By Meredith Lilly, February 9, 2023
As the fastest growing and most dynamic economic region of the world, the Indo-Pacific is home to 60 percent of the world’s population and 40 percent of global economic output. For two decades, Canadian leaders have recognized the tremendous potential of the region. With strong economic partnerships in place with the United States and Europe, Canada’s trade diversification agenda has largely relied on growing trade ties with emerging economies in Asia.
Yet, following China’s accession to the World Trade Organization (WTO) in 2001, Canada naively sought to offset its trade reliance on the US with a singular focus on increasing trade with China. And while bilateral trade growth between Canada and China grew exponentially, trade was uneven and characterized by strong export growth by China, while Canadian companies faced barriers trying to export and operate in China’s market. Since a key objective of Canada’s trade diversification agenda was to reduce domestic risk, seeking to supplant trade dependence on the giant and predictable democracy next door with that of the authoritarian and opaque dragon across the Pacific was never the right approach. Instead, Canada should have been seeking to expand trade via a range of relationships and countries all along.
After years of increasingly aggressive actions on the international stage under Xi Jinping, western countries including Canada have now sharply adjusted their posture toward China. This has also required Canada to course correct to develop new approaches to other countries in the region. For example, despite signing trade agreements with South Korea in 2014 and the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018, Canadian firms have made only very modest progress in growing trade with those countries.
In this context, Canada’s Indo-Pacific Strategy offers the opportunity to set a new direction for Canadian trade and economic partnerships in the region, grounded in the comparative strength of Canada’s location in the North American market and realistic about the potential for growth. Now three months after the strategy’s unveiling, it is worthwhile to evaluate the strategy’s strengths and weaknesses for Canadian trade and identify the actions Canada must undertake to successfully implement it.
Promise: What the strategy gets right
Geopolitical risk is central to the Indo-Pacific Strategy, which implicitly recognizes that Canada’s traditional approach of separating trade and economic files from foreign policy and security matters is no longer realistic. Importantly, it situates Canada’s strategy as one to be pursued in coordination with allies, particularly the United States. The strategy adopts a startingly hard line on China, one much more closely aligned to the posture of the US than the positions of Australia, the EU or other allies. And while Minister Mélanie Joly has pointedly advised Canadian business who operate in China that they will have to absorb the associated geopolitical risks, the strategy does commit to “protecting Canadian market access in China.”
This is important because some Canadian exporters such as the pork sector will not easily find substitute markets for China. When such firms inevitably face challenges operating there, it is important for China’s officials to believe Canada will defend and protect Canadian interests. In addition, since China is the top trading partner for most countries in the region, Indo-Pacific countries will be cautious about any perceived efforts by western countries to isolate or exclude China. In implementing its strategy, Canada should listen carefully to signals from countries such as Australia, which has larger trade interests with China and a more sophisticated approach to regional engagement.
The strategy prioritizes several countries for Canadian trade engagement and growth: India, South Korea, Japan and the Association of Southeast Asian Nations (ASEAN) trading bloc. This is a sensible list. India is the world’s largest democracy and the Modi government has stepped back from some of its more protectionist positions; great gains are possible for Canada, in both goods and services trade. South Korea and Japan represent major economies and important foreign policy and defence partners for Canada. Yet, despite having trade agreements in place with both countries, Canada has underperformed in these markets.
It is also important to engage with ASEAN and build stronger, more predictable relations with that bloc of countries. However, Canada must be realistic and acknowledge that overall trade with ASEAN countries is likely to remain marginal for some time. In addition, Canada must recognize the long-term benefit of engaging with complex, emerging economies such as Indonesia, and avoid conditioning their treatment on advancing Canadian short-term, political objectives. Finally, Canada’s commitment to collaborating with Taiwan on trade and other bilateral matters is important in its own right.
Pitfalls: Where the strategy needs improvement
Most attention has focused on Canada’s shift away from China and toward other partners. As important as the new geographic focus is, the strategy remains scant on details about the new initiatives to be undertaken to realize success.
On trade agreements, the strategy would have benefited from greater emphasis on the CPTPP and facilitating the entry of non-members. Canadian leverage is greatest at the CPTPP table, where high standards and ambitious market access commitments are attractive to non-members. Apart from India, which warrants a separate bilateral trade agreement by virtue of its market size and influence, any regional country that cannot meet CPTPP’s standards also will not meet Canada’s standards for a bilateral agreement. Therefore, proceeding to negotiate agreements outside the CPTPP structure reduces Canada’s bargaining power. In this way, Canadian interests would best be served by supporting the entry of South Korea and Taiwan into CPTPP, and encouraging other regional countries to join.
While the strategy commits to growing the government’s diplomatic and commercial supports in the region, there is a danger that Canada may be repackaging old ideas to offer more of the same. For example, the strategy’s planned “Canadian Trade Gateway in Southeast Asia” sounds rather similar to Canada’s “Asia Pacific Gateway” announced over 15 years ago. Other nebulous concepts peppered through the strategy, such as trade “incubators” and “accelerators,” often translate into sending a handful of Canadian trade commissioners to various posts in the region.
The strategy’s promised “Canada-India desk within the Trade Commissioner Service” is likely a more honest characterization of what to expect. Without detracting from the excellent work of those trade commissioners, Canada has already spent a decade spinning its wheels by lightly sprinkling resources across the region in this manner. Fresh approaches are required that respond to the needs of Canadian businesses for local and technical regulatory expertise in destination markets, which Canadian officials may not be best positioned to offer.
However, the most important risk surrounding the strategy is the government’s commitment to implementation. Despite the strategy recognizing Canada’s comparative advantage as a “responsible and reliable energy security partner” to Korea and Japan, the Trudeau government has done little to demonstrate such partnership.
Japan, Korea and Germany have all asked for more Canadian liquified natural gas (LNG) in recent months, as they seek to reduce their dependence on Russian oil and gas and to displace coal for electricity generation. Despite Canada’s strong environmental and labour standards in the energy sector, and ongoing efforts to improve Indigenous consultation and reconciliation related to these major infrastructure projects, the Trudeau government has undermined any confidence that Canada can indeed be the “responsible and reliable energy security partner” these countries are seeking.
Similar challenges face Canadian agricultural exporters. To compete in the Indo-Pacific, Canadian producers need solutions for the higher costs they face relative to competitors such as the US and Australia, including a rising price on carbon, and new emission restrictions on farming inputs such as fertilizers. If the Trudeau government truly wants to grow trade with the Indo-Pacific, it needs to realign its policies to reflect the needs of Canadian sectors most likely to succeed in the region.
After years in the making, Canada’s Indo-Pacific Strategy was unveiled to little fanfare on a Sunday morning in November. It is a reasonable document, and few have taken issue with its contents. The only topic to gain much attention in the ensuing months has been Canada’s changed posture toward China, a position that largely reflects Canadian attitudes. But increasingly, the government’s commitment to deliver is coming under scrutiny.
Geopolitical interests are colliding with trade and economic files, a reality that remains uncomfortable for many Canadian trade officials. How Canada manages the concerns raised by allies and on which Canada could play a productive role such as the energy crisis, will largely determine whether Canada remains at the mature table of leading democracies tackling the world’s most serious challenges. Pragmatism is essential as Canada works to achieve the promise of its Indo-Pacific Strategy while avoiding pitfalls in implementation.
Meredith Lilly is Associate Professor at the Norman Paterson School of International Affairs in Carleton University.