Want Free Trade? Build a West Coast Pipeline, Says China

This article originally appeared on the Dogwood Initiative blog.

With final arguments in the Kinder Morgan pipeline review underway in Burnaby, a top Chinese official is using the moment to offer Canadians a deal. During his visit to Ottawa last Friday, Han Jun, China’s Vice-Minister of Financial and Economic Affairs, said the world’s second-largest economy would be willing to sign a Free Trade Agreement with Canada — but only if we build a pipeline to the West Coast.

Signing an FTA, Han suggested, would give Canadian agriculture and energy producers greater access to China’s domestic market. In return, Beijing also wants restrictions lifted on takeovers of Canadian companies by Chinese state-owned enterprises (SOEs).

China has been working to gain access to Canadian oil reserves for more than a decade. As Enbridge’s first partner on Northern Gateway in 2005, state-owned PetroChina pledged to purchase up to half of the pipeline’s capacity, but became frustrated by delays and eventually pulled out of the project.

In the years following, China’s SOEs invested billions into the Canadian oil patch, culminating in the 2013 purchase of Nexen by the Chinese National Offshore Oil Corporation (CNOOC) for $15 billion. (In a tragic coincidence, hours after Han spoke in Ottawa, an explosion at Nexen’s Long Lake facility killed one worker and left another critically injured.)

After the Nexen takeover, which prompted concerns about China’s human rights record, labour practices and one-way approach to investment, Prime Minister Stephen Harper brought in restrictions on future purchases of Canadian firms by Chinese SOEs. Angered by the gesture, the Chinese administration shelved negotiations on a Canada-China trade deal.

Now Beijing is back, once again dangling the prospect of free trade. Right on cue, two friendly think tanks — the Canada-China Business Council and the Canadian Council of Chief Executives — released a report arguing that a trade deal with China would boost Canadian exports by $7.7-billion over the next fifteen years and create 25,000 additional jobs.

“During the term of Prime Minister Justin Trudeau there are rare, historical opportunities between China and Canada,” Han told the Globe and Mail. Here in Canada, influential members of the Liberal family are working hard to prove him right.

Having served as Jean Chretien’s former Deputy Prime Minister (as well as Minister of Finance, Foreign Affairs, and Industry), John Manley is perhaps the most visible former Liberal lobbying for closer economic ties to China. Manley is President and CEO of the Canadian Council of Chief Executives, which co-authored the Canada-China FTA report.

The CCCE’s Chairman is Paul Desmarais Jr., whose day job is Chairman and Co-CEO of Power Corporation of Canada. Having employed at different times Jean Chretien, Paul Martin, and Pierre Trudeau, the late Paul Desmarais Sr. was also the founding Chairman of the Canada-China Business Council, which is the other co-author of the above-cited FTA report.

The CCBC is stacked with Liberal heavyweights. Its current Chairman, Peter Kruyt, works for Desmarais at Power Corporation, while its Vice Chairman is former Liberal Justice Minister Martin Cauchon. The CCBC’s President is Peter Harder, a highly-respected former federal civil servant. When Justin Trudeau needed an experienced set of hands to oversee his transition into government, he called Harder.

None of this is to suggest that further trade with China is in itself a bad idea. But the terms on which we negotiate such a deal must be fair to Canadians, as well as uphold the country’s duties to First Nations. By cheerleading publicly for an FTA, old-guard Liberals like Manley and Desmarais increase the pressure on Trudeau to cut a quick deal on China’s terms.

Don’t forget, any new trade deal would take effect in addition to the Canada-China Foreign Investment Promotion and Protection Agreement ratified by the previous government. The FIPA, from which Canada cannot fully withdraw for the next 30 years, locked in more wide-ranging investment rights for Chinese companies than Canadian firms get in China. That’s why signing the FIPA before negotiating a Free Trade Agreement was a mistake by the federal government, according to one of the treaty’s most vocal critics.

“The sequencing works in China's favour,” says Osgoode Hall law professor Gus Van Harten. “China is the capital exporter in the relationship, so it has the greater interest in a FIPA that provides special rights and protections to each country's investors in the other country. I would say that, with the FIPA, the Harper government gave away one of Canada's bargaining chips to get a favourable trade deal. Now we should be going into trade negotiations with a view to repairing some of the flaws in the FIPA, which will not be straightforward or easy.”

Among the problems with the FIPA — at least for Canadians concerned about environmental laws or labour standards — is the right of Chinese corporations to sue Canada over decisions by courts or legislatures that are seen to interfere with their investments. These investor-state disputes are settled in secretive international tribunals overseen by for-profit arbitrators, and can force host countries to pay damages in the billions of dollars. (For more on the Canada-China FIPA, see Sold Down the Yangtze by Gus Van Harten).Add up the lopsided terms of the FIPA and the sudden pressure on Trudeau to conclude a Free Trade Agreement and the picture becomes clear. China intends to use this next round of trade talks to get what it has wanted for more than ten years: ownership of Canadian energy assets and secure access via pipelines and supertanker terminals on the West Coast.

Let’s curtail any accusations of Sinophobia, right here and now. My family was the victim of the same ‘yellow peril’ discourse that has simmered below the surface of B.C. politics for more than a century. This is not about racism toward Chinese people. This is about protecting our sovereignty — Canadian sovereignty, B.C. sovereignty and Indigenous sovereignty — from a powerful international trading partner.

Prime Minister Trudeau’s job is to balance the pressure coming from the likes of Han Jun, John Manley and Paul Desmarais Jr. with the legal and political realities here in British Columbia. Just last Monday the B.C. government came out in opposition to Kinder Morgan because the company has no credible plan to clean up toxic, sinking bitumen. Municipalities and First Nations around the Salish Sea applauded the province’s move.

Then on Wednesday the B.C. Supreme Court delivered the game-changing Gitga’at ruling, concluding that B.C. erred in signing away its duties of consultation around Enbridge’s Northern Gateway proposal. That ruling has clear implications for theKinder Morgan review, which relies on the same “Equivalency Agreement” between B.C. and Ottawa. Pipelines, as it turns out, are not the exclusive domain of the federal government.

As Beijing ramps up its campaign for a West Coast pipeline approval, our job will be to support those Members of Parliament looking to do right by their constituents — and prevent another cave-in like what happened with the FIPA. Simply put, if the cost of a trade agreement involves dangerous bitumen-laden supertankers on our coast, then the people of B.C. aren’t going to accept the terms. We have just under two months to make that clear before Trudeau heads on his first trade mission to China.

Image: Prime Minister Photo Gallery