Bilateral Canada-China trade talks can be successful, if we reframe what a trade agreement looks like.
A recent poll found that Canadians are keen to link human rights with a trade deal — an attitude likely to have been strengthened by the recent death of Nobel Peace Prize winner and political prisoner Liu Xiaobo. Should we be talking trade at all with the Chinese, some Canadians ask? Yes. Even if the Chinese will not accept a linkage between enhanced trade relations and human rights, the Canadian government can still pursue its “progressive trade agenda” through such negotiations. Doing so, however, will require new thinking.
Bilateral negotiations toward a free-trade agreement would improve opportunities for Canadian traders and investors, thereby promoting market diversification at a time when Canadians rightly worry about a protectionist drift in the United States. Talking to China is also important in its own right, because China remains one of the fastest growing economies in the world with a burgeoning middle class, and because Canada trades less with them than do some comparable OECD countries. American hostility toward China might create difficulties for Canada, but it also increases the importance of engagement. Negotiations would help both sides learn about how to integrate China further into the global trading system. These talks can be successful, but only if we reframe what a trade agreement looks like.
Foreign minister Chrystia Freeland’s speech on Canada’s NAFTA objectives included elements of Canada’s “progressive trade agenda.” When it comes to possible negotiations with China, would such an agenda mean traditional chapters on environmental protection, labour rights, anti-corruption, and government transparency? Would such provisions even be acceptable to China in any form, let alone be “enforceable” through binding rules subject to a dispute settlement mechanism? At a minimum, openly discussing this agenda with China would help reassure Canadians that the government wants to protect their values as well as their interests.
China is unlikely to include formal commitments on the elements of a progressive trade agenda in a trade deal with Canada. That’s because this agreement could well be a template for its negotiations with other OECD countries — meaning that what China agrees to with Canada, may become its default negotiating position expected by other countries. But that’s precisely why this negotiation is a novel opportunity for both sides. China’s discussions with a NAFTA partner is a major opportunity to learn how each side sees the needs of 21st century global commerce.
China’s discussions with a NAFTA partner is a major opportunity to learn how each side sees the needs of 21st century global commerce.
In trade talks, countries have a much easier time agreeing to binding constraints on tariffs at the border than to more direct, domestic policy changes, which is where most of an ambitious 21st century trade agenda is found. Such issues include intellectual property protection (a big issue for Canadians in China), regulatory cooperation, financial services, temporary movement of workers, climate change, digital trade and state-owned enterprises. The process of learning about these issues may not necessarily lead to formal rules in a trade agreement. But Canada and China can explore where specifically trade rules are needed, and what other aspects of the economic relationship can be addressed in other fora (even if not explicitly incorporated in a trade agreement).
The UN’s Sustainable Development Goals (SDGs) offer one possibility for action on an inclusive trade agenda with China. Like Canada, China endorsed the SDGs at the September 2015 UN Summit. Then during China’s G20 presidency the next year, China pushed to put the SDGs front and centre − in part because the SDGs do not emanate from the Bretton Woods institutions that they see as Western-dominated. The Chinese leadership is serious about the SDGs, and the “green transition,” including a crackdown on local officials who flout environmental laws.
Trade can make a crucial contribution to the SDG objectives, but it requires a coherent policy framework. Such a framework would link the objectives of helping businesses harness trading opportunities, with proper management of the social, economic and environmental impacts of trade. Robust follow-up and review are also part of the picture. The G20 Action Plan adopted by leaders at the Hangzhou summit in September 2016 provides a shared framework for reviewing progress. Although few people see the SDGs as enforceable, they nonetheless form a universal agenda – they apply equally to Canada and China. Joint discussion of difficult topics would be a useful contribution to the long-term goal of incremental change in China.
If the SDGs were formally accepted as the basis for a discussion between Canada and China about a progressive trade agenda, no new negotiation would be needed to establish the principles of the discussion. And no new negotiation would be needed on the idea of monitoring, because that principle is already in the G20 Action Plan and the UN declaration. What’s needed in a bilateral negotiation are concrete actions where the two sides could commit to a process of learning from each other about their national efforts to implement the SDGs. Both sides could agree that their national reporting on implementing the SDGs would be discussed at annual meetings of a commission that ought to be created by an eventual trade agreement.
We have some experience engaging in this kind of high-level dialogue with China. The Joint Press Release of September 2016 between the Chinese and Canadian prime ministers announced Canada’s commitment to Phase VI of the China Council for International Cooperation on Environment and Development (of which Canada’s Minister of the Environment is executive vice chair). The lesson here is that Canada can work with the Chinese to create a space for learning. A new trade agreement could ask this forum or one similar to consider what forms of trade are environmentally responsible.
What else could be on the list? As part of broader efforts to increase the scope and rigour of gender-based analysis, an agreement with China could create a mechanism to regularly examine the effects of trade and trade agreements on the advancement of women’s economic empowerment.
The pursuit of an inclusive trade agenda should also encompass ensuring public confidence in the process of reaching new agreements. That requires not just consultation, but a process that encourages wide discussion of the government’s objectives in a negotiation — something the government should be doing to ensure that Canadians understand the possible benefits and attendant risks in deepening our relations with China. The two sides could have a conversation on how and when to be transparent, and what about.
Talking about the rule of law and access to justice might be more uncomfortable, but using the SDGs creates the possibility of a conversation on the basis of principles both sides have endorsed (see for example Goal 16.3 on building effective, accountable and inclusive institutions), rather than either side having to accept the other’s definition.
Canada and China have an opportunity to develop a new approach to trade negotiations, one that creates mechanisms for deepening engagement on a more inclusive trade agenda, without putting everything in one rigid framework. Such an approach might work well on other domestic aspects of a 21st century trade agenda, especially with China. There are many ways to pursue a trade agenda that do not require incorporation in a formal agreement subject to binding dispute settlement — for example, transparency mechanisms can help provide trade discipline on subsidies. And on many of those issues, our more important trade agreement for binding rules with China will be the WTO. While we could not expect to advance our own interests in the bilateral negotiations for free — China also has interests it will want to advance in return — the negotiating cost might not be too high, if Chinese officials think that such a process would help them gain greater understanding of how a developed North American country approaches ambitious 21st century trade issues.
This article is part of the Trade Policy for Uncertain Times special feature.
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