Government Operations Committee on June 1st, 2020

[The Chair, Conservative, Tom Lukiwski]

Since we have a quorum, I will call this meeting to order.

This is meeting number 16 of the House of Commons Standing Committee on Government Operations and Estimates. Today, we will only be meeting for one hour. From 2 p.m. to 4 p.m. is our normal meeting time. Today, it will be a one-hour meeting, from 2 p.m. to 3 p.m., Eastern Standard Time. We have one witness, rather than three, as was originally scheduled. Our witness is Dr. Stephen Nagy from the Asia Pacific Foundation of Canada and the Canadian Global Affairs Institute.

Colleagues, we will continue with our normal protocols. We will ask Dr. Nagy to make an opening five-minute statement. Following that, we will engage in questions from committee members. Because we got off to a bit of a late start, we will have five-minute questions in the opening round, four-minute questions in the secondary round and two-minute questions in the third and final round.

Dr. Nagy, I would ask you, if you are presenting in English, that you continue your complete statement in English, rather than alternating between the two official languages. That would help our technicians greatly.

Colleagues, the same thing when you're asking questions. If you are asking a question en français, continue in that language without alternating back and forth, just to assist our technicians.

With that, colleagues, I think we're ready to go.

Dr. Nagy, I will ask you to deliver your opening statement of five minutes or less. The floor is yours.

[Stephen R. Nagy, Fellow, Canadian Global Affairs Institute, Distinguished Fellow, Asia Pacific Foundation of Canada]

Good morning from Tokyo. It's about three in the morning here, so I apologize if I yawn.

First of all, let me just thank you for the invitation to come and share my views on this important committee. It's important for us to be thinking about COVID-19, what its repercussions for Canada are and how we need to move forward as a country.

I'd like to also preface my comments by saying that I'm looking at this particular issue from my specialty, which is international relations and security. I am based in East Asia. I'm based in Tokyo and most of my research and policy-related work is related to China, Japan and South Korea, so I'm using this vantage point to provide some insight into how I think the COVID-19 pandemic is going to affect Canada.

My comments really are what I view as critical for Canada in the wake of the COVID-19 pandemic, and I have three take-aways that I'd like to convey to you. Most importantly, the theme of my discussion is what I call a new realism in building resilience through partnerships. That is the take-home I would like you all to have, this idea of resilience through new partnerships.

Today's discussion will be broken down into three points. The first point is related to—

[The Chair, Conservative, Tom Lukiwski]

Dr. Nagy, if I could just interrupt, please hold your microphone a little closer to your mouth. Thank you.

[Stephen R. Nagy]

Thank you very much for telling me.

First, I'd like to begin with what I think are the four eye-openers for Canadians in terms of the COVID-19 pandemic; second, I'd like to talk about lessons for Canada; and third, recommendations for Canada.

Let me begin with the four important take-homes for Canada.

First, the COVID-19 pandemic, especially the initial Chinese government response in downplaying the severity of the coronavirus outbreak, but also the total lockdown of the city of Wuhan and the province of Hubei, revealed to Canada and the world that there is a systemic problem in the decision-making in the Chinese government that didn’t allow for a transparent, accountable and rules-based approach at the outset of the outbreak.

This has broad implications in how we manage our bilateral relations with China, but it also has important implications in terms of how we move forward in dealing with some of the more difficult issues Canada and China face at this moment.

Second, and importantly, the total lockdown of both Wuhan and Hubei severely affected supply chains and dramatically highlighted the problems of the global production network being centred in one country. The goods that were needed for global export were unable to be produced and exported to other countries, including Canada, until China was able to get the domestic outbreak under control.

Third, the COVID-19 pandemic highlighted the degree of friction between the United States and China. This is really important because what we've seen is an inability of these two important states to come together and marshal their resources to combat the global pandemic. Both states have politicized the issue, and the global pandemic has no end in sight due to this politicization.

Fourth, and importantly, the COVID-19 pandemic has made middle powers like Canada more vulnerable to economic and other forms of coercion.

I think points two to four are magnified by the pre-existing Canada-China tensions associated with the Meng Wanzhou arrest and will continue to intensify as Beijing attempts to pressure Canada to change its decision related to her extradition to the United States.

Let me move on to the lessons for Canada and this idea of new realism in building resilience through partnerships.

First, in the context of the COVID-19 pandemic, it's extremely important to establish both domestic and diverse supply chains of personal protective equipment, medical equipment and pharmaceuticals, among other goods. The United States, Japan, South Korea, and even Taiwan and other like-minded states and regions should work together to form an Indo-Pacific emergency initiative to stockpile equipment, share best practices and establish an information-sharing mechanism as well as other areas of co-operation, to ensure that the next pandemic can be quickly understood, best practices shared, and medical equipment dispersed as soon as possible to countries and cities in need.

Second, a smart approach to selective decoupling must occur. What I mean by that is diversification of supply chains within and outside China. This is an important distinction. The supply chain that was disrupted within Wuhan and Hubei significantly affected exports out of that region. Canadian businesses shouldn't put all of their manufacturing sites in one area of China; they should diversify within China. That being said, the political difficulties we are increasingly experiencing with regard to China also mean we need to diversify our supply chains outside China as well. That's what I mean by a smart approach to selective decoupling.

Third, there's an important need for pandemic-sharing strategies. The key candidates here are Japan, South Korea, New Zealand and Australia. They're not perfect matches for Canada, but each has ideas to mitigate another COVID-19 wave or transnational disease.

Let me move forward with some recommendations.

One of the important areas Canada needs to think seriously about is what I call enhanced co-operation with other middle powers. Middle powers include Japan, South Korea, Australia and many European states. These states have shared values and a shared understanding of the rule of law and rules-based behaviour.

Through enhanced middle-power co-operation, Canada and other middle powers need to lobby the United States to return to multilateralism, and need to work more effectively with the United States in building more resilient supply chains, of course in North America, but also resilient supply chains with like-minded countries.

[The Chair, Conservative, Tom Lukiwski]

I'll have to get you to wrap it up as quickly as you can, please.

[Stephen R. Nagy]

All right. Thank you very much.

I'll just end with two other points.

This middle-power alignment needs to work quickly to engage in WTO reform to ensure that economic coercion and other forms of coercion cannot be deployed against Canada and other middle powers.

Lastly, I'm advocating for something called a musketeer clause in trade agreements that would be a clause that required partners to collectively respond to economic coercion of one of its members, but also to come to the aid of its members when there is a pandemic occurring within the region or within their country.

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We'll now go to our first five-minute round of interventions starting with Mr. Genuis.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Dr. Nagy. I appreciate your testimony.

It really is unfortunate that right now the Canada-China committee is not able to meet. We have a situation here where the government has worked to prevent the Canada-China committee from meeting. I think your testimony would be of great interest to that committee as well, especially during these times. I hope we'll be able to find an opportunity for you to come and share your perspective in more detail before the Canada-China relations committee.

To start off, you talked about how the COVID-19 response from the Chinese government demonstrated some significant structural problems. I note that the government's ambassador, Dominic Barton, told the Canada-China relations committee when he testified a few months ago, “I commend what China is doing in trying to contain this and the effort that's under way on that front.”

Are you surprised that Canada's ambassador to China was praising the Chinese government's response to COVID-19? What do you think that suggests perhaps about the naïveté, or what does that suggest about the government's approach to China at the current time?

[Stephen R. Nagy]

We should understand that in the initial days of the outbreak of the coronavirus in China, the decision-making process was frozen due to systemic challenges within the Chinese government associated with the deepening authoritarian rule under Xi Jinping. This should be differentiated from the decision to lock down Wuhan and Hubei, and to marshal national resources to fight the virus in both Wuhan and Hubei. What we've seen is that once the decision was made to marshal resources, the Chinese government was able to effectively, if not in an inhumane way, control the spread of the virus within China.

I think that distinction is very important. I think the ambassador's comments are reflective of that distinction, rather than naïveté about the Chinese response. Again, I think we should emphasize that the initial response was a disaster, but once the decision was made to marshal resources, the Chinese government has been able to employ not only technology but also significant resources to curb the spread in China.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

I think that's a charitable reading of the ambassador's comments, but I appreciate the information you provided about that response.

In terms of Canada's engagement with China and the kinds of multilateral partnerships that are created, I know you've been critical of, for instance, the Asian Infrastructure Investment Bank. Canada is a member of that bank, spending hundreds of millions of dollars to be part of that bank, which is part of the wider belt and road initiative, BRI. I think it would be hard for a lot of Canadians to understand why we are funding a Chinese government-controlled development bank, which is part of an agenda to bring other countries into its sphere of influence, when perhaps we could be directing those resources through other development banks or partnering directly with developing countries.

Could you share your thoughts on the AIIB, on the wisdom of Canadian participation in it and on possible alternatives?

[Stephen R. Nagy]

I think there's a very important saying that we should keep in mind when we're thinking about Canadian participation in the AIIB: “If you're not at the table, you're on the menu.” I think any participation by Canada in an international organization means that Canadian values and Canadian interests are represented. From the standpoint of Canada's participation in the AIIB, I think that Canada's participation provides a voice and allows the shaping of the AIIB so that it functions based on transparency, accountability and international standards.

The initial fear when the AIIB was founded by China was that it would be an instrument of the Communist Party of China. What we've seen is that the internationalization of governance at the AIIB is allowing it to be a much more effective institution in terms of deploying aid and loans to governments within the region that are interested in building infrastructure.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Can I quickly follow up on that?

China controls, from what I understand, over 48% of the voting shares. Canada will have less than 1% of the voting shares. We've seen the way China has entered into these kinds of controlling debt arrangements with countries like Sri Lanka. How is that consistent with what you just said?

[The Chair, Conservative, Tom Lukiwski]

Answer very briefly, Dr. Nagy.

[Stephen R. Nagy]

You need to distinguish between the AIIB and the memorandums of understanding of the BRI, and these are very different. What we have seen in, for example, the ports in Sri Lanka was the debt trap diplomacy that many scholars and researchers are criticizing China for in the Sri Lankan case, which has been associated with the BRI and not the AIIB.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Weiler, you have five minutes please.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Mr. Chair.

Thank you, Mr. Nagy, for joining our committee today and especially for joining so late in the evening for you. It's much appreciated that you're sharing your wisdom, and I really appreciate your opening and some of your take-aways.

I'd like to start with an overarching question. What do you see as an effective engagement strategy, or what would an effective engagement strategy with China look like?

[Stephen R. Nagy]

I think that Canada needs to work with like-minded countries to form a critical mass of diplomacy, economic resources and other resources to ensure that any kind of engagement with China is more symmetrical. A critical aspect of dealing with China is that there are asymmetrical advantages in terms of economic size, in terms of its diplomatic size and other advantages. That means that smaller countries are always in a position of disadvantage. Importantly, we need to move forward and work with like-minded countries to advocate for Canadian values and a rules-based approach to dealing with China.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Mr. Nagy, do you have some similar examples of where like-minded, middle-power countries have come together in this type of a situation?

[Stephen R. Nagy]

I think we've moved into a very different period in terms of international affairs in which China is using middle-powers' relationships with the United States and its asymmetrical economic relationships with other middle powers to shape its decisions.

I think a very good example of that, of course, is the case of Ms. Meng Wanzhou, with the British Columbia government making the decision to proceed with the extradition case. We've seen the Chinese government use punitive economic measures against Canadian businesses and the Canadian agriculture community to try to shape Canadian behaviour.

Moving forward, and again this goes back to my proposition about a musketeer clause, Canada needs to forge partnerships, trade agreements and international agreements with other middle powers in which they agree to back each other when China is applying punitive economic measures. This is something more, looking forward, of what Canada can do and how Canada can exert a leadership position and bring together like-minded countries to pressure China but also protect Canadian interests.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you.

In your observations, you mentioned the ongoing conflict between China and the United States of America. How does a country like Canada avoid being caught in the middle of such a conflict?

[Stephen R. Nagy]

Well, as we know, the United States has turned in a different direction over the past three years under the current administration in the White House.

Our traditional relationship has, in many ways, become much less predictable, but moving forward, I think it's important for Canada to continue to strengthen its trade relationship with the United States, the trade relationship within NAFTA 2.0, and diversify and strengthen its relationships, not only with the United States, but with European Union partners and, importantly, with countries within east Asia, where I'm based: Japan, South Korea and parts of China such as Taiwan.

All of these countries share similar values and in many ways complementary economies that I think can strengthen Canada's position within the region, give it insight on how to deal with countries like China, and really start to build a collective approach to managing some of the challenges moving forward as the United States' and China's rivalry become more serious, which, unfortunately, is going to have a boomerang effect on countries such as Canada, Australia, Japan and others.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Absolutely.

One of your recommendations coming out of this was that Canada should look to lobby the United States to return to multilateralism and to do this with like-minded countries.

Do you think it would be an effective and likely scenario that this type of engagement would lead the United States in this type of direction?

[The Chair, Conservative, Tom Lukiwski]

Doctor, as we're basically out of time, I would ask that you provide your answer to that question from Mr. Weiler in written form and direct that as soon as possible to our clerk.

We'll now go to our third intervention, from Madame Vignola.

You have five minutes.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you so much.

Good afternoon, Mr. Nagy. Thank you for being here so late. It looks like you'll be going to bed when I usually go to bed. You have a lot of expertise, and I have a lot of questions for you.

Ms. Wanzhou was mentioned earlier. Because she was imprisoned at the request of the United States, China imposed economic sanctions on Canada. One of the products sanctioned was pork, much of which is produced in Quebec.

What sanctions might China impose in retaliation for this week's ruling against Ms. Wanzhou?

[Stephen R. Nagy]

I think we should be expecting that China will likely continue to target our agricultural industry, and it will likely target it through questionable enforcement of domestic regulations, such as increasing the number of regulations on imports going into China. China also has a practice of complicating how the imports come into China. I think we should expect that for Canadian agricultural products, such as poultry, pork and other products.

I think we could also see that for visas to China for Canadian companies that want to start up businesses in China, the process and the paperwork could be complicated, making Canadian engagement a challenge in the Chinese context.