Canada pursues possible trade deal with China as softwood lumber dispute with U.S. heats up

Exploratory free trade talks are underway this week as Canadian and Chinese officials visit one another's countries to discuss what a potential trade agreement might look like.

China an important market, but unlikely to replace U.S. as Canada's biggest trading partner, says expert

Chinese Premier Li Keqiang shakes hands with Prime Minister Justin Trudeau during Trudeau's trip to China last year. (Adrian Wyld/Associated Press)

Exploratory free trade talks are underway this week as Canadian and Chinese officials visit one another's countries to discuss what a potential agreement might look like.

Chinese officials are gathering at the offices at Global Affairs Canada, while two federal ministers, International Trade Minister Francois-Philippe Champagne and Finance Minister Bill Morneau, are in China. 

In Washington on Friday, Morneau said his China trip will focus on furthering relationships with his Chinese counterparts and key industry players, while Champagne works to promote the use of Canadian lumber in home construction.

Minister of Natural Resources Jim Carr will travel to China in June with forestry leaders to further look for new markets.

This broad diplomatic push comes as the U.S. looks set to impose new duties on Canadian softwood.

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Joel Neuheimer, the senior director of International Trade for the Forest Products Association of Canada, said the last time the softwood industry faced duties from the U.S. — more than a decade ago — the push to find new markets in China paid off.

"If you look back to 2006 versus 2016, from a percentage point of view, we've really tripled our exports in forest products to the Chinese marketplace, going from five per cent of our exports to 15 per cent of our exports," Neuheimer told CBC News.

That initial effort focused primarily on single-family home construction, he said, but looking to the future the effort will need to be expanded to selling lumber for the construction of larger buildings such as schools, libraries and apartment buildings.

"We're looking at doing even more going forward, again taking into consideration what we're bracing ourselves for here going forward with the United States and the harmful duties they're about to impose on our wood products," Neuheimer said.

U.S. still No. 1

David Mulroney, a former Canadian ambassador to China, explained that at this early stage, officials are trying to figure out how ambitious they should be and whether a future deal would be a full-fledged free trade agreement or something closer to an economic partnership.

A partnership, he said, "is a little more free form" but "maybe a little bit closer to what we need." And while he is in favour of closer economic ties with China, he warned that no one should expect the economic superpower to replace the U.S. as Canada's No. 1 trading partner any time soon.

"China is very important now, it's an important No. 2. It's as important as, if you look at two-way trade, as the U.K. and France, and one or two other partners put together. But it's nowhere near as important as the United States is. So we can't take our eye off the ball when it comes to Canada-U.S. trade," he said.

Mulroney said that China, for the foreseeable future, will not be as big, stable, or as reliable a trading partner as the U.S. is. 

"It's still many times smaller than the U.S. market for us, and it is opaque and hard to penetrate," Mulroney said. "Although we have our problems with certain administrations in Washington or with certain states, the American market is a lot more open and is a lot more welcoming of what Canada has to offer," he said.

Protecting Canadian interests

Carr agreed, pointing out that for provinces such as Quebec, 90 per cent of its exports go to the U.S. He said that maybe it's time to look at better ways to get wood products to Asia, hinting he may have more to say once the duties are announced Tuesday. 

Carr has not been informed what those duties might be, but he told CBC News Network's Power & Politics that industry and government have been preparing for this move for a while.

"We will aggressively protect our interests and we will aggressively protect the forest sector," he told host Rosemary Barton.

Carr said that means looking at short-term impacts of those duties, as well as long-term solutions, such as China.

"We think it's very important that we take this very important industry and make it available to an expansion of export markets," Carr said.