Canola dispute a test for Canada’s PM

Opinion

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This article was published 01/09/2016 (3288 days ago), so information in it may no longer be current.

As Canada tiptoes toward closer trade ties with China, the opening round in what could become a bitter campaign has emerged in one of the most unexpected places: the Prairies’ golden fields of canola.

How the two countries resolve the canola dispute will say much about whether Canada will have an equal relationship with China.

To get through this crisis and build a prosperous relationship, Prime Minister Justin Trudeau needs to learn from the nation’s long trading relationship with the United States, and how Canada overcame hurdles its southern neighbour put in its way.

China wants to cut the allowable dockage — foreign material such as weeds, other crops and detritus — in Canadian canola exports to one per cent from 2.5 per cent, and demanded that standard be met by Sept. 1. Trudeau won an extension that provides breathing room but the dispute still threatens the viability of Canada’s canola industry.

On the surface, the issue has to do with blackleg, a canola disease; China says it is trying to protect its domestic crops. The Canola Council of Canada, using research it and independent scholars have conducted, argue it is barely possible for blackleg to spread from dockage. Further, it is difficult to process canola down to one per cent dockage, according to the council.

Because most canola simply will not make it down to that level, industry experts predict China will demand a reduced price for the product. If that is true, the dockage dispute is a long play by China to reduce prices.

Any price cut would be particularly damaging to the Prairies, where canola is king. In 2015, canola was more than 36 per cent of the West’s total crop cash receipts, roughly $8 billion. Because China consistently buys one-third or more of Canada’s canola, any price hit farmers would take puts the viability of the canola industry in jeopardy. The damage could be devastating — to jobs, livelihoods and communities.

The stakes are even higher. Canada is hoping to reach a trade deal with China that could significantly grow trade beyond the $20 billion that occurred in 2015. As Canada seeks to diversify its markets, it cannot afford to push China away.

In some respects, the difficulties with China echo Canada’s trade relationship with the U.S., a powerful trade partner that has jerked Canadians around from time to time. One such case was the country-of-origin labelling requirement the U.S. imposed in 2002.

But just as Canada navigated that and other disputes and prospered in trade with America, so, too, could it find a path forward with China.

Playing hardball on the canola issue will not work. Chinese authorities know Canada relies on China to buy its canola. At the same time, rolling over on the issue is equally unacceptable, because it would establish Canada as an unequal partner.

In seeking a solution, Trudeau should learn from history. Canada and the U.S. have a prosperous trading relationship because they have shared institutions built on shared interests that mitigate the variabilities of the more powerful partner. Canada can do the same with China, as it signalled it is willing to do by applying this week to join the Asian Infrastructure Investment Bank.

China still needs Canadian canola crops, and Canada still needs to sell them. That reality suggests a mutually beneficial agreement with China can be found — as long as Canada plays it right.

Above all, it is crucial the Canadian government keeps perspective on this issue and trade issues to come. Trade with China opens Canada up to the potential for higher levels of economic prosperity.

The canola dispute will signal exactly how Canada’s relationship with China is going to progress — and how Trudeau is going to build that relationship. All eyes are on canola.

Carlo Dade is the director of the Centre for Trade & Investment Policy. Sarah Pittman is a research intern at the Canada West Foundation.