MONTREAL - Canadian Prime Minister Stephen
Harper in Beijing this week signed with Chinese
Premier Wen Jiabao a declaration of intent for a
Foreign Investment Promotion and Protection
Agreement (FIPA), after 18 years of negotiations
between the two countries. Separately, a US$1
billion fund will facilitate Chinese investment in
Canadian resource companies.
Under FIPA's
terms, Canadian mining companies would acquire
legally binding rights and obligations in China,
while Chinese investment in Canadian industries
such as coal, iron ore, and potash would be
likewise facilitated. The agreement, one of
several reached this week, will enter into force
following legal
review and ratification
by the respective governments.
Chinese
state-owned enterprises invested US$5 billion in
Canada's resource sector in 2011 alone, nearly
one-third of the nearly $18 billion they are
reported to have spent buying oil and gas
companies worldwide last year.
The
Canadian side is hopeful that the FIPA with China
will promote a better equilibrium in the balance
of trade, as China has become Canada's second-most
important trading partner after the US. In 2010,
Canada's trade deficit with China was US$29.7
billion out of a total trade turnover (imports
plus exports) of $54.7 billion.
The FIPA
is not a full free-trade agreement - Canada has
FIPAs in force with two dozen countries and is
negotiating with nearly a dozen others - but the
two sides this week made diplomatic noises about
their interest in exploring the feasibility of
one. Given the nearly two decades required to
negotiate the FIPA, one should not anticipate a
free-trade agreement anytime soon.
The
FIPA is intended to give Canadian companies more
protection against discriminatory and arbitrary
practices and stabilize, or at least make
predictable, their business environment in China.
In practice, it is hoped that it will facilitate
the implantation into China's economy of small-
and medium-sized Canadian businesses that cannot
afford to take big risks. The FIPA will not
supersede Canada's existing foreign investment
regime, so acquisitions and investments by Chinese
firms in Canada will still be subject to review by
Ottawa.
China at present accounts for 6%
of Canada's world trade, and although Canada is
even a smaller fraction of China's, the doubling
of the level of bilateral trade in just two years
has vaulted Canada into the list of China's top 10
trading partners.
Harper with his visit to
China aims to diminish Canada's dependence on
trade with the United States and follows President
Barack Obama's decision not to build the
TransCanada Keystone XL pipeline, which would have
carried petroleum from Canadian oil sands in
Alberta province to existing refining facilities
on the US coast of the Gulf of Mexico.
Canada's oil sands are the third-largest
crude deposit in the world, estimated at 170
billion barrels. The US State Department blocked
approval of the pipeline on the pretext of
insufficient time for environmental review.
Observers of American politics attribute the
decision to Obama's need to shore up support among
left-of-center members of the US electorate, with
a view towards the presidential elections in
November this year. He has come under criticism
for rejecting a jobs-producing project and forcing
America's most faithful and dependable trading
partner to seek other markets.
Canada is
considering building the "Gateway" pipeline to
carry crude from Albert to the Pacific coast in
British Columbia, whence tankers could take the
oil to China. The consultation and decision
process will still take years, and the Keystone
decision could be reversed should a Republican
become president next year. Nevertheless, Harper
has declared that "Canada's national interests"
require the country to diversify its foreign
trade, regardless of the ultimate fate of
Keystone.
The Keystone decision is not at
the origin of Canada's search for trade
diversification but may accelerate this. As
recently as 2000, trade with the US represented
85% of Canada's total international commerce. At
the beginning of the present decade, that figure
had fallen to slightly under 75% and it is
projected to decline to roughly 67% by the end of
the decade.
This evolution reflects, more
than anything else, the creation of large middle
classes in China itself and in numerous formerly
"underdeveloped" countries across the world.
International demand for Canada's raw materials,
including industrial and precious metals, has
increased as the now more affluent members of
those population strata build houses, buy jewelry,
and generally approach consumption profiles once,
and not even two generations ago, achievable only
in the industrially developed West and the Cold
War-era 24 members of the Organization for
Economic Cooperation and Development (OECD).
The FIPA declaration of intent was not the
only document signed in Beijing between the two
sides in the course of Harper's still ongoing
five-day visit. Others covered the aviation,
agriculture, energy, finance, telecommunications
and science and technology sectors. A bilateral
tax treaty dealing with double taxation was also
agreed.
These general diplomatic and
political agreements do not include a large number
of particular cooperation agreements signed with
specific Chinese firms by the over three dozen
Canadian industry leaders who accompanied Harper
to Beijing.
Notable among these is
memorandum of understanding (MoU) between the
large Canadian investment bank Canaccord and the
Import-Export Bank of China to create a
"Canada-China Natural Resource Fund" in order to
facilitate Chinese investment in Canadian resource
companies. The MoU calls for the fund to be
capitalized to the tune of $1 billion in the first
instance.
Dr Robert M Cutler
(http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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