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The Globe and Mail

Close the China-sized gap in Canadian trade policy

Peter Harder is president of the Canada China Business Council. John Manley is chief executive officer and president of the Canadian Council of Chief Executives.

As Prime Minister Justin Trudeau lays out his economic agenda, he's been confronting some major domestic economic challenges. But amid all the recent economic gloom, there is a big opportunity.

Over the past few years, Canada has negotiated free-trade pacts with Europe, South Korea and 11 other Pacific Rim countries. But as former ambassador David Mulroney has pointed out, "No one seemed to notice that there was a China-sized hole in our trade policy."

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It's time to close the gap: A Canada-China bilateral free-trade agreement would boost Canadian exports in a wide range of industries, spur investment across the country and create thousands of new jobs.

It's true that China is no longer experiencing the double-digit growth rates it enjoyed a few years ago. But analysts are still predicting GDP increases of 6 to 7 per cent a year, far above the norm in Canada and other developed economies. Considering that China's economy – by many measures, the world's largest – now exceeds $17.6-trillion (U.S.) a year, even modest growth represents a fantastic opportunity for Canadian businesses.

Until recently, Chinese government investment and manufacturing exports were turbo-charging the country's economy. Now that China has made the transition from a developing to a middle-income country, its growth will be driven by technology, consumer demand and the services sector. The rapidly expanding Chinese middle class has an enormous appetite for new products and services. Canadian companies should be doing everything in their power to tap into this burgeoning market, but without strong government support they can face huge challenges in navigating the Chinese environment.

Four years ago, China suggested that our countries explore the potential for a free-trade agreement. Canada has been lukewarm on the idea, an ambivalence characteristic of our broader relationship with China. Negotiations on a bilateral Foreign Investment Promotion and Protection Agreement dragged on far longer than anticipated. Meanwhile, Canada stood on the sidelines while countries such as Britain, France and Australia helped launch the new Asian Infrastructure Investment Bank, which will finance and build necessary development projects such as sanitation facilities, power grids and telecommunication and transportation systems.

Australia, a country that has much in common with Canada – including a similar system of government, a resource-based economy and strong export capacity – woke up to the reality of China's potential more than a decade ago. For 10 years, Canberra and Beijing negotiated a deal to strengthen bilateral trade and investment ties. The new China-Australia Free Trade Agreement (ChAFTA) has some of the "best-ever commitments from China" in terms of opening its markets to imports, according to a new analysis by trade policy experts Laura Dawson and Dan Ciuriak.

ChAFTA went into effect less than a month ago. Australian exporters will now reap the rewards of much lower tariffs on products such as beef, pharmaceuticals, nickel and seafood. This significant advantage is only going to grow: by 2025, CHAFTA will have eliminated 95 per cent of tariffs between the two countries. Increased bilateral trade is forecast to generate an estimated $18-billion (Australian) in additional economic activity and many thousands of new Australian jobs.

The good news, from Canada's perspective, is that the Australians have given us a road map. We can see where negotiations succeeded – prying open industries such as tourism and education – and where they stumbled. It's clear that China is open to negotiating in sectors such as financial services, education, tourism and health care – areas where Canada tends to punch above its weight. And because Australia struggled to gain increased market access for products such as canola, wheat and wood pulp, we know where the challenges lie.

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As its economy evolves and its population achieves a higher standard of living, China is looking around the world to build stronger trading relationships. Its negotiators have concluded 14 free-trade agreements in recent years, and five more are in the works. China is on the move. It's time for Canada to join the action.

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