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Trade expectations, and Canada’s new man in China

Guy Saint-Jacques, Canada’s new ambassador to China

HO/Industry Canada

Ottawa's choice of Guy Saint-Jacques as Canada's next ambassador to China does not herald a radical new direction in Canada's relationship with Beijing. That a veteran diplomat, Mandarin speaker and China hand will assume the post from David Mulroney won't transform Canada's standing in the Middle Kingdom overnight.

However, the fact that the Prime Minister's Office and the Department of Foreign Affairs seriously considered making the posting a political one speaks volumes about Stephen Harper and his government's new-found focus on China and Asian trade.

According to sources, both David Emerson, the former foreign affairs minister, and Stockwell Day, former trade minister in the Harper government, were both approached about the post. Neither wanted the job. (Mr. Emerson is thriving back in the private sector, and Mr. Day's considerations would have included the fact that smog- and traffic-congested Beijing would have crimped his freakish passion for marathon running.)

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That they were even approached about the job means that China and trade with Asia have become an even higher priority for the government. Given their close relationship with the Prime Minister, either man would have represented a political appointment (like Washington, Paris or London) and that would have signalled to Beijing that Canada desires a closer relationship between its top leaders.

After years of distinctly frosty relations with China, the Conservative government has undergone a dramatic about-face. The Global Financial Crisis served as the wake-up call. It found the U.S. and European economies in tatters and China powering ahead as the global economic engine. Mr. Harper came to the logical conclusion that Canada needed to diversify. This from a Prime Minister who when speaking about relations with China once said Canada would not sell out its values for the almighty dollar.

It has become clear to the government that China and the fast-growing emerging markets in the rest of Asia are a logical target destination for Canada to concentrate its trade efforts. China recently overtook Great Britain to become Canada's second-largest trading partner. Canadian exports to China rose by 27 per cent to $17-billion (U.S.) last year from 2010. China's exports to Canada climbed 8 per cent to $48.6-billion.

Canada's reliance on the U.S. has declined. America once accounted for more than 80 per cent of Canada's trade but is now about 68 per cent.

China, India and much of the rest of Asia are returning to their historical position as the drivers of global GDP growth .

This means that growth in the developed economies of the U.S. and Europe will be much slower. While Ottawa must nurture its trade with these regions (and is currently negotiation a potential free-trade agreement with the EU) it must break new ground in Asia. This entails travel by high-ranking officials for face-to-face meetings. Long-distance diplomacy does not work well in China or much of the rest of Asia.

While trade between Canada and China has increased, Canada's place among China's trading partners has not. Canada does not make the list of China's top ten trading partners and the percentage of China's trade that Canada accounts for remains relatively small.

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Canada still does not have a single free trade agreement with any country in Asia. Early-stage discussions with countries including India and Japan are underway, but a firm deal will take years to hammer out.

When Mr. Harper last visited Beijing, China's P remier Wen Jiabao appeared to offer Canada the chance to begin talks on a potential free trade agreement. China has only one free trade deal with a western country – New Zealand – but is close to finalizing a pact with Australia.

Canada has yet to respond. It is still trying to finalize a Canada-China Foreign Investment Promotion and Protection Agreement that Mr. Harper announced in February. When asked about the delay, Foreign Affairs Minister John Baird recently suggested that translation and legal issues were to blame.

Ottawa clearly has a long way to go if China and the rest of Asia are to become more important trading partners and a destination for Canadian goods and services. Mr. Harper wants the Northern Gateway pipeline completed so China will be an alternative market to the U.S. as a customer for production from the Alberta oil sands. At the same time, the government faces pressure to closely scrutinize Chinese state-controlled energy company CNOOC Ltd.'s $15.1-billion takeover offer for Canada's Nexen Inc.

Mr. Harper and members of his Cabinet have begun using terms including "reciprocity" when discussing what China might be able to offer Canada if it approves the deal. Ottawa believes that its approval process for the takeover might allow it to gain greater access for Canadian companies to China's vast marketplace.

There is great potential for Canada to increase its trade with China, according to a joint government study. However, that same report said Canada must deliver on its long-standing promise to clarify its foreign takeover rules.

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Having the right ambassador in Beijing will be a critical element to the delicate task of improving Canada's trading and investment opportunities in China. Mr. Saint-Jacques seems eminently qualified. The question is whether China believes he is close enough to the seat of power in Ottawa to merit a relationship upgrade for Canada from the seat of power in Beijing.

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