Korea conference complicates Canada’s free-trade initiatives

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Canada's high-profile conference on North Korea held in Vancouver in mid-January will likely help Ottawa’s chances of saving the North American Free Trade Agreement (NAFTA) with the United States, but at the cost of a chill in trade relations with China.

That’s the view of a B.C.-based academic observer who has spoken to multiple officials representing several countries on the North Korean issue. The analysis also highlights the tightrope that Canada might be walking while managing relationships with its two biggest trade partners.

Yves Tiberghien, director emeritus of the University of British Columbia’s Institute of Asian Research, said Canada’s hosting of the Foreign Ministers’ Meeting on Security and Stability on the Korean Peninsula in Vancouver on January 16 will likely have a positive effect on Ottawa’s NAFTA wrangling with Washington, given U.S. President Donald Trump’s vocal position on both free trade and North Korea’s plans to develop nuclear missiles.

“It may not help the negotiations, but it will help when it comes to the final decision,” Tiberghien said. “We know that [U.S. Trade Representative Robert Lighthizer] is pushing for the termination of NAFTA; he thinks it can’t be reformed. Other U.S. cabinet members don’t agree with him, and some U.S. senators have been successfully lobbied by Canada. So, ultimately, it will be Trump that will decide on one or the other, and Trump often makes decisions based on feelings and emotion.

“For Trump to see Canada standing by the U.S. in supporting a line pushed by Trump is a positive; it creates a positive image of Canada in Trump’s mind.”

NAFTA negotiations resumed in late January in Montreal, while observers are increasingly wary of the possibility that Trump will trigger a six-month withdrawal clause in the trade agreement that has been in place since 1994.

The United States is overwhelmingly Canada’s largest trade partner; November 2017 Global Affairs Canada figures show that 76.2% of Canada’s $46 billion in exports (and 65.4% of $49 billion in imports) that month were with the American market.

The Vancouver conference, which saw Canadian Foreign Affairs Minister Chrystia Freeland and U.S. Secretary of State Rex Tillerson co-host delegations from 20 countries – most of whom fought on the side of South Korea during the Korean War – agreed to tighten enforcement of existing United Nations sanctions on North Korea after three separate ballistic missile launches by Pyongyang last year. Two of those missiles flew over Japan, heightening tensions in the region.

The conference featured strong language of tighter enforcement of economic sanctions on the rogue Asian state.

However, the event’s format (which Tiberghien referred to as “unusual”) meant two major players on the Korean Peninsula – China and Russia, both historically more closely allied with Pyongyang – were not represented.

A January 22 Kyodo News report said the Chinese foreign ministry summoned embassy officials in Beijing from all 20 countries attending the Vancouver meeting to lodge protests, asking for delegations to either skip the event or avoid sending foreign ministers.

A Chinese government spokesman said prior to the conference that the meeting was “illegitimate” and might derail ongoing diplomatic negotiations with North Korea with a “cold war” mindset. Tiberghien said Beijing is undoubtedly upset with Canada for co-hosting the meeting – to the point that it might put the already paused bilateral free-trade deal negotiations into a deeper freeze.

“It certainly doesn’t help,” Tiberghien said, adding that Ottawa-Beijing ties could be entering a freeze of at least three months. “They are going to retaliate against Canada in particular. They are clearly furious at Canada.… We don’t know what the cost will be, but there will be a cost, and it will be significant. The Chinese have longer memories than Donald Trump, who is well known to change his opinions based on who he saw last, and events move very fast. The Chinese, there is a bureaucracy about these things, and have registered this as a negative.”

Tiberghien further noted the Vancouver conference has clearly made a bigger impact with China than Prime Minister Justin Trudeau’s December visit to Beijing, which did not yield an official launch to free-trade agreement negotiations as many expected due to a number of disagreements.

“The December visit was a sort of a positive with an asterisk, with the two sides not being able to come to an agreement on a number of dimensions, but there was an agreement to keep looking for a solution,” he said. “It was a delay and a lack of a positive outcome, but no great negatives. This conference was a negative, which, knowing China, they tend to retaliate to such moves.”

Tiberghien noted that France did not send Foreign Minister Jean-Yves Le Drian to Vancouver. Instead, it was one of the only delegations to send director-level officials.

China is Canada’s second-largest trade partner in terms of individual countries. In the same aforementioned Global Affairs Canada November 2017 report, the Chinese market took up $2.1 billion in Canadian exports and $3.9 billion in imports, and it is among Canada’s fastest-growing markets with a year-to-date export/import increase of 13.2% and 12.6%, respectively, in the first 11 months of 2017 versus the same period in 2016. The growth rates with the U.S. market over the same period stands at 4.9% and 2.8%.

One American analyst – while stating the U.S. is likely glad to see Canada’s tougher stance on North Korea – dismissed the possibility of Ottawa’s closer geographical alignment currying favour with Washington (and Trump) when it comes to NAFTA negotiations. His comparison case is with South Korea, where geopolitical alignment between Seoul and Washington is much tighter on North Korea than that between Ottawa and Washington.

“If Trump’s not cutting South Korea any slack on South Korea-U.S. free-trade agreement renegotiations, considering what’s going on with North Korea, I can’t imagine him easing up on Canada over NAFTA just because of whatever came out of this conference,” said Sean King, Park Strategies senior vice-president and former U.S. diplomat.

Tiberghien also noted that the Vancouver conference likely improved Canada’s standing with Japan, another relationship that has been frayed recently after Ottawa’s last-minute no-show at an announcement for a renewal of the Trans-Pacific Partnership (TPP) trade bloc without U.S. involvement at the Asia-Pacific Economic Cooperation meeting in Vietnam in November.

That relationship appears to be on the mend after the Vancouver summit, as Canada agreed to sign on to the revised TPP this month.•