The snub heard around the world

Canadian Prime Minister Stephen Harper is quietly adopting an aggressive new trade strategy designed to be a “counterweight” to what it sees as steps by its largest trading partner — the United States — to control regional free trade.

Canadian Prime Minister Stephen Harper (L) is
greeted by Chinese President Hu Jintao before
their meeting on February 9, 2012 in Beijing, China
Photo: Getty Images

While on an official visit to China this week, Prime Minister Stephen Harper and Chinese Premier Wen Jiabao negotiated a ream of trade agreements. These included everything from sharing pandas to selling Saskatoon’s uranium yellowcake to China for its nuclear energy program. As well, Canada and China signed a foreign investment and protection agreement designed to protect investments in each other’s country.

Although Canadian officials deny these are the first steps toward an all-out free trade agreement with China, the prospects are enough to send a loud message to the United States: They can do their own deals, thank-you very much.

Although two-way trade between Canada and the United States is still the world’s largest – roughly about $1 million a minute – China is becoming one of Canada’s emerging trading partners. Two-way trade is about C$58 billion a year, with C$45 million coming from China and C$13 billion leaving Canada for China, mostly in agricultural products.

While reluctant to say so, the U.S. administration is becoming increasingly nervous about the growing strength of China, and its new ties to countries like Canada. In sum, America fears it is being bypassed and losing the trade and economic clout it once had — something it was trying to re-establish through the Trans-Pacific Partnership (TPP).

With the collapse of the Doha Round global trade talks among 153 countries in the World Trade Organization, many countries have been actively pursing bilateral or regional trade pacts. The latest, and one of the largest, is the Trans-Pacific Partnership (TPP) among nine Asian and South American countries, including the United States. Other countries in TPP include Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam.

Canada, Japan and Mexico have asked to join. But Canada is reluctant to negotiate the so-called “entrance fee” the U.S. and other countries are demanding. Mostly, that involves Canada opening up its supply management system for dairy and poultry to direct import competition.

Both the U.S. and New Zealand, a major dairy producer, are demanding that Canada, as well as Japan, offer up its protected agricultural industries to foreign competition (Japan offers protection for its rice producers).

Back in Beijing, Canadian Trade Minister Ed Fast commented on the deals with China: “Our end game is to deepen our trade relationship in one of our key priority markets.”

But according to one Canadian trade official, the real driver for Canada is a worry that the U.S. will try to “keep us out of the [Trans-Pacific Partnership].”

Canada is also looking for alternatives for its vast oil sands reserves after the refusal by President Barack Obama to approve the 1,600-mile Keystone XL pipeline between Alberta and refineries in the U.S. Gulf Coast. The pipeline, which would run through Montana, South Dakota and Nebraska, would cost about $13 billion.

In the meantime, Canada is moving ahead with another pipeline from Alberta’s oil sands to its West Coast. Called the Northern Gateway pipeline, it would move about 525,000 barrels a day to Kitimat, British Columbia, to be shipped onto major Asian markets such as China.

“China needs our resources,” said a Canadian trade official, noting that China has already made capital investments in Alberta’s oil sands.

Besides stepping up trade relations with China, Canada is also making nice with TPP members Singapore, Brunei and Malaysia. Those countries are the next stops for Trade Minister Ed Fast on his swing through Asia.

“We are on the sharp edge of a strategic sword,” said one Canadian trade official.