Canada abandons free-trade talks with China in shift for Trudeau government

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Canada has shelved the idea of a free-trade agreement with China, setting aside a priority that once dominated Prime Minister Justin Trudeau’s bid to reset relations with the world’s second-largest economy.

Though talks had stalled for several years, Foreign Affairs Minister François-Philippe Champagne now says a trade agreement with Beijing is no longer worth pursuing. “I don’t see the conditions being present now for these discussions to continue at this time,” Mr. Champagne said in an interview with The Globe and Mail. “The China of 2020 is not the China of 2016.”

“All the initiatives and the policies that had been put in place at the time – all that needs to be reviewed,” he said, adding: “We’re looking at all of them with the lens of China of 2020.”

The policy change is among the most concrete signs that the Canadian government, which has been criticized for taking little reciprocal action against Chinese aggression over the past two years, is adopting a less friendly posture toward Beijing – one in line with those of the United States, Australia and parts of the European Union.

Mr. Champagne indicated the Trudeau government, which took office with plans to revitalize a relationship first formalized by Mr. Trudeau’s father, Pierre, has little appetite to get back to the convivial atmosphere it helped create four years ago.

In September, 2016, Mr. Trudeau travelled to China. Weeks later, Chinese Premier Li Keqiang visited Canada. They agreed to “open a new chapter in the Canada-China strategic partnership,” including “vigorous measures to expand trade,” alongside a suite of plans to bring the two countries together on agriculture, energy, infrastructure, counterterrorism and military exercises. The list of agreements runs to 29, including a pledge to begin talks for a free-trade agreement. Canada’s business community at the time predicted that such a deal would spur a $7.7-billion growth in Canadian exports by 2030 and help create 25,000 new jobs in Canada.

Since then, China’s mass incarceration of its largely Muslim Uyghur population, its continued militarization of international territory in the South China Sea, its tightening hold on Hong Kong and its arbitrary arrest of foreigners have angered many liberal democracies.

Canada has issued statements of condemnation. It has abandoned the pursuit of an extradition agreement with China, instead cancelling its extradition treaty with Hong Kong after Beijing imposed a new national security law on the city, widely seen as an erosion of its autonomy.

In the interview, Mr. Champagne repeatedly criticized China for “assertive, coercive diplomacy.”

“Our first priority is to get the Michaels back home,” he said, referring to Michael Kovrig and Michael Spavor, the two Canadian men imprisoned in China since Dec. 10, 2018.

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Canada’s pursuit of a free-trade agreement with China had already suffered a series of setbacks, with Beijing refusing to agree to Ottawa’s demands for gender, labour and environment clauses in such a deal. Exploratory talks have not taken place for several years.

As recently as mid-November, 2018, however, the federal government said it continued to hope for a deal with China.

Less than three weeks later, RCMP officers arrested Huawei executive Meng Wanzhou at Vancouver’s main airport on a U.S. extradition warrant. China’s response included the detention of Mr. Kovrig and Mr. Spavor on ill-defined national security grounds – an act widely seen as hostage diplomacy – the blocking of some Canadian agricultural products, the sentencing to death of four other Canadians on drug charges and a protracted exchange of heated rhetoric.

China remains Canada’s second-largest trading partner. But in Canada’s business community, too, there is rising skepticism of China, whose trustworthiness has been called into question because of its repeated use of retaliatory trade measures in political disputes.

“Governments make these free-trade deals, so they get to make the decision as to when the timing is right. I agree with the minister,” said Goldy Hyder, president of the Business Council of Canada.

His advice for Canadian corporations: diversify, including to markets outside the U.S. and China. “Look at other places to do business, where there are less issues to be managed,” he said.

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Backing away from the idea of free trade with China amounts to “realism,” said Gordon Houlden, director of the China Institute at the University of Alberta. Such an idea has been “politically undoable for some time – and completely undoable without solving the two Michaels and the Madame Meng case.”

The 2018 U.S.-Mexico-Canada Agreement, the replacement for the North American free-trade agreement, allows signatories to withdraw if one country enters into a free-trade deal with a non-market economy, language widely seen as describing China.

Still, for Canada’s free-trade plans with China, “it’s still significant that they would take it off the table,” Prof. Houlden said.

History has shown that ruptures with China are rarely permanent. Only five years after the 1989 massacre at Tiananmen Square, “things were back on track,” said Prof. Houlden, a former diplomat who was posted twice to Beijing.

But he said there’s little prospect of a return in the foreseeable future to the friendly atmosphere that produced a commitment to free trade.

None of that, however, precludes the regular function of trade between Canada and China, which is up this year despite the pandemic and the continuing tensions. “Political barriers don’t preclude trade,” Prof. Houlden said. “There’s a lot of pragmatism in China – and a lot of ideology. But pragmatism is often in heavier balance.”

Canada and China’s trade dreams: A history

by Evan Annett

It’s been 50 years since the Pierre Trudeau government opened normal diplomatic relations between Canada and the People’s Republic of China, paving the way for a trade relationship that is now worth billions of dollars a year. But efforts to secure a free-trade deal between the two countries are more recent – and more fraught. Here are some of the important turning points.

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1994: Canada begins negotiations for a trade deal with China. Prime Minister Jean Chrétien, architect of the “Team Canada” trade missions, visits China six times during his tenure as prime minister, but while the countries reach some agreements on Canadian-designed nuclear reactors and other commerce, no free-trade agreement is finalized.

2006: Stephen Harper’s Conservatives come to power, and his hard-line message that Canada will not “sell out” on human rights in China leads to frostier relations between the countries, including Canadian tariff hikes on Chinese steel. Chinese president Hu Jintao declines to meet with Mr. Harper at an economic summit during his first trip to Asia. Mr. Harper suggests the refusal to meet face to face has to do with Beijing’s wish to keep the agenda focused on trade alone. “I think Canadians want us to promote our trade relations worldwide, and we do that, but I don’t think Canadians want us to sell out important Canadian values,” Mr. Harper says. “They don’t want us to sell that out to the almighty dollar.”

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2009: Mr. Harper makes his first trip to China to mend relations – only to face an unusual public scolding by premier Wen Jiabao: “This is your first visit to China and this is the first meeting between the Chinese Premier and a Canadian prime minister in almost five years. Five years is too long a time for China-Canada relations, and that’s why there are comments in the media that your visit is one that should have taken place earlier.”

2012: The trade talks begun in 1994 finally pay off with a foreign investment promotion and protection agreement. While not a free-trade deal per se, it gives investors from each country assurances of a level playing field with domestic companies in the other country, allowing them to sue if they feel they’re being treated unfairly.

2014: Mr. Harper visits China again to reset relations after Chinese oil-sands investments are blocked. He accuses Beijing of cyberattacks on government computers. Beijing invites Ottawa to enter free-trade talks, but this is largely rebuffed.

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2016: Less than a year after his election, Prime Minister Justin Trudeau visits China with a focus on building economic ties. Weeks later, Premier Li Keqiang visits Canada – the first such visit by a top Chinese leader since 2010. Mr. Trudeau and Mr. Li announce a plan to double bilateral trade by 2025 and work toward a free-trade deal. But trade talks quickly stall as Ottawa asks for provisions on labour and gender rights and environmental protections that Beijing resists.

2017: Chinese President Xi Jinping escalates a campaign to “re-educate” Uyghurs, an ethnic group in the Xinjiang region, the majority of whom are Muslims. Alarming reports emerge of indoctrination camps and forced labour, turning international opinion against Beijing and its signature trade and infrastructure projects, such as the Belt and Road Initiative. Canada helps organize diplomatic efforts to rebuke China in an official letter – much to Beijing’s chagrin.

2018: U.S. President Donald Trump ignites a tariff war with China as his administration signs a new trilateral trade deal with Canada and Mexico, which includes a clause discouraging its signatories from signing separate agreements with “non-market” countries – generally understood to mean China. Mr. Trudeau expresses hope of an “eventual” Sino-Canadian deal anyway. That prospect becomes more distant in December, when RCMP officers arrest Meng Wanzhou, the chief financial officer of Chinese telecom Huawei, at the behest of U.S. prosecutors who want to try her for fraud. Chinese authorities detain two Canadians, Michael Kovrig and Michael Spavor, days after Ms. Meng’s arrest, later accusing them of violating national security laws.

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2019: Canada’s ambassador to China, John McCallum, resigns in January after some unguarded remarks about the Meng case to Chinese-language media. Months later, the Trudeau government appoints business consultant Dominic Barton, a long-time advocate of stronger trade ties with China, as Mr. McCallum’s replacement. By this point, the Sino-Canadian rift has grown wider: China has halted imports of Canadian canola, meat and other products, while Mr. Trudeau asks the United States to hold off on finalizing a trade deal with China until the detained Canadians are released.

2020: The COVID-19 pandemic hits China’s economy first and hardest, but as China emerges from lockdown before other countries in the spring and summer, it jockeys more aggressively for status as an economic superpower. It also cracks down more aggressively on Hong Kong’s pro-democracy movement, passing a new national security law to arrest dissidents and journalists. Canada responds by barring extraditions and military exports to Hong Kong, to which it had previously supplied weapons, aircraft, tear gas and riot gear.

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