Canada-China Relations Committee on Jan. 30th, 2020

[Marta Morgan]

Mr. Chair, the United States government is very concerned about the arbitrary detention of Michael Spavor and Michael Kovrig and has been consistently supportive of our position on this issue.

[John Williamson, Conservative, New Brunswick Southwest, NB]

Okay.

Mr. Thoppil, yes or no, were you instructed to make that outreach my colleague referred to?

[Paul Thoppil]

I initiate and I engage with former heads of missions every day.

[John Williamson, Conservative, New Brunswick Southwest, NB]

Okay. Thank you.

I'm going to give my last 15 seconds to my colleague.

[The Chair, Liberal, Geoff Regan]

Yes, you can.

[Leona Alleslev, Conservative, Aurora—Oak Ridges—Richmond Hill, ON]

I'd like to state for the record that at no time did I suggest that Canada should have a free trade deal with China to resolve the consular cases. That was not what I said, so I want to make sure the record says that.

[The Chair, Liberal, Geoff Regan]

Thank you.

I make it 10:28 in 10 seconds, so I'll give you a minute and a half, Mr. Oliphant.

[Rob Oliphant, Liberal, Don Valley West, ON]

Thank you, Chair, and thank you to the officials.

Thank you for your work on this complex thing. When I look at these trouble spots in the world, there is a tool kit of interventions that can be done, from “extreme” to “nothing”. It would seem to me that Canada has chosen a middle road in our interventions, which are strong but are keeping the door open for diplomatic engagement. We have not done certain extreme activities that some in the opposition have called for, nor have we simply laid down and said that nothing is going on.

Is that a correct understanding of the approach that we're having at this time?

[Marta Morgan]

Mr. Chair, I think that is a reasonable interpretation of our approach.

We need to act firmly. We have condemned the actions of the Government of China, both in terms of arbitrary detention and in terms of trade actions.

That being said, we have diplomatic relations with the Government of China and we need to use those relationships to advance our interests and to seek resolution to the problems we have.

[Rob Oliphant, Liberal, Don Valley West, ON]

Thank you.

[The Chair, Liberal, Geoff Regan]

Thank you for your appearance today. You are now excused.

While we're waiting for the next set of witnesses, and before I let you go ahead, Mr. Harris, if you don't mind, I just want to inform the committee that members have been calling the clerk to try to find out what the committee's regular time slot would be. That has been difficult, because there hasn't been a time when everyone can be available. We may have to come to the point when we choose a time despite the fact that not everyone is available for that time. Perhaps at the end of this meeting, if we have time, we can take a moment to discuss this.

Second, in terms of upcoming meetings, as members may know, on Tuesday, February 4 from 10 to noon we'll have a briefing with consular affairs and Justice. On Wednesday, February 5, from 5:30 to 7:30 p.m., we'll have a briefing with Ambassador Barton.

Mr. Harris.

[Jack Harris, NDP, St. John's East, NL]

On a point of order, I just wanted to—

[Rob Oliphant, Liberal, Don Valley West, ON]

Could I ask that we suspend the meeting for a moment so the witnesses may leave and we can allow the table—

[The Chair, Liberal, Geoff Regan]

I've already indicated that the witnesses are excused.

[Rob Oliphant, Liberal, Don Valley West, ON]

It would be the normal custom for us to suspend for a moment so we could thank the witnesses—

[Jack Harris, NDP, St. John's East, NL]

Mr. Chairman, I have a point of order.

[The Chair, Liberal, Geoff Regan]

I would like to hear from Mr. Harris on his point of order.

[Jack Harris, NDP, St. John's East, NL]

This is relevant to the witnesses. I just wanted to confirm that Mr. Thoppil will provide the list of countries to the committee.

I think you said you would. That is something we would like you to do, or that I would certainly like you to do.

[Paul Thoppil]

Agreed.

[The Chair, Liberal, Geoff Regan]

Ms. Morgan, I understand that you want to correct something you said.

[Marta Morgan]

I was incorrect in my speaking remarks about the number of Canadians seeking assisted departure from Wuhan, which is now at 196. Could we put that on the record?

[The Chair, Liberal, Geoff Regan]

Thank you.

The witnesses are excused. I will suspend for a few moments.

[The Chair, Liberal, Geoff Regan]

We are ready to get started if members want to take their seats.

We now have a set of witnesses from the Department of Foreign Affairs, Trade and Development: Mr. Steve Verheul, assistant deputy minister, trade policy and negotiations; Mr. Doug Forsyth, director general, market access; Mr. Duane McMullen, director general, trade commissioner service, operations; and, Monsieur François Rivest, executive director, Greater China. From the Department of Agriculture and Agri-Food, we have Mr. Fred Gorrell, assistant deputy minister, international affairs branch.

Mr. Verheul, would you like to begin your presentation? I believe we're going to have10 minutes for opening remarks by the panel.

[Steve Verheul, Assistant Deputy Minister, Trade Policy and Negotiations, Department of Foreign Affairs, Trade and Development]

Thank you and good morning, Mr. Chair and members of the committee. We are pleased to have this opportunity to update the committee on recent challenges facing the Canada-China trade relationship and ways in which the government is seeking to improve conditions for Canadian exporters. Following my remarks, we would be happy to provide further details and answer any questions you may have.

As you heard earlier, Canada's trade and investment relationship with China has grown substantially as the Chinese economy has developed. China is our third-largest trading partner, accounting for nearly 9% of Canada's trade with the world and about 5% of our total exports in 2018. China is also now the third-largest source of foreign direct investment from Asia into Canada, with the stock of Chinese investment in Canada valued at $16.9 billion in 2018. This growth in bilateral trade and investment led Canada to explore ways to improve the environment for Canadians to do business in the Chinese market over the past decade. However, as you are well aware, the deterioration of Canada-China bilateral relations has affected the policy environment.

From January to November 2019 our exports to China fell by some 14.7% compared with those in 2018, driven by a drop in the canola seed, wood pulp, and nickel shipments. However, I should point out that part of that was clearly due to the economic slowdown in China as well as to the deteriorating relationship.

It has also changed the way some Canadians do business with China. Some Canadian businesses have reported increased scrutiny of their exports at the border. Others have seen a slowdown in sales as Chinese importers have become reluctant to bear the risk of political uncertainty.

In March of 2019, China suspended shipments from two major Canadian canola seed exporters and increased inspection of all Canadian canola seed exports to China, citing an alleged discovery of pests. This move effectively blocked a large portion of Canada's largest agricultural export to China. Canadian canola seed exports to China have since fallen by around 70%.

Our priority since has been to seek a science-based solution to fully restore market access. We are working closely with the governments of Alberta, Saskatchewan and Manitoba, as well as with industry partners.

On September 9, 2019, Canada requested formal consultations with China at the World Trade Organization after trying to resolve the issue through bilateral engagement. Those consultations took place on October 28 and provided us with an important opportunity to request further information and clearly voice our concerns with China's restrictive import measures.

At Canada's request, Canadian technical experts met with Chinese plant specialists in Beijing from December 18 to 20 to discuss China's canola seed quarantine and inspection methodology. We are assessing the information provided by China in order to determine next steps. We expect further technical discussions to take place in the coming months.

The government remains engaged with Alberta, Saskatchewan and Manitoba and with our industry partners through our working group on canola, chaired by Agriculture and Agri-Food Canada and the Canola Council of Canada. This collaboration will continue to be important as we collectively work to fully restore market access.

It is important to consider, however, that the challenges faced by some Canadian businesses in China are not necessarily new or exclusive to Canada. Since China's accession to the WTO in 2001, many international partners have expressed concerns over certain elements of China's economic and trade policies. These include a variety of issues that affect Canadian exporters. These include a lack of transparency, an inconsistent application of rules and regulations, extensive subsidies for domestic industries, and the large role of state-owned enterprises in the Chinese economy. Nonetheless, China's increasing importance as a consumer market and trading partner continues to present unrivalled new opportunities for business and growth.

This means that we cannot turn our backs and walk away from the trade challenges we face with China. If we do, our competitors will gladly take up Canada's current market share. Indeed, even though political tensions may have affected how some Canadians do business, we will continue to trade, exchange investments, and engage with China. This creates a need for Canada to consider how we engage constructively with China. How do we address barriers to doing business and other concerns while thinking strategically about our trade and investment relationship with China and the rest of the Asia-Pacific region?

In this regard, one notable consideration for Canada is the ongoing trade dispute between China and the United States.

Since 2018, China and the United States have engaged in a series of escalating trade actions against one another, including levying tariffs on $455 U.S. billion worth of exports and launching a number of new WTO dispute settlement cases. This fight between the world's two largest economies has fostered uncertainty and put a damper on global economic growth. It has also shifted how countries do business with China, the United States and the rest of the world.

As China and the United States have raised tariffs on each other's goods, they have shifted their exports and imports to other trading partners. Over the past year we have seen China divert its exports away from the United States to Europe, as well as to Vietnam, Korea, Mexico, Australia and Canada. It has also increased its imports from other countries in areas affected by this trade dispute, which has led to new opportunities and increased exports for certain Canadian sectors such as lobster and wheat.

As you are aware, on January 15 China and the United States signed a phase one trade deal intended to address some of the concerns that have led to their trade dispute. The deal includes commitments in areas like agriculture, intellectual property and technology transfer. China pledged, under an unprecedented expanding trade chapter, to restore imports to levels before the trade dispute. It also committed to purchasing an additional 200 billion U.S. dollars' worth of American goods and services over the next two years, a 90% increase over 2017 levels by the end of 2021.

However, the agreement does not address a number of key concerns for both sides, such as the complete removal of U.S. tariffs on Chinese goods and structural changes to the Chinese economy, like industrial subsidies and support for state-owned enterprises.

For Canada and the rest of the world, the phase one deal presents new considerations for our future trade and investment with China and the United States. It presents a challenge to the free and open rules-based trading system by prescribing a managed trade outcome that would likely cause global market distortion and trade diversion effects. This could potentially have negative implications for certain Canadian agricultural sectors that compete with the United States in the Chinese market. On the other hand, the diversion of U.S. exports to China could create opportunities for Canadian businesses to diversify their exports and replace losses in China with the increased market share elsewhere. Similarly, any systemic changes to the Chinese regulatory environment spurred by the deal could benefit Canadians as well.

We are reviewing the agreement and considering the complex web of implications for Canadians. Throughout this process we will continue to work with Canadian stakeholders and our provincial and territorial partners to fully understand the impact of the U.S.-China deal.

In conclusion, Canada's trade with China will evolve as the Chinese economy grows and reforms over time. Our interests and priorities will also shift with major developments in how the world trades and engages with China. That is to say, even as Canada focuses on finding solutions to our own tensions with China, it will be important for us to keep in mind the impacts of changes in other countries' relationships with China on Canadian interests as well.

To echo a point I said earlier, it will be important for Canada to find ways to enhance and leverage our business and people-to-people ties in order to better understand China and advance our bilateral interests. This includes tapping into China's vast economic opportunities while at the same time defending our core values of democracy, human rights and freedoms.

This concludes my opening remarks. We are happy now to answer your questions about Canada-China trade. Thank you very much for your attention.

[The Chair, Liberal, Geoff Regan]

Thank you very much.

Mr. Warkentin.