D.卡尔顿 罗西
D. Carlton Rossi

Free Trade

                                                      Hanzhou  2007

                           China-Canada Free Trade
Free-trade negotiations will begin shortly with China ceteris paribus. They are ill-conceived since it is a contradiction to have free trade in this day and age among countries of such unequal, economic size and strength. With its smaller size economy, Canada will be at a severe disadvantage. It will be like Wallonia in the European Economic Union or perhaps the autocratic, Marxian country of Freedonia. The negotiations are inconceivable in that Canada has a system of rule of law while China's system is one of rule by law. A free trade agreement with China will infringe upon and impinge on four, key, core values of Canadians; namely, free-trade mandate, judicial law, territorial sovereignty and environmental protection. 

Throughout Canada's history, elections have been won or lost on the issue of trade reciprocity with the United States. Reciprocity is a core concern of Canadians. However, in the run-up to the most recent federal election there was virtually no talk of China let alone a free trade agreement with China. The Liberal government has no idea what the opinions of Canadians are on this most important issue. It is a grievous and egregious error to begin trade negotiations with China on free trade without a mandate from Canadians. Either another federal election is required or a national referendum needs to be held immediately.

It may be necessary to remind Canadians that the reciprocity issue (free-trade) has been a key feature of several elections throughout Canada's history. In 1891, the Laurier liberals ran on a platform of removal of tariffs. It lost to the conservative protectionist party. Unsuccessful attempts by the liberals to revive free trade with a reciprocity treaty in 1911 led to a political victory by the conservatives who warned of annexation. More recently, the Progressive Conservatives won the 1988 election on almost the exclusive basis of a Canada-US Free Trade Agreement or FTA. In 1993, the pro-NAFTA conservative government majority was reduced from 154 members to 2 members.

It was disingenuous of the Liberal Party to not have campaigned on the issue of free trade with China. It was well known that the FIPA agreement with China (which was vigorously opposed by Canadians) formed the basis to negotiate a free trade agreement with China. At that time, China expressed interest in a free trade agreement with Canada. Why did the Liberal Party wait more than one year into their term to accept exploratory talks with the Chinese if not to avoid an election on the issue. They do not have a mandate to initiate free-trade talks with China because it was effectively silenced in their election platform.

A free-trade platform in an election is a core necessity for Canadians if free-trade is contemplated. It has been omitted and been replaced by behind the scenes pay-for-play strategy with the Chinese to fund the next campaign. It is opportunistic at best and at worst it is oligarchic behaviour for the Liberal government.  

Donald Trump ran on a protectionist platform to change or even scrap NAFTA. While he mainly directed his attention to Mexico it was well understood that by extension it could also apply to the other signatory of the agreement which is Canada. President Trump has a clear mandate based on the results of the electoral college to renegotiate NAFTA.  

On the other hand, the Liberal government does not have a mandate to negotiate a free-trade agreement with China. The PRC is an autocratic regime which has trampled on human rights. Are you aware the head of the Supreme People's Court has just dismissed the concept of judicial independence as an “erroneous Western ideal” and trap? In other words, China is governed by the Communist Party under one man rule rather than under the rules of a constitution. If Canada pursues accelerated free-trade with China without a clear electoral mandate then its democracy will regress from Periclean to Peisistratan tyranny.  

A second core issue for Canadians is rule of law both domestically and internationally. Canadians are protected domestically by both a Constitution and a Charter while they are protected internationally by universal rights and conventions. On the other hand, authoritarian states such as China have wonderful constitutions which are flaunted, but laws protecting citizens are flouted. China has routinely circumvented laws of international organizations such as the WTO and United Nations for its own advancement. Its core concerns are dictated by its four core leaders. Therefore, what is the guarantee that China will abide by the terms of a free-trade treaty?

A third core issue concerns territory. Canada's territory has been set with bilateral agreements with the United States to establish a virtual free border between them. Its other borders have been recognized by international agreements. On the other hand, there is no international agreement concerning China's claim to territory or free land in the South China Sea. Its claim is enforced through its navy.

In other words, Canada's definition of territory is specific while China's definition of territory is general. The Chinese definition is nebulous, turbid and indistinct. It could include practically anything. Why does this inconsistency exist after 18 years of preparation for FIPA and will the error be repeated in a China-Canada free-trade agreement?

Canada has long been criticized by the US administration for not defending freedom of the seas in the South China Sea. Perhaps this is because Canada claims sovereignty in its northern passage rather than recognizing the American position regarding freedom of the seas. However, the Canadian position is rather hypocritical since Canada depends militarily on the United States to keep the passage open. A second in command of the Canadian armed forces was removed recently for divulging confidential data concerning the shipbuilding program which was to have enforced our claims to sovereignty in the north.  

Is the government completely convinced that a general definition of territory will not come into conflict with a specific definition of territory with respect, in particular, to the Arctic. What if China were to challenge Canada's sovereignty to the Arctic by sending an icebreaker and tanker through the territorial passage recognized by international agreements as Canadian without the approval of the Canadian government? What if China wished to purchase and upgrade deep water ports at Tuktoyaktuk in the Inuvik Region or Churchill port owned by OmniTRAX? The issue of a dual type of definition for territorial sovereignty must be examined, debated and voted upon in the House of Commons before trade talks begin.

The fourth core issue concerns the environment. For clarity, the issue of coal shipments will be examined. A high percentage of coal sales to China are made by one company--Teck Resources. It is believed that China imposes a tariff of between 3 to 6% on these shipments depending on type and grade of coal. Presumably, in order to have these tariffs reduced to zero (as in the Australian case) then Canada must make some other concession to China.

In 2009, China's state-owned China Investment Corporation purchased a 17 per cent position in Teck Resources through a subsidiary called Fullbloom Investment Corporation. Really, will a 100 flowers bloom
百花运动 on Bloomsday in a coal-induced haze over Beijing? At any rate, as a result of Fullbloom's minority stake in Teck Resouces, Quan Chong was appointed as one of 14 directors on the Teck board. That, in itself is business as usual. What is unusual and perhaps unique is that Quan Chong is a Deputy in the National People's Congress of China. Dermod Travis of Integrity BC said that this issue threatens Canada's sovereignty. "We ultimately risk ceding a great deal of control over the rate our resources are mined, the use of those resources and, potentially, who will be hired to do the mining itself"
Neither Canada nor China can live up to their international obligations concerning reduction of greenhouse gases if Chinese tariffs are reduced on Canadian coal exports. It is unconscionable of Canadian companies to dig up these resources but leave the refining to countries like China which have environmental laws which are not enforced. It is NIMBY at its worst. The solution is for Canada to proportionately impose an export tariff of between 3 and 6 per cent if any Chinese coal tariffs are reduced. Of course, a similar argument can be applied to shipment of bitumen to China.

It is one thing to assume that because neither Canadian reporters nor citizens asked questions at the town halls about China-Canada free-trade, which were engineered to deflect criticism of patronage and pay-for-play, that they have no concern for basic, entrenched core values in their trade relations with China. If Canadians were interested in free trade at all it would not be to satisfy the elite, vested interests of a clique of executives, but rather it would rest on the core interests of all Canadians. The Canadian government's China policy has been neither apparent nor transparent. This can only bode ill-will for the well-being of Canadians. The government's negotiations prior to the Hanzhou conference can be considered at best amateurish and smiles don't go that many miles--not when Chinese police wear smiley face stickers when arresting human rights advocates.

Canada should not do what its trade opponent wants or should one rather say "don't do everything your trade rival wants"! It is one thing to look for common interests concerning trade between two countries such as the United States and Canada, but it is a totally different matter for one who may have no core interests to wilfully or wistfully overlook the differences between Canadian core interests and the interests of a core, Chinese leader. Sonny Liston did not follow sunny ways in the boxing ring. He fought without charity to crush his opponent. Expect nothing less from your trade competitor.

D.卡尔顿 罗西





A Free Trade Agreement with the People’s Republic of China is highly unlikely with the Canada-China FIPPA agreement if logic is paramount. Basically, FIPPA gives rights of lawsuit to Chinese investors while transferring obligations to Canadians. This stems from the fact that China holds major assets in Canada which are subject to rule of law—most lawsuits will be filed against Canada. It is improbable that Canada could or would try to renegotiate FIPPA. One cannot scrap it because it means loss of face and a broken contract for Canada. The logical conclusion is to forget about a Free Trade Agreement. This is likely an unintended consequence of the ratification of FIPPA since the old guard of the Conservative party and perhaps prospective directors of oil companies wish to promote oil sands development with its passage, but they may not have anticipated the offer of a Free Trade Agreement.

The FIPPA agreement lasts 31 years. That is a generation. Many things can happen in a generation. Supposedly, the length of the bilateral agreement was to correspond to the length of an oil sands project. However, thirty-one year agreements were not made between federal or provincial governments and oil sands companies to guarantee the investments of the latter. The private, integrated oil companies had to assume the risk and not Canadians. Risk was not transferred to the public and benefits did not accrue to private companies as was earlier done in the United States during the sub-prime mortgage crisis.

Currently, the NDP government in Alberta has been rather indecisive about royalties. The oil companies can either try to convince the government to change their stance or hope for a change of government. The companies cannot dictate to the provincial government about its royalty policy.

In the future, though, will the provincial right to determine royalties be hamstrung by FIPPA? Remember, too, there may be at least five different provincial parties in each province or territory and different federal parties in a thirty-one year period while in China there is only one. Will FIPPA lead to an homogenization of parties effectively removing opposition under a FTA?

How long will a Free Trade Agreement last? Logically speaking, it should match the expiry of the FIPPA agreement. This is undesirable. It is like the tail wagging the dog with respect to length of term. Isn’t it more logical to have first negotiated a FTA which is the more important and practical followed by a FIPPA? In this time sequence, a FTA could have been medium term with a six month notice of termination allowed and the length of the FIPPA’s term would have matched it. The reality is though that the offer of a FTA came after a FIPPA. The real consequence to Canadians is that a FTA under the umbrella of a FIPPA compounds risks and multiplies obligations with greater investments and increased trade while limiting benefits.

D. Carlton Rossi

July 18, 2016



What was the Canola dispute mainly about?

1.  Dockage

One might say unscientifically that 98% of Canadians don't care what dockage is. It can be defined simply as "items like chaff from the plant, dust, wild oats, small seeds and seedpods". One might also say after high-level negotiations have concluded that 99% of Canadians don't care. That's a one percent increase.
Some growers consider that the grain companies are holding the farmers for ransom "when they get deducted for dockage on their delivery tickets and pay for cleaning while grain companies top up the dockage before sending the canola overseas". Furthermore, "buyers pay grain companies for dockage, while the farmer is penalized for it--especially when growers are paying through basis levels to have their canola cleaned."  The Western Producer, by Sean Pratt,  Sept. 08, 2016.

 It is evident that Canadian farmers are not treated with r.e.s.p.e.c.t.

2.  Transportation costs

Canadian agribusinesses were asked by their Chinese customers to reduce dockage. The customers were told it couldn't be done, but the agribusinesses were shown up by a couple of early sales which proved otherwise. How times have changed.  It used to be the customer was always right and now it has morphed into the customer is always wrong.

As a matter of fact, they had a chance to reduce dockage for several years. The last time was around April 1, 2016 until it was postponed by the Chinese until September 1, 2016. One may conclude that both sides could have known in advance the full significance of that date with respect to the meeting of world leaders in Hangzhou. Never imagine that the players would even contemplate collusion followed by collision.  

3.  Free Trade

The dockage disagreements made a mountain out of a molehill and certainly hurt chances for a free trade agreement. It also distracted negotiators from other more important issues. One might conclude though in the absence of facts that the Council may not favour a FTA to the same degree as it favours multilateral or bilateral agreements.

However, what exactly is The Canola Council of Canada's position on a Canada-China FTA? The author tried to discover it. As a matter of fact, the author's internet connection was severed on three separate occasions as he attempted to answer this concern. It seems while the Council's position that "effective market access means being free to sell Canola without tariff or non-tariff trade barriers" that "free" might not extend to knowledge of what the hell is going on.
4. Scientific Method

Surely, the Chinese can't be serious about the issue of scientific method as applied to dockage when it was a Canadian reseacher who invented Canola and Canadian researchers who improved the product. Indeed, (and not widely known), 95% of Canada's  Canola is genetically modified on some 8 million hectares. This eclipses by far corn and soybean crops. Canola is tolerant to two major herbicides.

5. Canola Prices

All grain prices are depressed. The Chinese announcement concerning Canola dockage weighed heavily on the market until typhoons hit four Chinese refineries. Why sell to Chinese (the third largest or some say second largest Canadian crop of Canola on record) to a Chinese market saturated in Canola until at least June 2017. Why not store the Canola seed and sell it later when the market recovers? 

In effect, this is what your competitor--China--is doing; after all, they already had a surplus of Canola seed. Why should they buy more seed if not to store and sell it when the price rebounds or process it later? The Chinese didn't want to cut off sales as one might conclude from all the hysterical talk. They wanted all of it until 2020! You have transferred to them control of the Canola market on a silver platter. It is not hard to imagine that blueprints are being drawn up at this very moment for the construction of more refineries to sell Canola oil from Canadian seeds to the international market.

It is no secret concerning oilseeds that Canola is at a competitive disadvantage to soybeans in the Chinese market. The reason is that a 9% tariff is placed on Canola and a 3% tariff is placed on soybeans. This is significant since Chinese crushers of oilseed are price sensitive and can switch to soybeans based on price. Most contracts to supply Canola to the Chinese market have already been signed. Who will benefit most then if tomorrow the Chinese drop the tariff on Canola to 3% until 2020? It might be supposed those who knew in advance that a tariff reduction was in the cards. However, if the Chinese are as clever as it seems they are then they will reduce the Canola tariff to 0% thus giving favour to this commodity over soybeans and cornering the Canola market to a greater extent.

6. Negotiation Tactic

It is clear that the Chinese demand for dockage reduction was a negotiation tactic to exert pressure under deadline. Curiously, though, they didn't want to talk about it, as they professed to consider it a scientific issue. On the other hand, it seemed it was the only issue the Canadians wanted to talk about and they left earlier on their trip to do more talking. In other words, Canada played the Chinese game. What is more clear is that Canada had no pressure tactic of its own!

7.  $2 billion

The loss of $2 billion of Canola contracts would have been a serious problem for Canada's export of the product. However, $2 billion means practically nothing to the Chinese. How can Canada consider a free trade agreement as a price to pay for access to Chinese buyers of Canola when the size of China's economy dwarfs Canada's and when China does not have the same views on international law as  Canada does?

8.  Hostage

Who is the next Canadian to be arrested and held hostage by the Chinese for them to use as a negotiation tactic in trade or any other issue?  How will our government effectively counter this circumstance or better, yet, preempt it. It is necessary to clearly state to China in advance what the specific consequences will be if an arrest takes place under similar circumstances and that you are prepared to take further, measured action if the situation deteriorates. It is imperative that the government explicitly states in advance what dire consequences will result if a Canadian prisoner is executed or dies in prison. 

An extradition treaty is out of the question with China as long as China has the death penalty which might be applied to a person extracted through extradition or to any member of his/her family in China. It is out of the question when just a short time ago a Canadian convicted on two charges of subversion might have been executed. Canada has long said it doesn't deal with terrorists in trying to get prisoners released. In this case, it might be said don't deal with "errorists" either.

9.  Trade Gap

A loss of China as a major Canola customer would have meant a widening trade gap for Canada. Can you possibly imagine the extent of the trade gap if Canada were to sign a free trade agreement with China? Don't consider the temporary solution to a dockage issue as a victory in battle, but rather as a resounding defeat. The Chinese want free trade. The majority of Canadians shout out against free trade with China. Why tout a blue sky FTA?

10.  Heavy Oil

Wasn't it implied that China will buy Canadian Canola to be refined into canola oil if the Canadian government were to expedite a pipeline for heavy oil to the west coast by downplaying environmental and climate change concerns which might be the equivalent of dockage to the Chinese?

11.  Other

Many of the above issues were involved in the Canola dispute to one degree or another. However, the question read "What was the Canola issue mainly about?" The author contends it was none of these. It was an "Other" issue. It was another issue that neither the Canadian government nor its trade negotiators were addressing or for that matter even recognized regarding Canola. 

The Chinese mind can be very subtle or elusive to a foreigner. One has to peel away the various layers to reach the core of their thinking. Our government has little understanding of how Chinese think. Its think-tanks have "thunk out". It is therefore prone to repeat similar or same errors (time and time again) in different scenarios. If the government does not understand why the Other is not named or explained in detail herein then it has not understood in depth the Chinese mind.

D. Carlton Rossi 

D.卡尔顿 罗西   D. Kǎ'ěr dùn luō xī

October 17, 2016

Free-Trade 2