Canada-China Relations Committee on Feb. 5th, 2024

[The Chair, Liberal, Ken Hardie]

It's time to call the meeting to order.

Welcome to meeting 32 of the House of Commons Special Committee on the Canada-People's Republic of China Relationship. Pursuant to the order of reference of May 16, 2022, the committee is meeting for its study of Canada–People's Republic of China relations, with a focus on Canada's Indo-Pacific strategy.

I'll make a few comments for the benefit of the witnesses and the members.

Today's meeting is taking place in a hybrid format. Members are attending in person in the room and remotely by using the Zoom application. Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mic and please mute yourself when you're not speaking.

For interpretation for those on Zoom, you have the choice at the bottom of your screen of floor, English or French. Those in the room can use the earpiece and select the desired channel. I remind you that all comments should be addressed through the chair.

For members in the room, if you wish to speak please raise your hand, and for members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

We have one substitution. In place of Mr. Cormier we have Mr. Serré, who's joining us virtually tonight.

Before we get to the witnesses on our first panel, I will turn to the clerk to ask if there's been any correspondence of interest for today's session.

[Nancy Vohl, Committee Clerk]

In relation to the motion that was moved the other day and the request to have the Minister of Finance, I got a note that the Deputy Prime Minister and Minister of Finance will be available to appear on Monday, February 26, from 8:30 to 9:30.

[The Chair, Liberal, Ken Hardie]

Thank you for that update. I appreciate it.

We have half our first panel available to us. Mr. Nagy, from the International Christian University and the Macdonald-Laurier Institute, will appear via video conference from Tokyo. We have yet to connect with him, so we will instead turn to Meredith Lilly, associate professor and Simon Reisman chair in international economic policy at Carleton University.

Ms. Lilly, you have five minutes for opening comments, and then we'll go to questions.

[Dr. Meredith Lilly, Associate Professor, Simon Reisman Chair in International Economic Policy, Carleton University, As an Individual]

Thank you, Mr. Chair and committee members, for the invitation.

As the committee considers Canada's Indo-Pacific strategy, I will focus my comments on the links between economics and security, particularly with respect to Canada's international trade interests in the region.

Engaging with the Indo-Pacific is vital for Canada, as it's the fastest-growing and most dynamic economic region in the world, home to 60% of the world's population and 40% of its economic output, but some course correction is necessary. Recognizing the increasingly dangerous and threatening international context, Canada must work with allies to link our economic interests in the Indo-Pacific with our foreign and defence policy objectives. Most importantly, we need to adjust our trade diversification outlook to reflect our core interests.

Our diversification efforts in the Indo-Pacific are often framed as reducing our dependence on U.S. markets, but this is simply not supported by theory or evidence. The reality is that if Canadian firms trade internationally at all, they first trade with the United States. This of course makes perfect sense as the U.S. is Canada's only land neighbour, the world's largest economy and a country that shares cultural, legal and regulatory frameworks with Canada.

It is only after Canadian firms are comfortable trading with the United States that a subset of those branch into additional markets. According to Global Affairs' 2023 “Canada's State of Trade” report, 46% of Canada's large firms export exclusively to the United States, half export to the U.S. plus other countries and 4% export only outside the United States.

Reframing our Indo-Pacific strategy to build on our foundations of trade with the U.S. can simplify and streamline our approach moving forward. Canada should pursue economic opportunities with countries in the region only if they are compatible with our trade interests with the United States. This means we have to be much more strategic and deliberate about trade with China, while recognizing China is the major trade partner for all countries in the region. To that end, I recommend the government focus on four areas.

First, while the U.S. moves forward forcefully to de-risk supply chains, Canada has been entirely reactive. It is essential that Canada work more proactively to understand the threat environment and the potential impacts on our supply chains and that it devote more resources to actively monitor and enforce Canadian laws around security and forced labour violations in imported products.

Second, there are opportunities in the Indo-Pacific for Canada to lead others, particularly where the U.S. is absent. This year Canada serves as chair for the comprehensive and progressive trans-Pacific partnership. A number of countries have applied to join, including Taiwan and China. In adjudicating these applications, I have recommended that CPTPP members apply a clear set of criteria, including the country's record of economic openness, trade liberalization and reciprocity. A successful record must be established prior to entry to the CPTPP, a lesson China itself taught us when it joined the WTO in 2001 without reforming its economy.

Third, Canada should not shy away from making tough foreign policy choices out of fear of losing access to China's market. China has been pursuing self-sufficiency for decades already and will continue to import Canadian agricultural, meat and natural resource products so long as it serves China's interests. However, China will not hesitate to close its markets to Canadian products for the same reasons, as it did with Canadian canola in 2019. Australia is far more exposed to Chinese trade action in this respect, yet it continues to pursue its AUKUS security alliance and confronts China when warranted.

Finally, Canada must be relevant to the Indo-Pacific, and on this I think we are failing. Countries in the region are primarily interested in Canadian energy exports, especially LNG. The current Canadian government has sent them packing, ignoring the very real security challenges this poses for allies such as South Korea and Japan. Meanwhile, the United States became the world's largest exporter of LNG in 2023, helping to provide allies with alternatives to Russian energy exports. The U.S. may be our closest trading partner, but we are also energy competitors, and it is eating Canada's lunch.

After mismanaging the oil and gas file, the government cannot repeat these failures on critical minerals. The federal government must work to restore foreign investor confidence in Canadian energy products and use its full legislative powers to work with provinces to prioritize and accelerate the regulatory permitting processes needed for success.

Time is precious and we need to match our efforts to the serious context in which we live.

Mr. Chair, I would be happy to answer questions from committee members.

[The Chair, Liberal, Ken Hardie]

Thank you, Ms. Lilly.

We are going to suspend for a moment. Our second witness, Mr. Nagy, is online, but we have to do a sound check first. We will suspend until that's done.

[The Chair, Liberal, Ken Hardie]

We are back in session.

Mr. Nagy is online and available.

I wonder if they found a snowplow in Tokyo. Maybe they borrowed Vancouver's snowplow, but I don't know.

Stephen Nagy is the senior associate professor at the International Christian University and senior research fellow of the Macdonald-Laurier Institute. He is coming to us from tomorrow in Tokyo.

Mr. Nagy, you have five minutes for an opening statement.

[Stephen R. Nagy, Professor, International Christian University, MacDonald-Laurier Institute, As an Individual]

Thank you very much, Chair.

Yes, they do not have snowplows in Tokyo; they use water to blow away the snow.

Thank you very much for the opportunity to share these points and speak on peace and security in Canada's Indo-Pacific strategy. I'd like to frame my comments in three particular areas. One is contradiction, two is IPS priorities and three is minilateral engagement.

In terms of contradictions, I would like to outline the many contradictions that I think the current government has been engaged in regarding how we are thinking about peace and security in the Indo-Pacific and resources.

In 2022, the Trudeau government released its long-awaited Indo-Pacific strategy, promising at least $2.3 billion Canadian over five years to implement the strategy. That announcement came at the same time as our national defence minister at the time, Anita Anand, promised Canada would spend $4.9 billion on modernizing our North American air defence. At the same time, our government committed funds to its objectives in Europe, including $2.6 billion to renew and expand Operation Reassurance, part of NATO's defence and deterrence measures in eastern Europe. We also had an announcement about defence cutbacks. These contradictory positions raised inconvenient questions about how Canada is going to sustain its foreign and defence policy within the Indo-Pacific while resources are being diminished across the board or being deployed in Ukraine.

How do we meet our priorities within the Indo-Pacific in both foreign policy and defence policy? They really are being challenged. I think these contradictory positions are raising serious concerns among our allies and partners about where Canada sits in the Indo-Pacific, what kinds of resources are going to be deployed in the Indo-Pacific and whether we can engage in a sustained, meaningful and fruitful diplomacy.

My second point has to do with Indo-Pacific priorities. Here again I think that, quite frankly, we've spread the peanut butter way too thin in how we are engaging in the Indo-Pacific. What should be Canada's defence priorities within the foreign policy and defence policies in the region?

Here, I particularly advocate for limiting or pulling back our Indo-Pacific engagement from the western Indian Ocean and primarily focusing on the South China Sea, the East China Sea and the Pacific Ocean. These are critical for Canada. They have sea lines of communication that ferry about $4.5 trillion U.S. in trade through the South China Sea, in and around Taiwan and through the East China Sea.

The major economies in the region, whether it's South Korea, Japan, China, Taiwan or Southeast Asian countries, really are the most important players for Canada. We need to make sure that the sea lines of communication remain secure and stable and that Canada can engage freely within the region.

The third point that I think is important is stable supply chains, in particular semiconductor supply chains. This revolves around cross-strait relations. We need to find critical ways to foster peace and stability across the Taiwan Strait to ensure that semiconductors can continue to be exported to Canada to employ Canadians.

North Korea is also an actor that I think we need to find ways to work with. I'm going to come back to that, as North Korea continues to produce weapons of mass destruction, in both quantity and quality.

Another area I'll focus on is China. This is the Canada-China committee. I think we are on the same page of the book. China is interested in reshaping the region's security environment and security architecture and how rules are being promoted within the region. We have a deep-seated interest in a rules-based order within the region. We have a deep-seated interest in pushing back against disinformation and other tactics for reshaping the region that will be unfavourable to Canadian interests, including in trade and in supporting our key partners like Japan, South Korea, Singapore and others.

What are the key tools for engagement? Here, I'm advocating for minilateral partnerships. This doesn't eschew multilateral partnerships. They're much more focused, functional partnerships, with four or five other like-minded countries, to deal with specific issues that will enable Canada to add meaningful value within the region.

A good example, of course, is plugging into the quadrilateral security dialogue. “Plugging in” means that we, on an ad hoc basis, plug into the quadrilateral security dialogue's maritime exercises, perhaps search and rescue exercises and humanitarian, disaster and assistance relief exercises to add value, considering our limited resources.

Another good example is plugging into the AUKUS agreement. I think the nuclear submarine part of the AUKUS agreement is distant from Canadian interests, but the AI and quantum computing components of the AUKUS agreement are clear areas where Canada can contribute, considering we've already secured a budget for co-operation in these areas.

We need to advocate for—

[The Chair, Liberal, Ken Hardie]

Professor Nagy, I'm sorry, but you've gone over the five minutes. Do you care to wrap up quickly so we can get to questions?

[Stephen R. Nagy]

I'll finish on one point.

We need to advocate for new minilaterals, focusing on core areas that I think are of interest to Canada, like disinformation. An interesting combination could be working with Taiwan, Australia, Japan, South Korea and the U.S. to focus on disinformation identification and combatting it within the region.

The last point is working in minilateral co-operation with the Pacific Islands on environmental issues and perhaps indigenous issues.

Thank you.

[The Chair, Liberal, Ken Hardie]

Thank you.

We'll go to our first round of questioning. We'll begin with Mr. Kmiec for six minutes or less.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you, Chair.

Professor Lilly, I want to go back to the comment you made about how we need to be relevant to countries in the region. You described some of the failures to be relevant in the Indo-Pacific strategy.

I'm going to quote from the Canada West Foundation report. One of the briefing notes it put out online says:

Repeated studies have found that an LNG export industry equivalent to 30 MTPA (million tonnes per annum) in British Columbia would inject about $7.4 billion into the Canadian economy over 30 years, along with supporting 65,000 jobs.

It goes on to explain that the export opportunities are mostly in Asia and LNG markets.

When you talked about the failures, you said that time is precious. Do you think we've missed the boat on an opportunity to export Canadian LNG into Asian markets?

[Dr. Meredith Lilly]

Thank you for the question.

I don't think we have necessarily missed the boat, but there's a lot more we could be doing. We have sent some of our allies packing, telling them there's none left for them and we're not going to build additional infrastructure beyond what is coming.

I'm excited about the successes we have, but we have to do a lot more. The messages Canada is sending right now are very mixed, and lots of countries wonder why we aren't doing more to provide them with the LNG they need, particularly in the current climate.

We're seeing other partnerships go around Canada, essentially, to secure energy from partners that are willing to sell it to them, including the United States.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Are there any specific countries beyond Japan? Japan is the typical example that's given for what used to be an opportunity for Canadian LNG.

Are there any other markets that we could reach as a country through the Indo-Pacific strategy that could use our energy supply as a safe source of supply?

[Dr. Meredith Lilly]

I know Korea was interested in the past. I don't know whether they've moved on at this point to seek it from others.

These conversations come up, and I'm fortunate, being in Ottawa, that I'm regularly invited to speak with foreign diplomats here. The message they constantly receive is that this isn't something Canada wants to explore.

How many times do they ask and get rebuffed before they move on to others who are happy to sell to them? I couldn't say.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you, Professor.

Professor Nagy, I have a question for you. You said “minilateral” deals. Why shouldn't we have a minilateral deal with, let's say, the Government of Japan to export our LNG to them? Wouldn't that be an example of using our comparative advantage, which is our west coast access to export LNG to a country like Japan? Shouldn't we and couldn't we do a minilateral deal with the Government of Japan to help them get the energy they need?

[Stephen R. Nagy]

Thank you very much for the question.

When I speak of minilateralism, I'm thinking about partnerships with three or four countries to deal with one potential functional issue. I think exporting LNG to Japan would be a bilateral agreement. Here, when we're talking about bilateral agreements, the comparative advantages may be Japan's ability to build the technologies to export the LNG, and Canada would be the provider.

I think you're slightly mischaracterizing what I mean by minilateral. I'm fully on the same page, but I think this is a partnership that has comparative advantages and shared interests. There's an opportunity for Japan to be a country that helps Canada open up its markets for energy resources not only to Japan, but to key partners within the region.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Professor Nagy, I'm going to go back to the Canada-Japan action plan 2022. Six areas were outlined in it between Ottawa and Tokyo. They agreed to bolster co-operation. This is from your writing, so I'm just referencing it. Point number four talks about energy security.

Wouldn't LNG exports, in providing more of a clean-burning Canadian energy to a market like Japan, help them meet their energy needs while also removing other sources of energy that are from conflict zones or addressing their overreliance on other countries that are not as secure a supplier as Canadians are? I thought the action plan you've referenced in the past in your writing could form the basis of these minilateral deals with other countries as well. Could it not?

[Stephen R. Nagy]

Absolutely, and I think we've lost an opportunity with some of our environmental policies in Canada. We have not been able to export to the countries that rely on safe, transparent and stable energy resources, and that's something Canada can be.

I think it could be an energy superpower, whether it's through this joint action plan with Japan or working with three or four other countries within the region to build steady supply chains of energy and critical minerals to the region to ensure their economies are stable and they can continue to provide the goods they do to Canada and Canadian citizens.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

For a country like Japan, how important is it to have a safe and stable supply of energy?

[Stephen R. Nagy]

It's critical. They don't have indigenous energy resources, so they import 90% to 95% of their energy. To work with a stable country like Canada, which has huge energy resources, would be a key asset.

I would advocate deepening that relationship and then using our energy and critical resources to benefit Canadians and be the energy superpower that supplies the third-largest economy on the planet.

[The Chair, Liberal, Ken Hardie]

Thank you, Mr. Kmiec.

We'll now go to Mr. Oliphant for six minutes or less.

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

Thank you, Chair.

Thanks to both of you for sharing your expertise with us tonight.

Professor Lilly, I want to give you a chance to help me with the notion of not being afraid of China as a trading partner and then your subsequent comment about weaponizing trade, as they have done in the past. You didn't use that word, but they have weaponized trade a number of times with Canada on a number of products—mostly western Canadian products, but not completely.

Help me with the one about opening availability and recognizing the reality of China while also recognizing that we have a problem past, and then all of the other issues you mentioned, like labour and forced labour.

[Dr. Meredith Lilly]

Thank you for your question.

What I meant by my comment that China is the major trade partner is that it's not just that Canada needs to think about its own trade interests with China, but that for every country in the Indo-Pacific, the major trading partner is China. Just as Canada is very dependent on our bilateral trading partner the United States, all of those countries are very dependent on their trade relationship with China.

That goes for something like the CPTPP. Canada and Mexico are very much different animals in that arrangement, because all other countries in the CPTPP have very strong trade ties with China first and then the United States and/or other markets second. That means we need to be aware of the ways in which we are trading with those other countries. They are behaving the same way towards us that we behave when we think about trading with the United States. We're both thinking about our respective elephant in the room, and we need to make sure that our own trade rules and trade behaviour are cognizant of that. That's one point.

The second point is that we shouldn't be afraid to stand up to China, particularly in instances where Canada's national interest is at play. We know that China will weaponize trade against Canada. In my view, China will continue to import products from Canada when it wants to—when it is in China's interest to do so. There's some evidence that when it banned Canadian canola, it was not just about the detention of the two Michaels. There happened to be, during that same period of time, a record canola crop in China, so it was quite convenient to reduce the amount of Canadian canola going to China at that time.

I think we have to be extremely smart about it, and we must not at any time, in my view, sacrifice our goals as a country out of fear that China might turn around and reduce market access.

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

You mentioned that we should have clear criteria with respect to the CPTPP and the accession of new members. I think we have a reputation of being very clear, having added a progressive nature to that agreement and the hoops the U.K. went through to get into that world.

What are you suggesting would be helpful in addition to what we're doing now?

[Dr. Meredith Lilly]

Canada, as chair this year, is in a unique position to help steer that conversation. The accession of new members to the CPTPP, though, is by consensus, and the reality is that, while Canada and some others have serious concerns about the entry of China, there are other members that would like China to enter.

I think a good process to follow in attempting to depoliticize these issues and not make it solely about China—because if we make it about China, China will make it about Taiwan and so on—is to follow clear criteria on things like to what extent countries allow foreign investment in and how they treat Canadian companies in their economies. Using the existing record of success or not to evaluate the applications and not accepting promises of behaviour change in the future as criteria would potentially allow a very large member to be accepted into the CPTPP.