Canada must bring its A-game when negotiating a trade deal with China

by Eric Miller

The Globe and Mail
June 21, 2016

Chinese Foreign Minister Wang Yi’s recent finger-wagging at a Canadian reporter over a question on human rights received national attention. It should have, but not for reasons of decorum.

The Chinese are testing Canada.

They keenly want a free-trade agreement, which would serve as the centrepiece of a “new golden age” of Sino-Canadian relations.

From a geopolitical perspective, a trade deal with Canada – the United States’ neighbour and largest trading partner – could be viewed as a Chinese counterpunch to the U.S. pivot to Asia.

To lay the groundwork, Beijing has been dispatching a steady array of senior officials to Canada.

Like any sophisticated country preparing for a negotiation, they are sizing up their counterpart and prepositioning demands.

Everything from reduced restrictions on state-owned enterprise investments to pipeline infrastructure to the West Coast has been floated.

Mr. Yi’s “outburst” is part of the same process. China wants to see how Canada reacts to pressure while concurrently foreclosing the space for it to make eventual demands in areas not strictly trade-related.

For its part, the Trudeau government has signalled its interest in a trade deal.

This could be announced as early as August, when the Prime Minister is reportedly scheduled to visit China.

While secure market access with the world’s second-largest economy could yield significant benefits, a badly negotiated trade agreement is clearly worse than no deal at all. China is not exactly a free market and is expert at blocking competing imports.

If Canada is to embark on such a high-stakes venture as a free-trade agreement with China, it should not simply rely on the existing trade-negotiations bureaucracy. The complexity of a China trade deal demands a different approach to both structuring the negotiations and its end content.

In this regard, Canada should learn from its own history while taking a page from the Chinese playbook.

In 1985, when Canada entered into free-trade negotiations with the United States – a country that it knows intimately – it set up a separate “Trade Negotiations Office” that brought together the best and the brightest from across government. It selected Simon Reisman, an experienced deal maker and former top civil servant, to lead the talks. Mr. Reisman reported directly to the Prime Minister. His team was given almost unlimited access to resources.

In the end, pooling smart people and substantial resources made a significant difference. Superb preparatory work and creative negotiating tactics allowed Canada, against all odds, to win concessions in key areas, including disciplines on U.S. trade remedy measures.

At the present time, few people in the government of Canada understand how China works to a degree that they could achieve Simon Reisman-like levels of success. If Ottawa is truly committed to pursuing free-trade talks with China, it should commit to rapidly building this knowledge base in a truly special tiger team.

This team should start by largely spending the first 12 to 18 months on the ground in China. How can one design effective disciplines on market access or subsidies if they do not understand how the money flows in China and how the 200 largest firms do business? They also need to understand its version of federalism, how the relationship between government and business works. Training in Chinese negotiating tactics and strategies is also a must.

Concurrently, Ottawa should send its own steady array of senior officials to Beijing to probe and test the Chinese leadership.

Only once Canadian negotiators have learned the Chinese economy and society in depth should they agree to hold a Round 1 of free-trade negotiations.

The ancient Chinese General Sun Tzu stated that “if you know the enemy and know yourself, you need not fear the result. … If you know yourself but not the enemy, for every victory gained you will suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

Beijing would enter free-trade talks with an intimate knowledge about Canada. Will the same be said of Ottawa about China? Let us hope so.

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