Canada still wants a sweeping comprehensive free-trade agreement with China as a long-term goal, but it will also focus on achieving “sector by sector” trade improvements with Beijing, two senior federal ministers say.
Sector-specific discussions do not preclude the possibility of a full trade agreement, International Trade Diversification Minister Jim Carr said Monday in Beijing, after high-level economic talks between the two countries.
“It’s not one or the other,” he said. “These are trade conversations over a period of time. Trade is not an event and we’re having a continuous dialogue with our Chinese counterparts about a whole variety of products.”
Indeed, the federal government believes that “in the long term, a comprehensive trade agreement is the right objective,” Finance Minister Bill Morneau said in an interview with The Globe and Mail in China on Monday.
But, he said, Canada has also settled on individual sectors where it wants to promote trade – including agri-food, energy, tourism and education – although it’s not clear those sectoral talks will lead to any sort of formal agreement.
It’s best “not to think about it as deals but as progress. And so we’re thinking about progress in various sectors,” Mr. Morneau said. He pointed to rapid growth in the education sector, with 145,000 Chinese students now in Canada. “We’ve made enormous progress and don’t necessarily need some specific agreement in order to continue progress.”
Mr. Carr’s and Mr. Morneau’s comments came after Treasury Board President Scott Brison told The Globe on Friday that “sector by sector deals represent a real opportunity for us” in China, saying “the best way forward at this time is to focus on the art of the possible.”
The differing messages from the senior ministers on Monday reflect continuing debate over the best way for Canada to approach trade with China and the myriad complications it must navigate.
John McCallum, Canada’s ambassador to China, also said last week that “going sector by sector” would allow Canada to complete agreements that could contribute toward a broader free-trade deal. He made the comments in an interview with China’s Caixin Media.
It’s not clear that an individual sectoral deal could be used to lower tariffs – typically a key goal for trade talks – without falling afoul of World Trade Organization rules.
At the same time, a comprehensive agreement risks triggering U.S. anger and a provision in the new United States-Mexico-Canada Agreement, or USMCA, that would allow signatories to exit the deal if one country enters into a free-trade deal with a “non-market economy,” such as China.
But failing to negotiate a comprehensive deal stands to anger China, which is seeking its first such agreement with a Group of Seven country. Canada, however, has so far been unable to even begin formal negotiations on such an agreement. Similar deals have taken other countries many years to complete.
Beijing and Ottawa agreed in 2016 to begin exploratory talks, but progress has been stymied in part by China’s unhappiness over Canadian demands for labour, environment and gender provisions in a trade pact. Global Affairs Canada lists four face-to-face exploratory meetings that took place in 2017, but none in 2018.
In meetings Monday with Chinese State Councillor Wang Yong, Mr. Morneau and Mr. Carr discussed a desire to continue exploratory talks, Mr. Morneau said.
But no date has been set. “That’s one of our important next initiatives,” Mr. Morneau said.
Mr. Carr, meanwhile, rejected the idea that the USMCA binds Canada’s hands on China. “We believe that Canada is free to have trade negotiations with any country it wants to,” he said.
Among the plans under way is what Mr. McCallum called a “good FDI project list,” to encourage Chinese foreign direct investment in areas of the Canadian economy not considered a threat to national security. “It will clarify the scope of sectors in which the Canadian government encourages Chinese enterprises to invest,” Mr. McCallum told Caixin. He did not provide examples.
China’s Mr. Wang, meanwhile, said Beijing is eager to expand trade with Canada. “We welcome Canadian financial institutions to start business and invest in China,” he said. Beijing, meanwhile, hopes “that Canada can provide an open and level playing field for Chinese companies.”
His comments underscored a central argument made by critics of the sectoral approach, who say only a comprehensive trade agreement covers a sufficiently broad range of topics to manage the very different demands between the two countries – such as Canada’s bid to knock down Chinese tariffs and China’s desire to prise access to Canada for its state-owned firms.
”We can make progress on a sectoral approach, but it’s no substitute in the long term for a trade agreement,” said Brian Innes, president of the Canadian Agri-Food Trade Alliance. China’s average tariff on Canadian agricultural goods is 15.1 per cent. It’s unlikely a single-sector deal could alter that, since WTO rules dictate that only agreements that cover “substantially all trade” can eliminate tariffs.
The corporate sector bears its own responsibility for increasing trade, added Goldy Hyder, president of the Business Council of Canada.
“In many ways, I think the onus reverts to business – both Canadian business and Chinese business – to move forward and execute,” he said. “They don’t need trade deals to make that happen.”
Still, he welcomed the idea of making smaller initial deals while also building to something larger. He dismissed fears that such an approach could prove a distraction from bigger objectives.
“It’s like suggesting that dating couldn’t lead to marriage,” he said. “You know what? I suggest you date for a while and then get married.”
With a report from The Canadian Press