Ottawa eyes Indo-Pacific plan to shift trade away from China

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Global Affairs is proposing a multibillion-dollar Indo-Pacific strategy that would shift Canada’s reliance away from China by diversifying trade and investment in Asia, the Pacific Rim and beyond while boosting security and international assistance contributions to the region.

The federal plan, which is costed at $3.5-billion over five years, has been circulated within the top levels of the bureaucracy over the past few weeks, according to two officials with direct knowledge of the proposals.

The strategy involves Ottawa establishing a bigger diplomatic footprint in the Indo-Pacific and contributing to infrastructure investments in the region as part of a Western effort to counter China’s controversial Belt and Road Initiative. Beijing is pouring US$1-trillion into building railways, ports and pipelines from Asia to Africa in what many experts regard as a state-directed effort to bolster Chinese political influence and extend its military reach.

Other elements would include increasing spending on international development assistance and fighting climate change.

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Also under consideration is boosting the presence of Canadian naval vessels in the region and a cybersecurity role, likely through the sharing of information from Canada’s electronic spy agency, known as the Communications Security Establishment, which collects foreign intelligence.

The Globe and Mail is not identifying the sources because they did not have authorization to speak publicly on the matter.

Foreign Affairs Minister Mélanie Joly’s communications director, Maéva Proteau, would not comment on details of the proposal but said in a statement that Ms. Joly has a mandate to develop a comprehensive strategy for the region as Ottawa moves to counter the growing influence of China in the world.

Expanding trade throughout the region is the key element to the Indo-Pacific strategy that has already been green-lighted by Prime Minister Justin Trudeau. Calling it an Indo-Pacific strategy instead of continuing to focus on just the Asia-Pacific region reflects a shift in how Ottawa approaches China, Asia and countries bordering the Indian Ocean, such as India, Pakistan, Bangladesh and Sri Lanka. Many of these countries have burgeoning middle-class populations and a shared interest in addressing China’s growing weight in the region, and fear Beijing’s militarization of the South China Sea and other ocean trade routes.

On Monday, International Trade Minister Mary Ng announced Canada had commenced exploratory talks on a foreign investment promotion and protection agreement, or FIPA, with Taiwan, amid its continuing tension with mainland China.

Such an agreement, often regarded as a stepping stone to a full free-trade agreement, would seek to stimulate two-way trade by enshrining legal protections for Canadian investors in Taiwan as well as Taiwanese investors in Canada.

On Tuesday, the Chinese government chided Canada’s announcement of exploratory trade talks with Taiwan. Beijing’s authoritarian government considers Taiwan a breakaway province and China has been taking steps to isolate Taiwan from the global community.

“China opposes official contact and agreement of official nature between countries having diplomatic ties with China and the Taiwan region. This position is clear and consistent,” China’s Ministry of Foreign Affairs spokeswoman Wang Wenbin told reporters in Beijing.

Ms. Ng is also pursuing formal trade talks with the Association of South East Asian Nations, and on Monday announced a joint economic committee to deepen trade with the fast-growing economy of Vietnam.

Mario Ste-Marie, who served as Canada’s top diplomat in Taiwan between 2015 and 2018, said when he was posted in Taipei, “the political will wasn’t there” to commence FIPA talks with Taiwan for fear of upsetting relations with China.

Talks were supposed to proceed in 2018 but finally, at the end of 2018, China’s jailing of Canadians Michael Kovrig and Michael Spavor was used as a rationale to shelve FIPA talks with Taiwan.

The 2022 resurrection of exploratory talks on a FIPA with Taipei heralds a new approach by Ottawa to promote diversification of trade in Asia beyond China, he said.

“I guess in Ottawa they have made their mind up they are willing to live with Beijing not being happy over some of our actions,” he said.

He said Canada appears to have taken a lesson from China’s 2019 decision to slap punitive trade restrictions on Canadian goods such as pork and canola seed and soy. China retaliated after Canada’s late 2018 arrest of a Huawei executive on a U.S. extradition request.

Mr. Ste-Marie said Ottawa’s emerging Indo-Pacific strategy appears to be a way to build strong relations with other Asian countries so that China can’t inflict as much pain on Canada in the future as it did during the Huawei episode. Better relations with Taiwan can also improve Canadian investments in China or other Asian countries.

“We shouldn’t look at Taiwan just as a country of 24 million people. They are one of the biggest investors in China. So it’s a way to access the Chinese market. They speak the language. They know how to deal with them.”

He said he hopes a FIPA will encourage more ties between Canadian provinces and Taiwan. Canadian provinces have been timid to build ties with Taiwan out of fear of a backlash from China, which regularly complains when provincial governments try to expand trade there, he said. “The Chinese consulates in Canada are not afraid to put pressure on the provinces.”

Mr. Ste-Marie said Canada is within its rights to sign trade deals with Taiwan because the self-governing democracy is a member of the World Trade Organization.

Jonathan Berkshire Miller, a director of the Indo-Pacific program at the Macdonald-Laurier Institute, said he’s pleased to see Ottawa expand its relationship with Vietnam, already a free-trade partner with Canada through the Trans-Pacific Partnership of 2018. “My big worry, and what I have been saying on the TPP, is the Canadian side has a tendency to say ‘mission accomplished.’ Free-trade agreements don’t work that way and require consistent effort.”

The Indo-Pacific strategy widens the circle of possible partners on which Canada and its allies can focus to counter China’s growing power.

Like their Asian neighbours facing China’s militarization of the South China Sea, this Indian Ocean group has watched China build influence in the larger region, from a military base in Djibouti to the Gwadar port in Pakistan and Hambantota port in Sri Lanka.

The entire region is an important target for China’s Belt and Road Initiative. Critics in the West have accused China of ensnaring developing countries by offering them immense loans for questionable infrastructure projects that the countries will struggle to repay.

Canada is already a contributor to the Asian Development Bank, funded largely by Japan and the United States. It will also be expected to contribute to the Build Back Better World infrastructure partnership unveiled by the Group of Seven countries last June, an initiative seen as a counter to China’s Belt and Road scheme. Also, in 2019, Canada’s overseas development finance arm struck an alliance with a U.S. government agency also being set up to counter Beijing: the Overseas Private Investment Corp.

Canada’s Indo-Pacific strategy is being crafted in the wake of the worst rupture in relations between Ottawa and Beijing in half a century and while memories are still fresh on how China reacted to the arrest of the Huawei executive at the Vancouver airport. The country arbitrarily jailed two Canadians for more than 1,000 days and put trade restrictions on Canadian exports.

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