By Keith Norbury
Prime Minister Stephen Harper’s trade mission to China in February is being widely applauded as a watershed event in bolstering trade between Canada and Asia’s economic powerhouse.
During the four-day mission, Canadian and Chinese representatives signed several agreements. These included deals that will enable Canadian exports of uranium and resume exports of Canadian beef tallow, and a strategy that might lead to restoring Canadian canola exports to previous levels.
A highlight of the mission was the announcement of a Foreign Investment Promotion and Protection Agreement, or FIPA. The agreement, which still has to be ratified, “will provide a more stable and secure environment for investors on both sides of the Pacific,” said a Canadian government news release.
Also during the visit came an announcement that 21 commercial agreements worth $3 billion had been reached between Chinese enterprises and Canadian companies, such as Bombardier and Telus. The Prime Minister even promoted Canadian pork exports by opening the first container of refrigerated pork to arrive from an inland port at Winnipeg to an inland port 2,000 kilometres from Shanghai.
Best visit in a decade warms up relationship
“I think it was the most successful visit by a Prime Minister to China in 10 years in terms of its achievements and the expectation that it sets for the next phase of policy engagement,” said Peter Harder, President of the Canada-China Business Council.
Dr. David Fung, Chairman and CEO of the ACDEG Group of companies, and a former senior fellow of the Asia Pacific Foundation, praised the Prime Minister for an excellent job in selling the Canadian image in China. “He has warmed up the relationships which has already brought tangible results, and will bring more tangible results in the future,” Dr. Fung said.
Relations with China were cool during the early years of Mr. Harper’s tenure as Prime Minister. He was critical of China’s human rights record and said in 2006 that fostering trade with China wasn’t worth selling out Canadian values. Even during his most recent visit, Mr. Harper told one gathering of business people that he would continue to raise the issues of human rights and fundamental freedoms. He also dropped hints, at another function, that the new relationship will eventually lead to a free trade deal between the two countries.
“I can’t imagine any freight forwarder not being pleased that the government of Canada is taking such an active role in promoting trade between our countries. That’s our lifeblood,” said Ruth Snowden, Executive Director of Toronto-based Canadian International Freight Forwarders Association.
“When it comes to trade, having the visible and active support of the federal government in key global markets is very important for ports, and for Canadian businesses and exporters,” noted Michele Peveril, Senior Manager of Strategic Relations with Halifax Port Authority.
The trade mission was “a wise thing to do” to help improve relations with China, said Michael Broad, President of the Shipping Federation of Canada, whose members are primarily foreign-flagged shipping lines and agents. “When doing business anywhere in the world, you’ve got to keep going to see your customers and building those relationships, which are important,” Mr. Broad said.
Data analysis questions trade mission merits
Not everyone with an interest in international trade thinks trade missions are worthwhile.
University of British Columbia (UBC) Business Professors Dr. John Ries and Dr. Keith Head analyzed trade data to assess the effects of Canadian trade missions that took place from 1994 to 2005. They concluded in a 2009 paper that “the missions do not seem to have caused an increase in trade.” In fact, they found that, if anything, the missions “have small, negative, and mainly insignificant effects.”
Dr. Head, who is the HSBC Professor of Asian Commerce at UBC’s Sauder School of Business, said he and Dr. Ries had no axe to grind when they began their research. They even had a theory that since international business depends on face-to-face connections, their research would support the conventional business wisdom that trade missions increase trade.
“It’s not hard to convince business people of that, but business people have started to convince economists of this,” Dr. Head said.
When they sliced the data, however, they discovered that Canada was already trading heavily with the countries those missions visited – before the missions.
“And so, post-mission trade might go up, it might go down. On average it doesn’t go anywhere,” Dr. Head said.
In some cases, deals announced during the missions were going to happen anyway, or the timing was moved to coincide with a mission. In other cases, Drs. Ries and Head found the tentative agreements didn’t pan out.
While the analysis occurred before Mr. Harper’s recent trip to China, and his previous trip in 2009, Dr. Head doubts either of those missions would fare any better under analysis.
“The question is, is there something qualitatively different from the other missions or has the world changed since we ran our study?” Dr. Head said.
One variable that might alter the analysis is the FIPA agreement, he said, but any of its effects would be on foreign direct investment, not on trade, he noted.
Their analysis also detected a slight bump for what they characterized as Team Canada missions led by the Prime Minister (at that time, Jean Chrétien) and garden variety missions led by lesser government officials. While Mr. Harper did not brand his mission as a Team Canada venture, it would appear to have been in that spirit.
Still, the analysis found that the Team Canada effects were tiny. “Neither of them seemed to really help,” Dr. Head said.
Analysis overlooks dynamics of Chinese culture
Dr. Fung expressed a common sentiment, however, when he said that the UBC researchers missed the point about trade missions.
“I think that kind of analysis is drawing a conclusion from a very different perspective,” Dr. Fung said. “If one would look back into the period between 2006 and 2009, when the Prime Minister would not go to China, nothing happened. And so when something is signed during the Prime Minister’s visit, and you take a cynical view saying it’s going to happen anyway, it’s misunderstanding how the dynamic works in the context of Chinese culture.”
Had Mr. Harper not visited China in 2009, negotiations on approved destination status for Canada might still be continuing, Dr. Fung said. On the recent visit, he noted, the Foreign Investment and Promotion Protection Agreement wasn’t yet ready for signatures, but the Chinese agreed to sign anyway. “And if you ask a number of the companies that signed agreements in Beijing, many would say the visit of the Prime Minister and the fact that they would be announced during his visit have accelerated those agreements to be concluded,” Dr. Fung said.
Intergovernmental relations crucial to economic health
Mr. Harder said that government agreements on managing economic relations are crucial. “China joining the WTO was probably the most important single decision with respect to economic growth of China in our lifetime,” he said. Mr. Harder expects the FIPA deal will also have “huge consequences.”
Dr. Head said another way to look at trade missions is to view them as “primarily for political optics,” which the data also suggest. “It’s the long-term gradual fostering of relationships that actually leads to trade,” Dr. Head argued.
He noted, for example, that another researcher has found that U.S. consulates have a positive effect on trade.
“So maybe these permanent trade missions might be more effective,” Dr. Head said.
Jean-Jacques Ruest, Executive Vice-President and Chief Marketing Officer for Canadian National Railway Company, said the trade visits are useful for their broad approach in fostering positive relationships between the countries. If the visits didn’t happen, it would harm Canadian companies, he added.
“What’s important is that the Prime Minister goes at some frequency and that some other ministers, like trade ministers or agriculture ministers, maybe energy ministers, also go at some frequency,” said Mr. Ruest, who was involved in previous trade missions to China but not the one this past February. This time around, the trade officer from CN’s Shanghai office accompanied the Prime Minister during part of the mission.
Deals raise hope for improved agricultural exports
Two key agreements are expected to improve prospects for Canadian agricultural exports to China. One concerns canola – the other deals with beef tallow (rendered fat).
A memorandum of understanding will allow for joint research, paid for by Canada in Canada, into the blackleg fungus, which has been found in Canadian canola seed, resulting in China imposing import restrictions in 2009.
“If in fact we can find a solution, then the Chinese market for Canadian canola oil, seed and meal could be re-opened without restrictions which could mean billions of dollars for Canada,” Dr. Fung said.
An agreement signed during the trade mission will clear the way for Canada to resume exports of beef tallow for industrial use. In 2002, China was the top export market for Canadian beef tallow, a market worth over $31 million. China has a huge demand for tallow, importing over $400 million of the product in 2010 from around the world.
Exports of beef products to China crashed to zero in 2003 with the discovery of the first case of bovine spongiform encephalopathy, also known as mad cow disease, in Canada.
Since that scare, Canadian officials have slowly been rebuilding Canada’s beef export market, said Ron Davidson, Government and Media Relations Director with the Canada Meat Council. The Prime Minister’s visit to China is making a difference in that effort, he said.
“For the most part, market access is negotiated by governments,” Mr. Davidson said. “Industry can help. But they’re government agreements. Whether it’s tariffs or technical barriers, we need governments to negotiate those things.”
Mr. Davidson noted that a month after the trade mission, Chinese officials were in Canada to inspect beef processing facilities. Two small facilities had previously been approved for Chinese exports but had not exported in any substantial way, he said. “But there are others who are interested in pursuing that on a much bigger basis,” he said.
Uranium agreement “a huge deal” for Canadian industry
Allowing resumption of tallow imports and agreeing to take a fresh look at canola imports were concessions the Chinese made in return for Canada’s agreeing to sell China uranium, Dr. Fung said. He called the latter “a major concession from the Prime Minister’s perspective.”
From the perspective of those involved in Canada’s uranium industry, though, the agreement is “a huge deal,” said Kurtis Hinz, President of Saskatoon-based TAM International Inc. “For us, hopefully the reciprocal effect is that it has added opportunities for companies like ourselves,” said Mr. Hinz, whose logistics company specializes in the handling of radioactive cargo. While he declined to discuss details about transporting such sensitive cargo, Mr. Hinz said his company is involved in the entire logistics chain from the mine to final destination. Compared to other commodities, like coal and potash, uranium volumes are small. Uranium products also have to be shipped in secure containers, not in bulk. “It’s a nice volume but [not] in comparison to oil or gas or anything along those lines,” Mr. Hinz said.
The World Nuclear Association reports that China has 14 operating nuclear reactors and another 25 under construction, with even more planned. Saskatchewan-based Cameco, one of the world’s largest uranium producers, which, according to a company fact sheet, delivered 30 million pounds of uranium in 2010 to its customers around the world, would undoubtedly benefit from the agreement.
PM promotes high-tech pork shipments
During the trade mission, Prime Minister Harper visited the Chongqing port of Cuntan, about 2,000 kilometres inland from Shanghai. At Cuntan, Mr. Harper opened the first container of refrigerated pork, which was exported by HyLife Foods, to arrive from Centreport Canada, an inland port established in Winnipeg in 2009.
“Every piece of pork inside the container has a radio-frequency identification tag,” said Dr. Fung, who is the only non-Manitoban on the Centreport board of directors. At each terminal, the container passed through a portal that read the tags, showing that none of the contents had been tampered with, Dr. Fung said. “So it is a secure form of shipment.”
Gary Stordy, Public Relations Manager for the Canadian Pork Council, said that opportunities for selling Canadian pork to China have been increasing. However, he said the pork trade didn’t see any big breakthrough from Mr. Harper’s recent mission. In the last year, the Canadian government, other elected officials, and the Canadian Food Inspection Agency have been working to remove trade barriers, he said.
“It’s actually been building just over the past two years,” Mr. Stordy said.