Do the rewards outweigh the risks when it comes to trade with China?

29/01/2016

Do the rewards outweigh the risks when it comes to trade with China

Do the rewards outweigh the risks when it comes to trade with China

Facing a global economic slump and a sharply devaluating loonie, the government of Canada has strategically turned its attention on growing international markets with the goal of tapping into the economic benefits of global trade.

Prime Minister Justin Trudeau has demonstrated his desire to strengthen international trade ties by planning a major trade mission to China and India.

He has also invited former Australian Prime Minister Kevin Rudd into discussions with senior Canadian business leaders to seek a free trade deal with China, similar to that negotiated by Australia.

Despite the fact that there are currently no free trade negotiations between China and Canada, both countries have demonstrated a willingness to strengthen their trade relationships and promote foreign investments.

According to Sylvain Charbonneau, CITP®|FIBP®, an international trade professional with over 15 years of experience and an instructor at Ashton College in Vancouver, there are two sides to this discussion. He noted:

A Canada-China free-trade agreement should be beneficial for Canadians, but it could also bring challenges and risks of negative impacts in some areas.

This article explores the primary issues with regard to the establishment of free trade between the two countries.

Canada-China trade presents major challenges

There are several things to consider when it comes to trading with China. International trade agreements create ties of influence between the countries that can extend beyond import-export affairs. The Chinese government has different values and priorities when it comes to the issues of law, politics and human rights, amongst others.

Moreover increasing competition for Canadian companies and economic pressures have international trade experts concerned.

The most pressing challenges can be outlined as being:

China’s human rights record: It is hard to deny the fact that China has a well-known history of human rights violation and systematic repression of certain minority groups. One of the biggest concerns about opening a free trade agreement with China is whether Canadian export products might become involved in oppressive situations. Of course, we are not talking about an arms trade, but this is an important consideration nonetheless.

Intellectual property protection: Canada values the protection of intellectual property for owners, producers and creators of various products, goods and services. Reported cases of intellectual property violations in China, and the possibility of forged products circulating in the market, have been raised as another point of conflict.

Economic incompatibility: Ron Austin, an instructor in the International Trade department at Ashton College, points to the difficulty of aligning the two economic systems of both countries.

Trying to integrate two economies with such different economic conditions – which is what free trade agreements essentially accomplish – can be challenging.

“If we look at the European Union, for example, we see countries like Greece or Italy clashing with Germany and Sweden; countries which have greater capital and higher taxes. We would not want that to happen in a Canada-China trade relationship.”

Competition: Charbonneau points to concerns over competition from Chinese companies, noting that an increase here “could cause difficulties for many Canadian businesses if they can’t continue to innovate on an ongoing basis. This could also have an impact on the employment landscape in Canada”.

Trade with China could have huge positive impact

There is certainly another side to this story. A strong economic (and even political) relationship between Canada and China could bring real opportunities for Canadians. Most predictions foresee great benefits for Canadian exports as a result of a potential Canada-China free trade agreement.

Among the key advantages are the following:

Economic benefits: Even though China’s economy is slowing, its purchasing power cannot be ignored. There are several key areas in which Canada could diversify in China and increase exports.

According to Charbonneau:

Trade with China could represent great business opportunities for Canadian exporters of consumer products, equipment and machineries – especially with its growing middle class generating an increasing demand for commercial goods.

“The agriculture industry should see an increase in demand for such products as meat, canola, fish and seafood. The trade deal could also be favourable for the forestry industry, metals and minerals”.

Bringing Canadian services to China: The rapid rise of the Chinese middle class has created opportunities for Canada, from the possibility of offering pension funds and insurance in China, to the expansion of Canada’s infrastructure sector and services.

Charbonneau has pointed out engineering, financial services, information technologies and architecture as the key industries to benefit from the export of services. There is even a potential to expand Canada’s influence in the areas of green technology and natural resources.

Improving the Canada-China relationship: According to Trudeau, cooperation with China could bring benefits to both countries. Strengthening Canada-China relationships could go beyond economic ties, leading to political connections (an important tie, given China’s growing influence) and cultural exchange, including travel and education.

So what happens next?

Although concerns and hesitations about establishing free trade between Canada and China certainly exist, the general consensus is that the benefits outweigh the challenges. However, this does not mean those concerns should be disregarded.

Austin states:

I believe the key is to introduce trade agreements that would reinforce environmental protection and positive working conditions of the cooperating countries.

Indeed, careful negotiation is needed to ensure that any economic benefits are also aligned with Canada’s political and humanistic objectives.

Although concerns and hesitations about establishing free trade between Canada and China certainly exist, the general consensus is that the benefits outweigh the challenges.

However, this does not mean those concerns should be disregarded.

“I believe the key is to introduce trade agreements that would reinforce the environmental protection and positive working conditions of the cooperating countries,” states Austin.

Certainly careful agreements have to be established to ensure that economic benefits are also aligned with Canada’s political and humanistic objectives.

Do you think it’s a good idea for Canada to pursue a stronger trading relationship with China? Do the challenges in human rights and IP present too much risk to Canadian trade?

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Alex Nikotina

Author: Alex Nikotina

Alex Nikotina is an Online Marketing Assistant at Ashton College in Vancouver, BC. Originally from Russia, Alex loves to travel and experience new countries, having previously spent time in Japan before moving to Canada.

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