U.S.-China trade deal could hurt Canadian exporters, official warns MPs

One of the Canadian government’s top trade officials warned MPs of consequences for Canada’s exporters flowing from a new U.S.-China trade deal, where Beijing agreed to buy significantly more American goods.

Steve Verheul, assistant deputy minister of trade policy and negotiation at the Department of Global Affairs, told a new parliamentary committee set up to examine Canada-China relations that the initial phase of the pact may have adverse affects on Canada.

The agreement sets up new obstacles to free trade by substituting more “managed trade” that benefits the United States and China and could hurt certain Canadian farm producers who compete for Chinese business with U.S. rivals, he told MPs Thursday.

MPs also heard that the trade deficit between Canada and China stood at $48-billion as of 2018 – an imbalance in China’s favour.

The Phase 1 U.S.-China deal signed earlier this month to try to settle a trade dispute presents “a challenge to the free and open rules-based trading system by proscribing a managed outcome,” Mr. Verheul said, and could have “negative implications for certain agriculture sectors that compete with the United States in the Chinese market.”

As part of the deal with Washington, Beijing agreed to buy an additional US$200-billion of good and services from the U.S. over the next two years, including soybeans, wheat and pork.

A Commons special committee is examining the deterioration of Canada-China relations that started more than 13 months ago after Beijing’s apparent retaliation for Ottawa’s arrest of senior Huawei executive Meng Wanzhou on a U.S. extradition request.

Two Canadians remain locked up in China, victims of what critics have called “hostage diplomacy” and Chinese purchases of canola seed are still significantly down. In addition, Beijing last year warned that there will be consequences if Ottawa bans flagship tech firm Huawei Technologies Co. Ltd. from supplying gear to this country’s next-generation 5G wireless networks.

The faltering relationship between Ottawa and Beijing hurt sales to China last year, Mr. Verheul said, although he added that another factor was an economic slowdown in the Asian country.

Canadian exports to China fell nearly 15 per cent from January-November, 2019, compared with a year earlier, and reflected declines in sales of canola seed, wood pulp and nickel.

He added that some Canadian businesses are reporting increased scrutiny of their shipments by Chinese border officials.

Toronto-based trade lawyer Mark Warner, a former Ontario government trade negotiator, is skeptical about whether the Phase 1 agreement will last beyond the November, 2020, U.S. presidential election. He said that the Americans don’t appear to be giving the Chinese leeway to miss the purchasing targets because of economic damage caused by the coronavirus epidemic hitting China hard.

China is Canada’s third largest trading partner and purchased about 5 per cent of Canada’s total exports in 2018, Mr. Verheul said.

Marta Morgan, the deputy minister of Foreign Affairs, told MPs that the detention of Canadians Michael Kovrig and Michael Spavor, locked up by Beijing on Dec. 10, 2018, is an example of the hard face of China’s rulers. “December 10, 2018 is a day that changed Canada’s outlook on its relations with China,” she said.

“These detentions reflect broader features of China’s governance that pose challenges to human rights and the rule of law,” Ms. Morgan said, listing "the Communist Party’s increasingly authoritarian grip on power, restrictions on civic freedoms in Hong Kong and abuses of human rights in Xinjiang, coercive diplomacy against individuals and countries that threaten the Chinese government’s interests and threats to democracy and democratic institutions.”

Despite Canada’s deep concerns about Beijing, Ms. Morgan said the country has to continue to trade with China and to look for avenues to improve relations and to co-operate on issues such as climate change.

Countries and other entities that have spoken out in support of releasing the two Canadians include Australia, France, Germany, the Netherlands, Spain, Britain, the United States, Taiwan, the European Union, the Group of Seven and NATO.