The fate of expected free-trade talks between Canada and China is now uncertain after Prime Minister Justin Trudeau emerged from a meeting with Premier Li Keqiang Monday to announce the two countries will merely keep exploring whether to launch negotiations.
It had been widely anticipated that Canada would become the first Group of Seven country to commence free-trade talks with China. China's ambassador to Canada earlier this fall predicted a decision shortly and business leaders publicly anticipated that Mr. Trudeau's December trip to China was planned with this in mind.
An industry source, however, said the word has gone out among businesses with a stake in Chinese trade that there is still hope for a deal before Mr. Trudeau's official visit to China ends, and that negotiations are still alive.
Companies are being told there is the possibility of an agreement to move forward with talks on reducing tariffs, as well as non-tariff barriers that can be used to frustrate foreign imports.
The sticking point is the scope of negotiations. Businesses are being informed that there may be more discussions between Mr. Trudeau and Mr. Li to try to reach a deal on launching talks. Mr. Trudeau dined with Mr. Li Monday night and is scheduled to dine with Chinese President Xi Jinping Tuesday evening.
Among the points of disagreement is the Liberal government's effort to ensure that talks will include setting standards for labour and the environment, the industry source said.
The source said China's ambassador to Canada, Lu Shaye, has been telling Canadians that Beijing is ready to agree to the same sort of trade deal struck with Australia in 2014.
There is widespread agreement among business groups and trade analysts that the Australia-China deal is not ambitious enough and that Canada has to achieve more – including strong rules to allow them to challenge Chinese efforts to frustrate Canadian imports.
Speaking later to reporters Monday after his initial meeting that day with Mr. Li, Mr. Trudeau declined to reveal what topics stalled the launch of free-trade talks.
But he said Canada was holding out for a better deal.
"The deals we move forward on will be in Canada's interest and I think Canadians expect we do the work to ensure the trade deal we embark upon [is] going to be the right one for Canadians."
The Prime Minister, however, broadly suggested Canada wants a more ambitious deal. One of the criticisms levied at the trade deals signed by China to date is that they are not far reaching enough, and while they cut tariff barriers, they do not address the non-tariff barriers China is known to deploy against foreign imports.
"There wasn't one specific issue," Mr. Trudeau said when asked what is holding up the launch of talks. "There is a coming together on the sense this is going to be a big thing, not a small thing."
He declined to name the obstacles stopping Beijing and Ottawa from commencing negotiations.
Mr. Trudeau nevertheless predicted Canada would one day start such talks – a day that will not apparently come during his trip to China this week.
"This will be a significant trade agreement that we will eventually move towards because of the scale of the Chinese economy."
The Prime Minister provided no timeline for what might happen next, except to say Canada and China will continue exploratory discussions.
Mr. Trudeau is scheduled to leave Beijing Tuesday night for the business hub of Guangzhou, where he will spend two days promoting Canadian business.
The Canadian government appears conscious of the fact that as a major industrialized economy and a member of the G7, it could set a bad precedent for future trade deals if it agrees to a low-ambition scale of talks.
"China is very aware that this is a precedent as they move forward with the first trade deal with a G7 country and there is a desire to make sure we get it right," the Prime Minister said.
Signs that something was wrong emerged throughout the day in Beijing as meetings between Mr. Trudeau and Mr. Li continued longer than expected.
Just before Mr. Trudeau and Mr. Li emerged from their Monday meeting without the long-anticipated agreement to launch free-trade talks, the Chinese backed out of a planned news conference to discuss the Li-Trudeau visit.
Mr. Li did speak briefly: "We will continue to work on the FTA – that is, exploratory talks or a feasibility study."
"China is open to such talks," he added.
The two countries have, however, expressed differing views on the scope of a trade agreement, with Beijing interested in a more pared-down deal similar to what it has with Australia, and Ottawa pushing for a comprehensive, modern treaty.
Beijing has long sought Canada's presence at the free-trade negotiating table in part because such talks would grant it fresh leverage to convince other G7 countries to follow suit.
Launching free-trade talks with China was supposed to be part of a pivot toward Asia as economic relations with the United States sour.
Mr. Trudeau, who once professed admiration for China's "basic dictatorship" because it allows the Chinese to "turn their economy around on a dime," has for some time set his sights on closer alignment with Beijing. His outreach is meant to undo the damage that business leaders and analysts said Stephen Harper caused to Sino-Canadian ties by a more standoffish and hawkish approach.
China has for years pressed Canada to launch trade talks, seeking access to a major Western economy with close ties to the U.S.
The Canadian business community has been less enthusiastic, saying in consultations with the Canadian federal government that the thorniest issues in trade with the authoritarian country are unlikely to be resolved by such a pact.
The lack of an agreement Monday suggests difficult questions remain. But it is "not disappointing," said Jiang Shan, a former head of the economics section at the Chinese embassy in Canada.
"Both sides are moving toward the right direction," he said. "Free trade is good for both sides."