Canadians skeptical of China trade deal as Ottawa set to launch talks

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To gauge Canadian public opinion on free trade with China, Ottawa dispatched federal officials across the country on a listening tour.

They landed in 10 provinces and one territory, consulting more than 600 people and businesses.

What they heard was less than a ringing endorsement of a deal the Liberal government appears set to pursue, amid wide expectations that Canada will formally launch free-trade talks when Prime Minister Justin Trudeau visits Beijing next week.

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The official listening tour found that farmers, fishermen and foresters, on balance, like the idea of better access to the Chinese market – a move that would bring Canada in line with countries such as Australia and New Zealand, where existing trade deals with China have won broad support.

But the consultations in Canada also showed skepticism that a deal "would be able to meaningfully address the full spectrum of challenges faced by Canadian businesses trading with China," according to "What we heard," a recent report on the consultations.

People "expressed concerns that increased engagement with China could lead Canada to compromise on its values." They worried a deal with Beijing could hurt "Canadian jobs and competitiveness in certain sectors, especially mining and certain manufacturing sub-sectors."

Even companies already doing business with China said their biggest problems lay not with the tariffs a free-trade deal would hope to vanquish. They were more concerned with endemic issues in China related to unreliable courts and government subsidies.

Free trade with the world's second-largest economy, in other words, is hardly seen by many Canadians as an unalloyed good.

Indeed, coming to the table for trade talks will inevitably involve facing down a series of hefty demands from Beijing.

China "will want to have full access to our natural resources, including uranium mining. They will want an expansion of trade in services. They will want to be able to bring Chinese workers to Canada," said Guy Saint-Jacques, the previous Canadian ambassador to China.

"At the end of the day, it will be a question of sitting down and saying, 'okay – if we make concessions as the Chinese want, are we really sure that we are getting enough in exchange?' "

But Mr. Saint-Jacques believes Canada has little choice. Without a current trade deal, Canada must follow suit. "We have to proceed with these talks," he said. "I remain convinced that China wants this agreement more than we do, and that therefore we have a window of opportunity."

The experience of those other countries does bear out some of the Canadian qualms: both Australia and New Zealand have struggled against unexpected border barriers – inspections, esoteric demands on quality control and documentation – that have impeded the flow of goods.

But in both countries, free trade with China has come to be seen as an economic boon, one with benefits tilted not toward Beijing, but toward its smaller partners.

"There can be little doubt that it means more to Australia," said James Laurencon, deputy director of the Australia-China Relations Institute at the University of Technology Sydney.

"Australian producers get substantially improved access to the world's largest population and second largest economy, growing at 6 to 7 per cent," he said in an e-mail. "China gets slightly better access (tariffs were already low) to a country with a population of 24 million and an economy growing at 2 to 3 per cent."

Australia's free-trade agreement with China came into force at the end of 2015.

Since then, "Australian exports to China have grown about three times as fast as Australian exports to the rest of the world – and that's in a commodity market that's soft," said Peter Drysdale, head of the East Asian Bureau of Economic Research at Australian National University. As tariffs fell, exports of wine jumped 40 per cent in a single year.

In New Zealand, exports to China have nearly quadrupled since free trade began in 2008.

For that country's farmers, free trade came at almost exactly the right time, coinciding with a huge rise in China's appetite for imported dairy.

But business has grown beyond milk products. The 2008 deal served as a signal, directing local companies to pay attention to China.

"The number of companies opening up and establishing beachheads in China is large," said Andrew Ferrier, the former chief executive of Fonterra Co-operative Group, the country's biggest company. He is now chair of New Zealand Trade & Enterprise, a government agency that helps local companies go global.

"China has become a mainstream destination for Kiwi companies, that would never have existed without a free-trade agreement – companies of all different sizes."

Nonetheless, both countries have had issues. Chinese authorities have on a number of occasions created unexpected rules or imposed quality-inspection regimes that have blocked some trade.

Such non-tariff barriers can counteract provisions meant to liberalize trade.

"There are some challenges operating in the Chinese market," said Mike Petersen, New Zealand's special agricultural trade envoy.

But, he said, "we have had far greater success resolving those challenges being in a trade agreement with China, rather than being without."

Indeed, "bilateral agreements like this are as much a political document as an economic one. They are very important as a building block to get a robust relationship in place," said Mark Vaile, the former deputy prime minister of Australia who chairs Whitehaven Coal, the country's largest independent coal producer.

That said, negotiating a trade deal is unlikely to be easy. Though the Australian agreement could serve as a template, Canadian leaders have been clear in saying they want a more comprehensive deal. China may want the same.

In some areas, "they will expect to get equivalency with the United States in NAFTA," Mr. Vaile said.

Pursuing such a deal in the midst of NAFTA renegotiations, too, could be "negatively interpreted by the White House," said John Gruetzner, a Canadian with decades of experience in China who is founder of Intercedent, a business investment advisory. He also worries that an agreement on paper will leave unchanged corporate Canada's reticence toward China.

"Canada also needs to design and implement a detailed national business plan," he said.

Further complicating matters for Canada are changes taking place in China under President Xi Jinping. Mr. Xi has sought to reinvigorate state-owned enterprises and burnished the role of the Communist Party inside other firms, blurring the line between the private sector and state control. That poses a challenge to free-trade negotiators concerned about opening sectors of Canada to acquisition by arms of the Chinese government.

Mr. Xi, too, has presided over a strategy, called China 2025, that privileges Chinese companies, erecting new barriers to the outside world at the same time it has sought better access to other countries.

"Over time," said Loren Brandt, an economist at the University of Toronto who specializes in China, "the terms and conditions facing multinationals trying to sell into China have been deteriorating."