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Business Commentary Canada’s trade talks with China need to target fentanyl

Donald Trump regularly gets things wrong – on facts and policy.

But the U.S. President has been spot-on by outing China as the world’s No. 1 source of illicit fentanyl and using trade threats to force Beijing to do something about it.

At the recent Group of 20 summit in Argentina, Mr. Trump secured a commitment from Beijing to designate fentanyl as a controlled substance, along with various chemical ingredients and fentanyl-like derivatives.

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Canada should adopt a similarly tough stance if it’s going to deepen trade ties with China and explore a possible free-trade agreement.

Securing co-operation from the Chinese on stamping out the illegal fentanyl trade should be a “national priority” for Prime Minister Justin Trudeau, according to David Mulroney, Canada’s ambassador to China from 2009 to 2012.

“The fentanyl epidemic is a new kind of foreign-policy challenge for us,” Mr. Mulroney argued in a recent opinion piece in The Globe and Mail. “China is refusing to act responsibly, something that is literally killing Canadians.”

China is the main source of the highly addictive and often deadly synthetic opioid in Canada and the United States. China’s central role in the epidemic of deaths linked to the drug in North America should be a national disgrace.

There are many areas of trade where critics have accused China of not playing fair. Among them are its failure to open up more of its domestic market to foreign investment, the murky role of its sprawling state-owned enterprises and its role in theft of intellectual property and corporate espionage.

There is no such ambiguity when it comes to fentanyl. China is a global menace.

The country is the main supplier of illegal fentanyl to Canada, the United States and Mexico, and its government is doing virtually nothing to stem the flow, according to a 2017 report by the U.S.-China Economic and Security Review Commission, a Congressional panel that tracks the national-security implications of trade between the two countries.

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“Because illicit fentanyl is not widely used in China, authorities place little emphasis on controlling its production and export,” the report found.

Worse, China may be unwittingly subsidizing fentanyl exports. The Chinese government has prioritized its growing pharmaceutical sector as a “high-value-added industry,” providing export-tax rebates to companies, the report said. This has helped make China the world largest manufacturer and exporter of pharmaceutical ingredients.

China is now second only to the United States in the making of pharmaceuticals in the world.

But unlike Canada and the United States, regulation of the industry is woeful there. In a follow-up report last month, the commission concluded there has been “no substantive curtailment" of fentanyl exports. "In large part, these flows persist due to weak regulations governing pharmaceutical and chemical production in China,” it said.

Stemming the flow of fentanyl won’t be easy. Chinese manufacturers evade regulations by constantly modifying ingredients to create a virtually endless number of versions of the drug. “Chinese manufacturers stay ahead of regulators by creating new, uncontrolled substances that can be legally manufactured and exported,” according to the commission.

Hundreds and perhaps thousands of legal factories in China are shipping fentanyl, derivatives and related ingredients to Canada and the United States – sometimes by mail – directly to labs and dealers in North America. Often, the drug is mixed with heroin and sold on the street.

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China has complained recently about Canadian-made cannabis finding its way into China. But fentanyl going the other way is a far more egregious form of trade. Marijuana rarely kills. On the other hand, there were nearly 4,000 opioid overdose deaths in Canada last year, most of them involving fentanyl, and this year is on a course to be even deadlier.

Compounding the problem for Canada is our relatively weak anti-money-laundering regime. Illicit gains from fentanyl smuggling are being brazenly cleansed in this country. An investigation earlier this year by The Globe revealed that people connected to the fentanyl trade are parking their illicit gains in the Vancouver-area real estate market through private lending schemes.

It’s too early to tell if Mr. Trump’s new get-tough stance with China on fentanyl will produce concrete results.

But it’s a safe bet that doing nothing will accomplish less.

China wants and needs deeper trade ties with Canada. A commitment by Beijing to take the fentanyl problem seriously should be a key precondition.

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