By: Ben Hartley
In China this week, Prime Minister Harper is balancing Canada’s two most important trade relationships as he seeks to diversify the Canadian export market. Once understood as an idealistic and Euro-centric state, Canada has turned to the highest bidder for Alberta crude in the Asia-Pacific region after US President Obama’s recent decision to delay, perhaps fatally, the Keystone XL Pipeline. This political pivot however, carries with it a requisite economic shift that has the capacity to change the underpinnings of long-protected Canadian industries and shape Mr. Harper’s legacy as Prime Minister. Inexorably locked between the economic giants of China and the US, Canada is mapping a new trade strategy that seeks expanded commerce with both, but will ultimately require Canada to compete more vigourously in the international economy.
The contrast between Harper’s policy towards China when he took office in 2006 compared to that of today is stark. In his first year as Prime Minister, Harper notably prioritized “important Canadian values” over trade expansion with China. In 2008 the Prime Minister refused an invitation to the Beijing Olympics and in 2009 was denied a meeting with President Hu on his first official visit to the country. Now the tone is much different, with Mr. Harper calling the shipping of Canadian oil and gas to China “a national priority”. Mr. Harper is pursuing trade diversification, as all modern Prime Ministers have before him, as a means to decrease the vulnerability of the Canadian market to external forces. Canada, the largest trade dependent developed state in the world, relies on the United States for 74% of exports and the decision to delay the Keystone XL Pipeline only highlighted this vulnerability.
In Canada, provincial governments are following the federal government’s pivot. Both Alberta and British Columbia are now looking into new economic tools that will allow them to meet their goals with respect to Asia Pacific. In Edmonton, the government of new Premier Allison Redford is quietly discussing ways to compensate British Columbia for the perceived environmental dangers of new pipeline infrastructure designed to move Alberta crude to Asian markets. The project is currently unpopular in Victoria, with BC perceived to be taking the risks and Alberta reaping the reward. For their part, the British Columbia government is considering creating two Foreign Trade Zones (FTZ’s) in Vancouver and Prince Rupert, aimed at improving international competitiveness. AN FTZ covering the Port of Vancouver and the Vancouver International Airport could add up to $5.1 billion in expanded commerce, 3 100 person years of employment and a $200 million gain to provincial GDP.
Concurrent to the pursuit of an expanded presence in Asian energy markets, Canada is seeking accession to the Trans-Pacific Partnership (TPP), a draft trade agreement which pursues of the regulation on currency regimes and labour markets that precludes Chinese participation.
Accession to the TPP requires the expressed permission of the US and the eight other Asia-Pacific countries, which in turn requires the recalibration of domestic supply chains and foreign investment regulations bemoaned by the original TPP states. Specific prerequisites to Canadian participation in the TPP are the dismantling of the sacred supply-management system protecting dairy and poultry products and the end of restrictions on foreign investment in Canadian banks, airlines and telecommunications firms, such as Research in Motion, that hold sensitive proprietary technologies. While Mr. Harper has previously opposed such measures, his government now says everything is on the table.
This willingness to allow foreign influence in sensitive domestic industries has been evident in the energy sector for some time. While the government has historically been opposed to such investment, Chinese energy interests have been making steady and consistent inroads into the Western Canadian oil and gas industry. Last year, Athabasca Oil Sands Corp sold a 60% stake in its Mackay River oil sands project to PetroChina for $680 million and in January, the Chinese oil giant exercised its option on the remaining 40% to take complete control of the company. In the wake of the Keystone XL decision, PetroChina also purchased a 20% stake in Shell’s Groundbirch lands and assets in Northeast BC, an interest capable of producing 1 billion cubic feet equivalents of natural gas each day for the next 40 years. Moreover, one of Prime Minister Harper’s first acts while in China was to complete a Foreign Investment Protection Agreement (FIPA) that added protection to these very interests.
So while seeking expanded markets is a process heralded by many, it must be understood that it comes with the price of waning control over domestic industries. Harper may succeed where his predecessors failed in diversifying the Canadian economy: declaring Canada ‘open for business.’ But it is important to note that in doing so Canadian industry will become more susceptible to foreign interest and competition.