Expert Opinion: China Launches Trade Investigation, WTO Case Against Canada
In this special edition of the Canada-China Brief, we bring together exclusive expert commentary on the unfolding trade war between Ottawa and Beijing.
In this special edition of the Canada-China Brief, IPD exclusively asks its experts and others across the country to reflect on China’s launch of its first anti-discriminatory trade investigation as well as a pending case at the World Trade Organization against Canada in reaction to Ottawa’s new tariffs on Chinese EVs, steel, and aluminum.
Mark Kruger
Senior Fellow, Yicai Research Institute, University of Alberta China Institute, Centre for International Governance Innovation
I think that the Canadian policy of applying 100 percent surcharges on Chinese-made electric vehicles is wrong-headed. While this measure is ostensibly designed to protect Canadian automotive workers, it ignores the realities of Canada’s automotive market. Imports account for close to 80 percent of the cars and trucks currently bought by Canadians (Figure 1). Imports from the US account for about 50 percent, while those from other countries make up the additional 30 percent.
Thus, if Canada began to import Chinese-made electric vehicles in a big way, this would likely eat into the market share of other foreign suppliers and have a relatively small impact on Canadian producers.
Similarly, roughly 80 percent of the vehicles that Canada produces are exported (Figure 2). Thus, the fortunes of Canadian auto workers are more closely tied to the competitiveness of their products in the U.S. market than the attractiveness of their vehicles at home.
While I believe that these surcharges will not achieve their objectives, they do have serious downsides. First of all, Canada’s approach compares poorly with that taken by the EU, which at least attempted to quantify the amount of Chinese subsidy and, as a result, applied much lower tariffs. Canadian policymakers must understand that their approach is inconsistent with WTO rules. Their disregard for the rule-based trading system is disappointing.
Second, Canada is not on track to meet its 2035 carbon reduction goals. Preventing the widespread adoption of electric vehicles by keeping prices high pushes this goal even further out of reach.
In the absence of an election, it is not reasonable to expect Canada to reverse its unfortunate policy. What the government could do is set an explicit sunset for the surcharges and argue that they were necessary to protect the “infant” electric vehicle industry in Canada. Casting the surcharges as temporary may not completely mollify the Chinese but it is, nevertheless, a reasonable first step in depoliticizing the trading relationship.
As I have argued elsewhere, Canada is well placed to both engage China more deeply and help rebuild the rules-based trading system. China has expressed its desire to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). As Chair of the CCPTP Commission this year, Canada can begin accession discussions with China.
The CPTPP is seen as a “next generation” trade agreement. It takes WTO rules further in several key areas, such as electronic commerce, intellectual property, and state-owned enterprises. Moreover, the CPTPP was designed to address many of the Chinese policies that have become irritants for its trading partners: subsidies for state-owned enterprises, weak intellectual property rights and forced technology transfers. Industrial policy and state-owned enterprises will continue to play a much larger role in China than they do in Western economies. China needs to demonstrate that a ”socialist market economy” can be consistent with fair trade.
The process of China joining the CPTPP will undoubtedly be time consuming. It took 15 years of negotiations before China joined the WTO in 2001. This was five more years, on average, than it took those countries that joined after 1995. The challenge for Canada, and subsequent chairs, is to ensure that China’s entry maintains the high standards CPTPP members have met so far. As 2024 Chair of the CPTPP Commission, Canada has an opportunity to contribute to turning around the fragmentation of today’s global trading system and move the global economy back along a path towards a more open, rules-based trading system.
At a more strategic level, Canada should also champion discussion and understanding of why building towards the long-run goal of broad accession to CPTPP is important. Open and inclusive institutions are at the core of providing the benefits of global economic integration to all countries.
Hugh Stephens, Advisor, Institute for Peace & Diplomacy
China's actions on canola were entirely predictable, even if not justified, given Canada's undocumented imposition of 100% tariffs on Chinese made EVs. This might not be the only form of trade retaliation against Canadian exports taken by China. While China has not (yet) blocked imports of canola, its actions will cast a chill on prospects for marketing this year's crop, including pricing, hurting the industry, which is China's intention.
If China limits its response to this price probe and WTO complaint, the damage can likely be contained. However, China could increase pressure through other actions, depending on how Canada handles other announced penalties against Chinese products, such as steel, aluminum and solar parts. If this happens, the actions by both countries will only further complicate an already fraught bilateral relationship.
Michael Harvey, Executive Director, Canadian Agri-Food Trade Alliance
Canada’s agri-food exporters are strong supporters of the global rules-based trading system, which allows our products to get to markets. Canada produces more food than it consumes, and exporting provides economic benefit to Canadians, while feeding the world.
We are concerned that the larger economies like China, the U.S. and Europe are placing less emphasis on the rules-based system, forcing mid-size economies like Canada to react in a similar fashion. Despite the current challenges, Canada must not forget the centrality of the rules-based trading system and seek ways to strengthen the WTO. Canada can work with like-minded partners in the G7 and other forums to deal with these challenges multilaterally.
Politicizing trade is in nobody's interest. We need to strengthen the rules-based system, not weaken it.
Alex He, Senior Fellow, Centre for International Governance Innovation
China-Canada relations has already highly politicized since the extradition case of Meng Wanzhou and detention of two Michaels as part of China’s ‘hostage diplomacy’ in 2018-2019. Trade relationship between the two countries has since become the collateral damage arising from the ever deteriorating political relations between Canada and China. Particularly, canola oil and other agricultural products exporting to China are easy targets for China’s retaliation. The trade relationship is one of most important factors affecting Canada-China relations, and it is essentially mutually beneficial and highly complementary, especially the agricultural product exported from Canada to China.
With that in mind, I think, the fundamental way to improve China-Canada trade relations has to go through the path of improvement of political relations between the two countries. However, with the complicated geopolitical situation between China and U.S.-led western democracies, as well as domestic politics in both Canada and China, we do not see many positive signs that bilateral relations could be improved any time soon. Nowadays, Canada has effectively stopped its high-level dialogues and bilateral engagement mechanisms with China. And vice versa, China still holds a condescending position when dealing with political relations with Canada, asking Canada to ‘correct’ its cognition or perception of China as the primary point to improve and develop China-Canada relations.
Canadian Foreign Minister Joly’s recent trip to China in July was a positive step for improving Canada-China relations, but the recent announced tariffs on Chinese EVs and steel and aluminum products and China’s anti-dumping investigation on Canada’s canola oil could further drag down the still tense political relations between the two countries.
Both sides need to figure out some clever ways to reboot high-level dialogues and official bilateral engagement to stop the vicious circle of tense political relations leading to economic and trade frictions and retaliation and the continuous downward spiral in Canada-China relations. Chinese leaders and officials take face-saving in diplomacy very seriously, and they need some steps to get down off their high horse. Canada needs to figure out how to keep stable trade relations with its third largest trading partner to benefit its economy and its people while protecting its values of freedom, the rule of law, respect for human rights and democratic development, etc., and addressing its national security concerns.
With regard to the specific issue of China’s anti-dumping measures, the procedure of anti-dumping investigation at the WTO will take a while. As other similar cases of agricultural products disputes show, it could take at least half of year before any ruling could be made, which leaves time for the Canadian side to respond before the impact on Canadian canola oil export to China actually happens, and also leave time for both sides for any possible behind-the-scenes talks and negotiations on the matter. It’s not like what happened back in 2019, when China directly barred two major Canadian companies from exporting canola oil to China for two years using the excuse of detected pests in their shipments as retaliation for the arrest of Meng Wanzhou.
Seen from the point of China’s very strong domestic demand for canola oil, there might be some room for China to adjust its measures to keep the imports of Canadian canola oil to bring down the possible rise of the price of rapeseed oil products. The price hike in the Chinese market already happened a day after China announced its anti-dumping measures against Canadian canola oil exports. The turmoil in China’s rapeseed oil market would be a factor for China to consider. Once it has stopped imports from Canada, China cannot find replacements of Canadian canola oil in a short term. Australian canola oil is an option but China has restricted the import of Australian canola oil since 2020 due to concerns over blackleg disease.
Carlo Dade, Director, Trade & Trade Infrastructure, Canada West Foundation
Actions have consequences. When these consequences are known or foreseeable it is incumbent on the instigator of the action to be prepared for the consequences. This has not been the case in Canada’s trade policy toward China and the U.S.
China has a playbook for using trade actions to, in its view, defend itself from hostile actions by Western governments and in the view of Western governments to initiate hostile actions. China has developed this playbook in Australia, New Zealand, Europe and the U.S. All of these experiences can help inform a Canadian strategy for responding to China. But what is most important in this regard in terms of protecting Canadians is not trade actions but rather domestic policy. This means having the ability, resources, procedures, public understanding and political will to protect Canadian interests that are put in the line of fire in a trade war with China. Trade policy responses, which appear to be the sole area of attention and concern in the Canadian media and policy circles, are a second consideration.
When China imposed counter tariffs in response to then President Trump’s first round of tariffs, the U.S. government responded by providing close to US$12 billion in support to U.S. farmers and ag interests. The Americans knew the counter tariffs were coming, were prepared to protect American farmers, and did so. In China, the government has been building or increasing strategic domestic reserves of food, minerals and other materials to defend the public from fallout from the trade war with the U.S.
And in Canada? Silence is the response to a rhetorical but also apparently unthought of question.
An analogy for what has just occurred with the EV tariffs is that the Americans essentially told/asked Canada to jump with them. We did. But then on the way down we look over and notice that the Americans have a parachute but we do not. It also occurs to us, on the way down, that the Americans are not going to share their parachute with us (USDA writing checks to Canadian farmers?).
Bottom line, if we’re going to be jumping with the Americans — a subject for a separate debate — then at the very least, we need to look into getting our own parachute.
If you enjoy our work, please consider contributing:
Image credit: WTO