By Sharon Zhengyang Sun
Published in The Hill Times
March 20, 2019
China’s recent cancellation of Winnipeg-based Richardson International’s canola seed registration reminds Canadian businesses, once again, of the unique risks and unpredictability of the Chinese market. As the Canadian Food Inspection Agency deals with the specifics of this latest issue, it is important for Canada to focus on longer-term policy solutions to address the periodic agricultural aggravations with China that Richardson and other businesses face.
One thing Canada can do almost immediately is to engage China more comprehensively on non-tariff barrier issues that hinder agricultural trade. Dealing with these problems does not require waiting for a full trade agreement and can strengthen economic co-operation between the two countries.
Canada’s total two-way trade in goods with China has grown at an average rate of 13 per cent per year in the past two decades. The two countries have set out to double bilateral agriculture trade by 2025. But Canadian businesses have already learned a number of painful lessons about the risks of the Chinese market, including the previous canola import reduction imposed by China in 2016 over blackleg. That issue was resolved with a 2016 canola deal between Canada and China that ensured $2.7-billion status quo market access until 2020. That deal is about to come to an end. The risk for producers and exporters is certain. But it’s uncertain what policy-makers will do to help businesses in the face of these risks.
This is particularly problematic for the export of Canadian agricultural goods, where secure market access and predictability is crucial. Farmers are deciding now what to plant. They need assurance that they can sell what they plant in the fall. In 2018, Canada exported $7.5-billion in agricultural goods to China, one of Canada’s largest export categories to the country. China is Canada’s biggest market for canola seeds, accounting for 47 per cent of Canada’s total canola seeds export, followed by Japan (22 per cent) and Mexico (12 per cent).
If Canada intends to not only continue but also increase its agricultural exports to China, developing a policy framework to help exporters is critical. Canada should start by dealing with non-tariff barrier issues in the agriculture sector such as dockage restrictions and the mismatch of the product approval process.
Addressing non-tariff barriers involves sector-specific engagement to forge an agreement on trade irritants other than tariffs; it is far from a comprehensive trade agreement. But having measures in place—such as uniform regulations and dispute resolution mechanisms for both countries—to deal with such non-tariff barriers could help provide certainty, predictability, and some transparency for businesses in terms of resolution timeline, procedure, and results.
The current lack of a resolution timeline faced by Richardson increases the risk of doing business in China and reduces the overall global confidence in the Chinese market. Addressing non-tariff barriers for the agricultural sector with Canada is also important for China as 98.7 per cent of China’s canola seed is imported from Canada, followed by Australia (1.2 per cent).Therefore, the priority to double agricultural exports by 2025 will require significant co-ordination across not just the agriculture industry, but between the two countries. Finding agreement on trade irritants besides tariffs could boost market confidence in China and increase the likelihood of the two countries’ bilateral agricultural goals.
Finally, enhancing the management of non-tariff barriers between two countries does not violate World Trade Organization rules, which do not allow for sectoral tariff reduction agreements. Nor does it irritate the concerns of the unratified and controversial Article 32.10 of the latest Canada-United-States-Mexico Agreement (CUSMA) on trade, which allows a member to withdraw from the deal if another member signs a free trade agreement with a “non-market economy.”
The Canada West Foundation has begun research on the non-tariff aggravations between Canada and China in the agricultural industry. Addressing non-tariff barriers does not guarantee that there will be no further disruptions for businesses in trading with China. But it will provide Canada with a more formal mechanism to manage trade with its second-largest trading partner. It provides some possibility of recourse when disputes arise and, therefore, reduces the severity of the periodic disruptions for businesses. Addressing non-tariff barriers won’t solve all of Canada’s trade woes with China, but it will certainly help.
Sharon Zhengyang Sun is a trade policy economist at the Canada West Foundation.