Meredith Lilly holds the Simon Reisman Chair in International Affairs at Carleton University and was an adviser to former prime minister Stephen Harper.
In China next week, Prime Minister Justin Trudeau must decide how to engage with the world's second largest economy. China is keen to launch free-trade negotiations and wants Canada to join its $100-billion Asian Infrastructure Investment Bank (AIIB). Canada's business sector is eager to embrace these initiatives, despite China's slowing growth and the challenges our businesses face operating there.
This is the crux for Canada. Our trade imbalance with China is huge and reached a whopping high of $45-billion last year. Canada is not alone: Most experts agree the enormous global trade imbalance with China is partly the result of the Asian country's protectionist practices.
While many of the world's leading exporters, including Canada, rely on and observe the rule of law, China does so only when it serves its own interests. China's belligerent dismissal of its recent international arbitration court loss over the South China Sea serves as a case in point.
China approaches international trade law with the same attitude and doesn't hesitate to impose trade barriers to tip the scales in its favour. For example, as Australia (China's largest source of foreign coal) was finalizing its free-trade deal with China in 2014, the dragon suddenly introduced new coal import tariffs, only to concede them back to Australia in the final agreement.
We must wonder whether China is trying the same sleight of hand with $2-billion in Canadian canola seed exports just ahead of Mr. Trudeau's visit. China is set to impose a new trade barrier that would effectively block imports of Canadian canola seed beginning Sept. 1. Considering reports of an enormous stockpile of Chinese canola, we should ask whether China is rewriting the rules to protect its domestic market. Or, maybe China intends to "lift" the new canola restrictions during Mr. Trudeau's visit in exchange for something bigger from Canada, such as loosening our rules around state-owned enterprises.
Unfortunately, China's penchant for changing rules in order to get something for nothing continues unabated on the global stage, as major economies fail to work collectively to curb such behaviour. Mr. Trudeau must now decide whether to reinforce this dynamic by joining either the AIIB or entering into free-trade talks with China alone.
Both the United States and Japan oppose the AIIB and regard it as China's way to assert dominance rather than work constructively with existing institutions. Probably, but countries who have joined have their reasons. Unlike the rest of us, Asian countries and their neighbours can benefit directly from the capital invested in the bank while the Europeans can gain from China's "One Belt, One Road" Eurasian initiative.
So far, there is little reason for Canada to join. In fact, with the exception of China's traditional ally Brazil (an unratified member), no countries in the Americas have signed up, presumably because they see no benefit. If the United States or Mexico join, Canada should reconsider its position. Until then, Mr. Trudeau would do well to focus on his commitment to Canadian infrastructure development.
Also, any belief that AIIB membership would offer privileged access to Canadian companies is misguided. Since the bank's procurement policy provides for an open, internationally competitive contracting process, our companies should already be able to succeed without Canadian membership. But if the Beijing-led bank violates its own rules to exclude our companies, there is almost nothing Canada could do to influence the outcome, even as a member. The cold reality is that China controls 30 per cent of the bank, followed by its BRICS companions India (8.6 per cent) and Russia (6.8 per cent). With more than a dozen European members huddled for crumbs at less than 20 per cent of all votes, it's hard to imagine who could help Canada in a dispute with China.
On free trade, the most prudent action for Mr. Trudeau would be to dip his toe in the water through a loose commitment to exploratory talks. But rather than focusing on a bilateral deal where Canada will be the weaker partner, we should negotiate from a position of strength by focusing instead on China's eventual entry into the Trans-Pacific Partnership. In doing so, Canada can also protect our relationship with the United States, by far our largest and most important trading partner. Canada's trade relationship with the Americans is faltering in the lead-up to the U.S. presidential election, and launching talks with China now would be unnecessarily provocative.
In opening exploratory talks, Ottawa and Beijing could also establish a direct and senior channel of communication to address current trade disputes that are hurting our businesses. In this way, Mr. Trudeau could achieve real gains for Canadian businesses and China could demonstrate the good faith and reciprocity necessary for Canada to consider proceeding with formal free-trade negotiations in the future.
Of course, ratification of any TPP deal is a long way off, let alone one that includes China. But that's the point. China is playing a very long game using its own rule book, and Mr. Trudeau should be in no rush.