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Canada and China hope to reach free trade agreement in wake of USMCA

In the wake of the new United States, Mexico and Canada Agreement, or USMCA, Canada has set its sights on pushing ahead with other free trade agreements. Perhaps none is more vital to the Canadian economy than that with its second largest trading partner, China.

A recent visit to China by a number of provincial and federal officials brought forth the options of a full-scale trade agreement as well as sector by sector agreements should the full-scale option not be tenable. The focus, at least from public statements, for the two nations appears to be on bridging gaps in the agriculture market, wages, gender equity and human rights. With regards to the agriculture sector, both nations have agreed to double the amount of trade by 2025. In order to reach that goal, current barriers must be lifted. Local producers also fear what that could mean for their domestic sales as the Canadian market would inevitably see a rise in cheaper Chinese goods entering the market not to mention the fear of IP violations that are bound to follow.

Notwithstanding the desire to increase trade with China, some readers of the recently ratified USMCA fear that clause 32.10, which states that the three nations must notify each other if they enter into trade talks with “non-market” economies, will hamper discussions with China. The provision is widely thought to be an attempt to single out the world’s second largest economy. Foreign Affairs Minister, Chrystia Freeland has stated publicly that the clause will not prevent Canada from deepening its trade talks with other nations and that it is simply about transparency. The Prime Minister echoed those comments in saying “This clause doesn’t prevent us from doing what we’re doing which is indeed continuing to negotiate with China on an eventual free trade deal.” The clause is about keeping their partners informed, Trudeau claims.

Further complicating matters are the risk to countries that open themselves up to close economic integration with China. For example, foreign governments, namely U.S. Senators, are urging Canada to block Chinese telecom company Huawei’s involvement in Canada’s 5G wireless network, which the U.S. and Australia have already done, amid recent allegations of spying. If a trade deal were reached, blocking such Chinese investment into the Canadian economy would be a lot more difficult. Reports out of countries with close ties to China suggest an influx in Chinese investment can lead to everything from paying for sway in local media to discretion over granting of visas. The hope would be that Canada’s strong state would repel such tactics and meddling. More trade with China certainly would be welcomed but not without concerns of the externalities that may follow.

With the U.S. and President Trump, and the still present steel and aluminum tariffs, lurking in the background, there is no doubt his administration is keeping a watchful eye on how their neighbour to the north is progressing on a trade deal with a country that they are currently sparring. Strategic maneuvering in the media and behind closed doors is imperative. Couple this with the notion that Canada has brought China’s human rights practices into the negotiations and this could prove to be a tougher task than re-negotiating the North American pact.

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