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    The Morning Brief - 01.23.19

    Posted by Bruce Carson on Jan 23, 2019 8:23:17 AM


    Economy—With China, Is there a Path Forward?


    A few months ago, there were actually answers to this question. Answers ranged from working towards an all singing, all dancing free trade agreement with China as Australia has completed or when that seemed out of reach, then discussions here in Canada turned to sectoral agreements. All the while the federal government would protest about human rights abuses in China that range from arbitrary detention through to executions and work camps or worse for religious minorities.

    This was the period of trade diversification. We are still in that era but China is probably no longer at the top of the list for Trade Diversification Minister Jim Carr.

    All of this was before the arrest and detention of Huawei Technologies Chief Financial Officer Meng Wanzhou in order to determine whether she should be extradited to the United States at the request of the U.S. to face serious charges in that country. We all know the story from there as Ms. Meng was allowed bail and is now living in her home in Vancouver.

    China for its part protested and now has detained two Canadian citizens and another faces a death sentence after, even by Chinese standards, a speedy appeal.

    Given the events of yesterday, the U.S. signifying that it will formally seek Meng’s extradition before the January 30th deadline, it looks like this situation with China will be with us for some time to come.

    Layered on top of Meng’s arrest are the comments by U.S. President Trump made at the time of her arrest that he might be willing to use her as a bargaining chip in his search for a trade deal with China. Incidentally, this notion may arise again as trade talks between the U.S. and China are due to start in Washington on January 30, the deadline for the U.S. to file its request for extradition.

    Yesterday, as it became clear that this matter was not going to be resolved quickly, the rhetoric from China ramped up. Now both Canada and the U.S. are targets of Chinese vitriol as China wants the U.S. to abandon its request for extradition and Canada was once again criticized for this arrest. China claimed that Canada was wrong to arrest Meng and wants her released.

    It is interesting that in all of its outrage China fails to mention the Canadians detained in China as retaliation for Meng’s arrest. There is no sign of either one being released or of commuting the death sentence for the third Canadian, Mr. Schellenber.

    Yesterday’s attacks focussed on the extradition process with China alleging that Canada’s extradition treaty infringes on the “safety and legitimate rights and interests of Chinese citizens.” In addition the letter signed by 140 former diplomats and academics sent to President Xi Jinping requesting that the two Canadians held in retaliation for Meng’s arrest be released has been branded an “attack on China’s sovereignty.”

    Also entwined in all of this is the future of Huawei as the provider of Canada’s 5G communications platform. It has been ruled out by three of the ‘five eyes’ countries and Great Britain seems on the verge of excluding it, leaving Canada as virtually the only country still considering Huawei. Over the weekend Security Minister Goodale took the opportunity to make it known that Canada has other options for its 5G network, options that do not include Huawei.

    Richard Fadden, former National Security Advisor to Prime Minister Trudeau has written an opinion piece published in the Globe entitled “Huawei should be banned from our 5G Network.” In this piece he writes “China is willing to take extreme measures to guard its national interests.” He notes that China’s Ambassador to Canada has said there will be “undefined repercussions” if Canada bans Huawei from participating in the development of Canada’s 5G network.

    Goodale is quoted as saying that threats will not have any bearing on Canada’s ultimate decision. Fadden writes that China’s response should stiffen Canada’s resolve. His advice is that the Trudeau government “should announce sooner, rather than later, that Huawei will be banned.” The alternative writes Fadden, would result in the Chinese Communist Party being given unfettered access to Canada’s vital communication networks.

    Fadden concludes that the “Canadian government should ignore the threats and ban Huawei to protect the security of Canadians.”

    During the Christmas break Derek Burney, Canada’s former Ambassadors to the U.S. wrote in a piece entitled “Where does Canada fit in a world ruled by the ‘law of the jungle’?” that “China is abetted by the abysmal state of affairs in most western democracies.” He wrote “it’s every country for themselves now.” He concludes “the issue that will define the next year and beyond will be how the United States and China choose to manage their increasingly fractious relations.”

    Canada, now caught between China and the U.S. in this extradition dispute and the trade negotiations between the U.S. and China must now determine its own path forward.

    David Mulroney, Canada’s former Ambassador to China wrote at about the same time as Burney that “we must finally see China for what it really is.” He argues that Canada has a chance to show leadership and discuss with allies how we can do a better job of protecting sensitive technologies and more effectively hold China accountable for its approach to human rights at home and abroad.

    Yesterday Mulroney in a CBC interview said that two tracks are now converging; China’s trade talks with the U.S. and the extradition of Meng along with the detention of two Canadians. He argued that the U.S. needs to step up on the extradition part as Canada is doing its part. He added that he was concerned that as this is an election year China may add to its retaliation as it now knows that Canada cares about what happens to its citizens travelling or working abroad.

    In his opinion piece Mulroney wrote about being prepared for the ‘new normal.’ In its editorial entitled “China shows its true face to the world” published late yesterday, the Globe attempted to define that new normal. It is that “countries that defy Beijing may face reprisals, including having their citizens detained and maltreated.”

    The Globe concluded that China “has abandoned all pretense of playing by any rules other than the ones that satisfy the Communist Party.”

    So again, what is Canada to do as it looks, as noted above, that this situation will not be settled soon? Trudeau and his Foreign Affairs Minister Freeland have been vigorously eliciting support from a number of countries with the total now around 19 or 20. It reminds one of the old story of the senior partner in a law firm asking the articling student to find a precedent to support a particular legal argument.  A few hours later the student returns telling the partner that many precedents have been found. The senior lawyer responds that only one is needed as long as it is the right one.

    In this situation with China, Jean Charest on Evan Solomon’s Question Period on Sunday identified the intervention of the U.S. as what Canada needs. He stated that “the United States is the best bet for defusing China tensions.” He added that “the way out for Canada on this is the U.S.” as “they have put us in this position.” He noted that “there is damage, a lot of damage and I think the relationship is going to go into the deep freeze for a while.” But he added “there’s rather a much bigger interest on all sides to try to find some honourable way out.”

    While it is great to have the support of 19 countries, Charest’s point is that really only one is needed, if it is the right one, and in this case it is the U.S.

    So, if there is a path forward for Canada, it runs through Washington. The Trudeau government should also acknowledge that as David Mulroney set out, there is a new normal and the Chinese dictatorship is not to be either admired or emulated.

    It is time to put away thoughts of a comprehensive trade agreement with China until such time as it shows that it is worthy of trust. In the meantime Ottawa should take Charest’s advice and work through Washington to seek an end to this dispute. Washington, at this point has leverage with China and Canada needs to take advantage of it.

    To Come

    --today, retail trade numbers for November to be released

    --January 24, EI numbers for November to be released

    --January 24, trade ministers are to meet on the sidelines of the World Economic Forum to discuss WTO reform

    --January 28, House of Commons resumes sitting

    --January 29-30, U.S. Fed meets

    --January 30, deadline for U.S. to file its extradition request regarding Ms. Meng

    --January 31, GDP numbers for November to be released--bc


    Topics: Morning Brief

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