A possible free trade agreement (FTA) with China represents a great opportunity for Canada, since it would give the latter preferential access to the world’s third-largest economy after the European Union and the United States. It would also help level the playing field for Canadian businesses vis-à-vis their Australian, New Zealand and Swiss competitors, which operate under FTAs that their countries have signed with China.
In addition to offering an overview of Canada’s economic relations with China, upon which a possible FTA will build, and examining the main FTAs that China has negotiated with developed countries, this special report examines the opportunities and challenges of a possible FTA between Canada and China in order to provide a road map of ideas that the federal government should consider were it to enter into proper negotiations.
As a result of China’s political economy (i.e., state capitalism marked by a vigorous private sector in certain areas of the economy), Canada faces particular challenges in order to ensure that Canadians are able to compete in a fair and free way with their Chinese counterparts in both Canadian and Chinese markets. Canada should push the FTA negotiations to be based on high-standard agreements such as the Comprehensive Economic and Trade Agreement (CETA) and the Trans-Pacific Partnership (TPP), both of which it has negotiated and signed.
Canada should also ensure that the FTA includes a comprehensive, multi-level governance structure to help resolve disputes and frictions in a more informal way, as such an approach can be very effective in the Chinese context. It should nevertheless provide for a broader application of state-to-state dispute-settlement mechanisms (DSMs) than in the CETA and TPP cases, in order to provide a formal DSM as a last resort if informal negotiations and discussions prove ineffective.