Huawei saga will freeze trade talks, hurt Canadian investment in China: experts

Click to play video: 'Morneau calls detained Canadians in China a “challenge,” but sticks to trade relations rhetoric'
Morneau calls detained Canadians in China a “challenge,” but sticks to trade relations rhetoric
Finance Minister Bill Morneau spoke at the Canada 2020 forum on Thursday about the $40-billion LNG Canada investment, saying that the legal issue of two Canadians currently detained by the Chinese government is a challenge and should be viewed separately from Canada and China's economic relations, which continues to "grow rapidly." – Dec 13, 2018

Speaking at the Canada 2020 forum on Thursday, Finance Minister Bill Morneau sounded confident that the ongoing Huawei saga could be kept separate from Ottawa’s trade talks with Beijing.

Asked about the recent detention of two Canadian citizens in China, Morneau called the issue “challenging.”

However, the minister went on to say, the current spat between China and Canada over the arrest of Huawei CFO Meng Wanzhou is “a legal situation” that must be kept “separate” from recent trade talks.

That is unlikely to happen, several experts told Global News.

That Meng’s arrest is a legal issue “is the Canadian point of view,” said former Canadian ambassador to China Guy Saint-Jacques.

“But I would argue the Chinese don’t give a damn.”

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The detainment of former Canadian diplomat Michael Kovrig and Canadian businessman Michael Spavor has widely been interpreted as retaliation by the Chinese government for Meng’s arrest on Dec. 1 in Vancouver at the request of U.S. authorities. Meng was released on $10-million bail in Canada and faces a lengthy legal fight over extradition to the U.S.

Trade talks on ice

The issue will likely put bilateral trade discussions on ice until at least 2020, said Patrick Leblond, associate professor of public and international affairs at the University of Ottawa.

On the Chinese side, Beijing appears to have chosen to keep public anger over Meng’s detention focused squarely on Canada rather than the U.S.

Saint-Jacques, who headed the Canadian embassy in Beijing between 2012 and 2016, described a slew of vitriolic anti-Canadian comments on popular Chinese microblogging site Weibo since the news of the arrest.

WATCH: Global News coverage of the arrest of Huawei CFO Meng Wanzhou 

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“There was an expectation from public opinion that Beijing would crack down hard,” he said. And that crackdown would have to hit Canada, which is much less important to China’s economy than the U.S.

Beijing is trying to make the most of a 90-day trade war truce that U.S. President Donald Trump proposed to Chinese President Xi Jinping when the two met at the G20 meeting in Buenos Aires at the beginning of the month.

For example, despite Meng’s arrest, reports emerged earlier this week that China is moving to reduce its import tariffs on U.S.-made vehicles.

But as China focuses on rescuing its relationship with Washington, Beijing seems to have picked Canada as the scapegoat, said Saint-Jacques.

“Of course, they know they cannot kick them [the U.S.] so they turned around and kicked us,” he explained.
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The economic calculus behind that is obvious, said Nelson Wiseman, professor of political science at the University of Toronto.

“Chinese-Canada trade for the Chinese is loose change,” he added.

Canada accounted for less than two per cent of Chinese exports in 2016, according to World Bank data. The U.S., by comparison, made up almost 20 per cent.

From Canada’s point of view, Chinese trade is far more significant. With around $20 billion worth of Canadian goods heading to China every year, the country is our second-largest trading partner — albeit a distant second after the U.S., which accounts for around $400 billion worth of exports.

The Huawei kerfuffle is one more example of Washington damaging Ottawa’s efforts to reduce its trade dependency on the U.S., even as our southern neighbour appears much less keen on trade with us.

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WATCH: Global News coverage of Canadians Michael Kovrig and Michael Spavor detained in China

An earlier example of this was a clause in the United States-Mexico-Canada Agreement (USMCA) that requires all signatories to notify the other members if they engage in free-trade negotiations with any “non-market economies,” including China. The same provision also says that one member entering into a free-trade agreement with a non-member country allows the other two members to dissolve USMCA and replace it with a bilateral agreement.

Whether the clause gives the U.S. veto power over Canada’s ability to sign a free-trade deal with China is a matter of debate among trade experts. But the fact is that Ottawa has since been focusing on sector-by-sector talks with Beijing instead of pursuing a broader free-trade agreement.

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Such an approach circumvents the USMCA clause but is unlikely to lead to any lowering of trade tariffs. That’s because under rules set out by the World Trade Organization, any tariffs concession made by one country to another outside of a free-trade agreement would have to be extended to all other WTO members, both Leblond and Saint-Jacques noted.

But even the modest progress achievable through sector-by-sector talks now seems out of reach, Leblond said.

Canada’s own public opinion now stands in the way.

The two Canadians’ detention “sends a very bad signal to Canadians about how the Chinese do business,” Lebond said. And the Trudeau government might want to steer clear of unpopular trade talks heading into an election year, he added.

A potential hit to Canada’s business and investment in China

Kovrig and Spavor’s arrests in China are also sending shock waves through Canada’s business community, according to Saint-Jacques.

“I’ve had a conversation with business people yesterday, and some were saying: ‘I’m glad I don’t have to travel to China,'” he told Global News.

Others talked about delaying business travel to China until after the Chinese New Year in early February. And one Canadian businessman in China recently reached out to Saint-Jacques to ask whether he should come home, the former ambassador said.

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Freeland should fly to Beijing and Washington

Saint-Jacques suggested Foreign Affairs Minister Chrystia Freeland fly to Beijing to try to “lower the temperature” in the current dispute.

“I’m not convinced the Chinese will listen,” he said, “but it’s worth the effort.”

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