THE TTALK QUOTES
On Global Trade & Investment
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No. 57 of 2016
THURSDAY, OCTOBER 13, 2016
Filed from Portland, Oregon

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CANADA & CHINA: FOLLOWING THE FTA PATH

"We feel that the best way to engage China, to make progress on these sensitive issues, is ... to move the yardstick forward and, importantly, for greater liberalization."
 
Gilles Gauthier 
September 28, 2016 
CONTEXT & COMMENT
 We will end our review of GBD's September 28 session on China and the NAFTA countries as the session itself began, with comments from Gilles Gauthier, the Minister for Economic Affairs at the Canadian Embassy in Washington. 

Mr. Gauthier said at the start that he was speaking against the backdrop of two important - and quite recent - announcements. The first was that Canada will join the China-led Asia Infrastructure Investment Bank, AIIB.  The second was, in effect, the start of what is likely to become a free-trade agreement between Canada and China.  That announcement came from Prime Minister Justin Trudeau on September 22, during Chinese Premier Li Keqiang's visit to Canada.  As Prime Minister Trudeau put it:

"We've agreed to launch exploratory talks towards a potential free trade agreement between Canada and China."

What Mr. Gauthier managed to do exceptionally well was to weave together not just those two topics but those plus several others in the list of Canada-China issues, and then to connect those issues, those files, with the relationships among the NAFTA countries.   Among those issues were:

The AIIB.  The announcement that Canada will join the Asia Infrastructure and Investment Bank came at the end of August, when both Prime Minister Trudeau and Canada's finance minister, Bill Morneau, were in China.  Minister Morneau explained Canada's decision at a news conference in Beijing. "Canada's membership," he said, "will generate commercial opportunities for Canadian companies, create good jobs and contribute to global economic growth."  It was a decision that was warmly received by China. 

A Canada-China FTA.  With the launch of exploratory talks only recently announced and Canada's public consultation process not yet begun, there are limits to what one can say about an FTA without being unduly speculative.  Certainly, though, one can note the history that gave rise to Prime Minister Trudeau's announcement and the potential that such an agreement offers.  Mr. Gauthier did both; he said:

"This doesn't come out of the blue.  We've been engaging the government of China over the last several years on different initiatives.  We concluded in 2014 a foreign investment protection agreement, the equivalent to a bilateral investment treaty.  We have concluded an agreement pertaining to tourism, granting a preference status to visitors from China in 2013.  That has led to a fairly strong growth in the number of visitors from China coming to Canada - about half a million last year - generating significant business ... in Canada.

"So this has been a long process for us to try to find ways to expand the economic and trade relationship with China.  When [looking] at the decision to enter into exploratory talks on an FTA, you look at the economic underpinnings: whether this market is a growing market? What are your interests?  What are the issues that you feel are problematic and that you would want to address?

"Clearly we have strong interests in the agriculture sector.  For instance, canola, which is one of our biggest crops in Canada.  China is by far our biggest market, over $2 billion of export.  And canola has been [the] subject over the past few years of some non-tariff measures that have led to some concern about our security of access for canola products.  So, launching exploratory talks and trying to come up with a fairly robust trade rule pertaining to agriculture products - whether it's canola, wheat, pork products - I think Canada is a very strong exporter of agriculture products. So, I think there is some clear advantage there. 

"We have also a fairly good presence in China, already, on the financial services, particularly insurance business.  And we have also a very good presence on engineering services and ... so our interest in joining the Infrastructure Investment Bank

"On services, I think we also feel that there are some openings to be made there. 

"And in the manufacturing sector ...  when you look at our current trade with China - of course, China sends essentially manufactured products to Canada, and Canada sends a fair amount of agriculture and basic materials - but ... still ... about 60 percent of our total trade to China is manufactured goods, including some machinery and equipment, including a little bit of auto parts. 

"So, in our view there is a potential there to grow. There is certainly a potential to position Canada to be even more attractive to Chinese investors.  China is present in the Canadian market.  There are several investments across a range of activities - not only in the resource and forestry sector but also in some manufacturing activities. 

"So, we feel ... that establishing that new degree of relationship through exploratory talks and eventually to an FTA will position Canada for welcoming investment."

Canola Etc.  Mr. Gauthier mentioned both the fact that Canada exports a lot of canola to China and further that there are some issues there.  But let's start with the basics.  What is canola?  It's a variant of rapeseed.  It is the world's second largest oil crop, and Canada is the world's largest producer and exporter of canola oil.  As it happens, Better Living Brands LLC of California is the distributor of the canola oil in your editor's kitchen, but the oil itself is a product of Canada.  Perhaps it started here, in Saskatchewan:


 
Photo by Wendy from Humboldt, Saskatchewan,
from Wikimedia Commons

It is not the oil, however, that is the big issue - and potential threat - to Canada's canola exports to China; it is the seeds themselves.  China has for a while been expressing concerns about dockage - extraneous materials - in Canada's canola exports to China and seemed on the verge of regulatory actions that could have threatened Canada's exports.  That issue was resolved last month - at least for now - during the same set of meetings that produced the announcement about a possible FTA.  So too were other agricultural export issues, with Canada now anticipating increased exports of beef and other meats to China as a result.

Over Capacity: Steel and Aluminum.   Mr. Gauthier said Canada has the same concerns about China's over capacity in steel and aluminum as the United States.  After all, Canada is a major exporter of aluminum, and China's actions in this area have wreaked havoc in the market.
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And yet, as he explained - it is today's featured quote - Canada's approach to all of these issues is to move forward with a positive agenda.  And for the moment, the promised FTA is the hallmark of that agenda.
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Editor's Note: We put the Context and Comment sections together for this entry, because we wanted to include here some materials supplemental to Mr. Gauthier's remarks without relegating those elements to a separate section.
SOURCES & LINKS
Audio from China Mirrors is a link to the MP3 recording from the GBD event on September 28.  This - or rather our transcript from it - was the source for today's featured quote.

About Canola Oil is a link to a Future Knowledge story about this commodity.

Canola Issue Resolved is a link to a September 23 Globe and Mail story with details on this issue.

Agreement Boost Beef Exports is a link to a story on Canada's trade with China in beef and other meats from The Cattle Site.

China and Canadian Auto Parts  is the TTALK Quote of September 30, with comments from Flavio Volpe of the Automotive Parts Manufacturers' Association on what a Canada-China FTA could mean for his industry.

Mexico & China is a link to the TTALK Quote for October 5, with comments on this issue from Kenneth Smith Ramos, who heads the Trade and NAFTA office at the Embassy of Mexico in Washington.

Issues in U.S.-China Trade is the TTALK Quote from October 7, in which John Magnus of TradeWins discusses selected issues in U.S.-China Trade

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