The future is now for a Canada China trade agreement

The future is now for a Canada China trade agreement

Canada stands to gain $7.7 billion in exports and $7.8 billion in GDP by 2030 from a free-trade agreement with China. Canada also stands to gain 25,000 jobs across all skill levels and raising wages as the demand for Canadian labour increases. These figures come from the Canada China Business Council’s recent report Chasing China: Why an Economic Agreement With China is Necessary for Canada’s Continued Prosperity.

That export total is approximately twice what Canada currently exports to China, said Sarah Kutulakos, Executive Director of the Canada China Business Council, who stressed that the authors of the report were deliberately conservative in their numbers.

The report estimates that Canadian automotive exports to China will increase by more than $1.4 billion, while chemical, rubber and plastic exports will increase by $688 million. Machinery and equipment will be topped up by $584 million and oil seeds and vegetable oil exports will jump by $1.7 billion.

Australia already enjoying benefits of trade agreement with China

Kutulakos noted that Australia, which just signed a free trade agreement (FTA) with China after beginning negotiations in 2005, estimates its GDP boost will top $18 billion. The Australia-China agreement will eliminate 95 per cent of tariffs over the next decade.

“We’re similarly sized countries, but Australia is just out ahead of us in terms of exporting things to China,” she said.

The report notes that Australia’s gains from its FTA will displace Canadian exporters who work in competing goods and services — at least until Canada secures similar access.

“If Canada were to become the first country in the Americas to secure a trade deal with China, it would not only benefit from direct trade opportunities, it would also be a magnet for investors from third countries wishing to take advantage of Canada’s privileged access,” the authors noted.

Canada needs to decide how fast it wants to move

Canada has a history of negotiating trade agreements with China. It began negotiating the current Foreign Investment Promotion and Protection Agreement (FIPA) in 1994, but those talks were put aside until 2004, pending China’s accession to the World Trade Organization. Eight years later, in 2012, Canada signed a foreign investment protection agreement with China, but it took two more years for it to come into force. Kutulakos says the two-year wait was simply “Canada being slow.”

“China has been asking us for almost four years to start negotiating a free-trade agreement and in the meantime, South Korea negotiated one and Australia finished theirs,” she said. “It all of a sudden puts us at an immediate disadvantage, especially vis-à-vis Australia. Why aren’t we standing up and asking for what we know we can get?”

The report doesn’t address this issue, but Kutulakos says Canada needs to decide whether to negotiate a “complete and complex” agreement or “do we shoot for something smaller, but with concessions that have already been made with other countries so we can come up to parity? We need to decide how fast we want to move.”

China’s consumer market is ripe with opportunities

When it comes to exports to China, Canada’s have fallen over the past couple of years due to a drop in commodity prices. But Kutulakos said if you look forward at China’s opportunity, the low-hanging fruit is now consumption. “It’s seafood, it’s consumer products, it’s lots of different foodstuffs. Some of that won’t be nearly as subject to commodity price cycles,” she said.

Toronto’s RMB trading hub an important step for Canada

The report highlights a couple of “incremental but important steps” toward improved trade with China, including the FIPA and the RMB Hub. The latter is a renminbi trading hub set up in Toronto in March 2015. It allows businesses to convert Chinese RMB to Canadian dollars, without first having to convert the funds to another currency (usually U.S.)

Daniel Koldyk, a Senior Research Analyst at Export Development Canada, told ExportWise that the hub is important for Canadian exporters.

“This hub will give Canadian companies more flexibility and a competitive edge that wasn’t there before,” Koldyk said.

Trudeau name opens doors in China

Asked whether Canada can still harness a trade opportunity with China, she said there’s still time, thanks to Prime Minister Justin Trudeau’s family history with China.

“China loves to latch on to good historical benchmarks and there are a bunch of those related to Trudeau,” she said, speaking of former Prime Minister Pierre Trudeau’s good relations with China in the ’70s. “As well, just being a new administration and taking a new fresh look at things will buy us a little time, but I don’t think the door is open forever. We don’t want to hem and haw and follow some of the same lagging policies that we have.”

“Doing nothing does not mean staying the same, it means falling further behind,” the report states. “Canada must act quickly and decisively to ensure that the China-sized hole in Canada’s trade policy does not create lasting damage from which we cannot recover.”

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