan second” remains, it is clear that it will be a very long time, if ever, before Canada and China conclude an FTA. Does that mean Canada’s hands are tied on trade issues with Taiwan, its fifth-largest market in Asia, unless it wants to burn its bridges with China? Fortunately, the Trans-Pacific agreement offers a way forward.

This regional agreement came into force at the end of last year and is now applicable to seven of the 11 signatories. (Chile, Peru, Malaysia and Brunei have yet to ratify it). Canada is already seeing benefits from the partnership in its trade with Japan, among others. Global Affairs Canada has just opened a public consultation on the opportunities for Canada of expanding the agreement, and has identified four economies that have already expressed interest in joining: South Korea, Thailand, Taiwan and, somewhat strangely, Britain. This is a welcome step. Bringing Taiwan into the CPTPP would not only have economic benefits for Canada, it would help consolidate Taiwan’s economic role in the Asia-Pacific region, particularly with respect to supply chains and acceptance of high standards of discipline regarding transparency and non-tariff barriers.

While engaging more fully with Taiwan should not be done to tweak the dragon’s tail, the current impasse with China does provide the opportunity to reflect more fully on Canadian interests. Those interests include putting Canada-China relations back on track over time, but they also require Canada to examine other elements of its Asia-Pacific strategy. These include continuing to expand our trade with China but also diversifying trade with other Asian economies offering opportunities for Canada, such as Japan, Korea, the members of the Association of Southeast Asian Nations – and Taiwan.

China’s hard-line and disproportionate retaliation against Canada over Ms. Meng’s arrest has demonstrated clearly the risks of putting too many eggs in one basket. China is an attractive alternative to dependency on the U.S. market because of its phenomenal economic growth and market potential, but relying on any one market carries risks. The CPTPP is an opportunity for Canada to mitigate those risks by diversifying our market development efforts to build closer economic relations with trading partners in Asia. Taiwan is a small but not unimportant part of that region, and now is the time for Canada to take advantage of the opportunity to strengthen economic and people-to-people ties with the island democracy.

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