Harper in China: rules of the game

Paul Wells on why we should file the trade agreement between Canada and China under “might help; can’t hurt”


Photograph by Paul Wells

It’s an odd visit. Today the middle of Stephen Harper’s day was taken up with what our itineraries described as a “round-table meeting.” The Prime Minister’s Office sent us a list of the Canadians who attended: Pierre Beaudoin from Bombardier, Roy Cook from the Canadian Manufacturers and Exporters, Duncan Dee from Air Canada, Lowell Jackson from CAPP, Amit Chakma from UWO, Lorraine Mitchelmore from Shell, Patrick Lamarre from Lavalin.

It actually took a while for me to ask the pool reporter (many of the events on these trips are covered only by a single reporter and camera, who share with everyone else) whether anybody Chinese was on hand. Nope. Just the Canadians. Chattin’ about the federal budget in Beijing. More of a semi-circle meeting, really.

The news came later: “PM Announces Agreement That Will Facilitate Investment Flows Between Canada and China.” This is the semi-mythical FIPA, for Foreign Investment Promotion and Protection Agreement, signed by Trade Minister Ed Fast and his Chinese counterpart, Chen Deming, while Harper and Chinese Premier Wen Jiabao looked on.

Successive governments have been trying to get one of these for 18 years. Harper has nearly got this one, subject to legal review on each side, review and ratification. It’s supposed to submit foreign-investment decisions on either side to non-arbitrary rules and a formal appeal process. The communiqué was laudably vague about the extent to which that’s actually been achieved: it speaks of a “more stable” environment for investment, “greater” protection and “greater” confidence. It’s hard to get more excited than that, because Chinese local authorities have a nasty habit of expropriating things randomly and it’s not clear that a new piece of paper will be better at bringing them to heel than any previous paper was. The fair answer is that it’s probably better than not having an extra piece of paper. One official I spoke with said the prospect of a bilateral dispute-resolution panel means that at least the national Chinese government will be made aware, each time local authorities flout the rules of fair trade. File this one — tentatively, until we see the fine print — under “might help; can’t hurt.”

Much of the other paper released at the Great Hall of the People after the Wen bilat was still less groundbreaking. A new Memorandum of Understanding on Energy Cooperation “is a continuation of the MOU signed in 2001 and renewed in 2006.” An agreement on “Market Access for Canadian Beef and Tallow for Industrial Use” “represents the next step of the 2010 Cooperative Agreement,” and returns bilateral beef-bits trade to the pre-Mad Cow status quo ante “for the first time in almost a decade.”

A “Call for Science and Technology Proposals” is part of a program “established in 2005.” New changes to the “Canada-China Scholars’ Exchange Program” opens to undergrads and mid-career professionals a program that has been available to faculty and grad students since Pierre Trudeau’s first term in office.

At an evening news conference, Harper pointed to FIPA, the trade agreement, as one of two “major milestones” he has accomplished that none of his predecessors could. The other is Approved Destination Status for Canada, which permits Canada to market itself as a destination to Chinese tour groups in China. It’s true that Canada obtained this status, in 2009, under Harper. It’s true that it led to an increase in Chinese tourism, “approximately 25% more Chinese visitors,” the PMO says. It’s also true that 141 countries benefit from Approved Destination Status, making Canada one of the last countries on Earth to get it.

So the day’s theme would seem to be “paper that can’t hurt and may help.” This includes the newspapers. The semi-official China Daily had a lead editorial on Canada, saying that “both sides” — i.e., not just Canada — feel an “increasing need to bring bilateral ties to a new level.”

Perhaps more significant is this op-ed from Joe Nocera, a Democrat-leaning New York Times columnist who here demonstrates he gets the message the PMO has done everything to send: overtures to China are Canada’s punishment for US fecklessness as a client for our oil. The substance of the trip may matter less than its timing. Which would be handy, because the substance is a bit slim.

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Harper in China: rules of the game

  1. China must have been excited by the PM’s example of completely rolling over for the Americans on softwood lumber.  If any country wants sweetheart deals at Canada’s expense, get them while this guy is in office. 

  2. Not surprising there is nothing substantive on paper when the meeting/trip seemed to have been thrown together in a rather adhoc last minute fashion. Bu hao.

  3. Here’s a question you can pose via the pool reporter.

    The Northern Gateway Pipeline Project, as currently configured, will require very significant imports of condensate from PacRim countries to thin the bitumen (imported through tankers at the same Kitimat terminal).  

    What sort of trade guarantees/MOUs  will Harper be seeking from PacRim countries to guarantee supply of this now critical diluent so as to not adversely affect/shut down oil sands production?

    Remember how Putin used natural gas supply interruptions against Europe/Ukraine in the past? Who there was the real “energy superpower”?

    • What is condensate and is it the Chinese that have it?  And what’s up with Econolab that
      they won’t let you post on this subject?

      • When natural gas is produced some fields have liquids (NGLs – natural gas liquids) that are produced with it. When they reach the surface and are cooled to near STP (standard temp and pressure) some gas then condenses out. It usually fetches a premium (has the valuable part of the “barrel”) and is used as feedstock for petrochemical plants.  Think of maybe kerosene. 

        I asked NGP twitter guy, but all they’d say is that it will be sourced from LNG (liquified natural gas) facilities in the Pac Rim. I doubt China would sell if it had them. They’d use them for petrochemical feedstock.

        Re; EconoLab. Dunno. Maybe because I don’t have tenure somewhere. And I piss some people off.

        • And do we need this in order to ship the bitumen or are we using it for something else?

          • For the NGP yes you do need it. 

            Oilsands bitumen is too viscous to ship without thinning it with a “diluent”. So, the dilbit (diluent/bitumen) will be 30% condensate (mainly imported) and 70% bitumen. This means 30% more volume shipped/tankered out of Kitimat, and 30% imported from the PacRim using separate tankers. Additional storage tanks at Kitimat, and a second pipeline to ship condensate from Kitimat to near Edmonton.

            So, roughly double the tanker traffic (30% + 30%  vs 70%)

    • Not a problem.

      1) The horizontal multifracking which is unlocking all this new natural gas and light oil in BC, Alberta, and Saskatchewan is also producing an abundance of new condensate supply that wasn’t anticipated when Gateway was first planned.

      2) If condensate is not available or becomes tight in supply, it just become an incentive to do more upgrading in Alberta and Canada, upgraded oil which can be exported through Gateway, rather than diluted bitumen.

      • 3) As Asia/China builds all these new state-of-the-art refineries to handle heavy crude from Canada, Venezuela, and Saudi Arabia, it will make damn sure that supplies are not interrupted.  Refining is a low margin spread business.  It is very easy to lose money refining oil, so it is really, really dumb to not have supply for your ridiculously expensive-to-build-and-operate refineries.

        • 1. Maybe. But forecast for bitumen prod has also gone WAY up since then.

          2.Agree. There is already an incentive to upgrade in AB. Why sell dilbit/synbit at a discount?

          3. No doubt the Chinese strategy is to vertically integrate. Then issue is transfer pricing. Sunshine_Coaster knows how it works (he commented on this elsewhere items 2 &3 here: http://www2.macleans.ca/2012/02/07/mr-harper-goes-to-beijing/#comment-432427826 ). Through “aggressive” accounting, transfer all costs to Canada, all profits to China. Same with vertically integrated refineries in Gulf Coast (own oilsands producer/US refinery – do no upgrading in Canada.)

          Read my comments here:

          • Alberta has reserved the right to take its royalty in kind, in bitumen, which once the projects are paid off will be up to 25-40% of an awful lot of bitumen.

            So Alberta can choose to develop as large an upgrading industry as it wishes too over the course of time, choosing times to have upgraders built when it won’t overheat the economy.

            By pacing the development of upgrades, it will give time for constant improvement in making each upgrader less carbon emitting from the start, as engineers figure out how to capture the CO2 to use for enhanced oil recovery, i.e. using CO2 instead of precious water.

            It would be silly to build all the upgraders now before the carbon capture part of the engineering processes is figured out progressively.

          • If you build upgraders, you are simply diverting investment from bitumen production. The only reason that O&G companies don’t want to do this is that from THEIR perspective, it is more beneficial economically to go full out on primary production – upgrading elsewhere, and all the short medium and long terms problems that scenario creates for AB. 

  4. “…  overtures to China are Canada’s punishment for US fecklessness as a client for our oil. The substance of the trip may matter less  …. ”

    Chinese leaders are savvy people, you don’t get to top of greasy pole in China by being a dullard, they know what’s what. ChiComs will have their own reasons for holding these meetings with obscure/ unimportant Canadian PM on short notice and I am more interested to learn what Chinese are thinking.

    So far, China does not desire to join free trade talks and wants to be in charge of its economic destiny. It is interesting, ChiComs are colonizing the world and making sure it has supply of natural resources but it does not want to join free trade pacts.  

    If Harper was serious about trade and creating wealth, he would stop playing footsies with ChiComs and start taking pacific free trade discussions seriously. 

    Sydney Morning Herald ~ Nov 2011:

    The leaders of the negotiating countries — the United States, Australia, New Zealand, Malaysia, Singapore, Vietnam, Brunei, Chile and Peru — will meet on Saturday to discuss the status of the talks and Japan’s request to join. All nine members must consent to Japan joining. Incorporating Japan and concluding a deal would create a regional market around 40 per cent bigger than the 27-nation European Union.

    Globe/Mail ~ Feb 6 2012:

    On Tuesday, as Stephen Harper arrives in China, a delegation from Japan begins talks in Washington that could affect Canada’s trading future far more than anything that gets signed in Beijing.

    Canadian Encyclopedia:

    In foreign policy, the Liberals at first stressed economic diplomacy above all, and Chrétien led a series of highly publicized “Team Canada” missions to various countries and regions. In terms of photo opportunities and favourable media, these were undoubted triumphs. Their longer-term benefits were perhaps more elusive.

  5. “It’s also true that 141 countries benefit from Approved Destination Status, making Canada one of the last countries on Earth to get it.”

    lol…maybe all pmos are like this but this pmo, and this PM, seem to be particularly irony deficient.

    • But this was primarily a failure of the previous Liberal government, not Harper.

      • You know that for sure do you? My impression from PW’s piece is that despite that 141 other countries still got in ahead of us – implying that Harper was slow off the mark too, and not all that much of a reason to brag really, since we were still next to last.

        • Well China sure made up for the lost time!  Every tourist that asked me for directions or I took a group pic for along the seawall Saturday was from there. 

          One guy was an English teacher who brought 20 of his students along.  They had been in B.C. for two weeks and were spending their last day renting bikes to do Stanley Park.  Can’t rember the name of the city he said he was from, but they all kept saying “the air, the air…it is so fresh”

          From G&M:

          Since then, tourism to Canada has increased by 25 per cent.

          “It is one of the few industries in the world whose raw material is goodwill and whose finished product is friendship,” Harper said Wednesday in speech to a crowd that was a mix of Chinese officials and the Canadian delegation.

          “And I think the world needs all the friendship and goodwill it can get.”

          The head of CYTS said the Chinese are already impressed with Canada’s landscape and citizens.

          “Travel is the best way to build bridges between people and countries,” said Zhang Li Jun, through a translator.

          • I’m relieved to find they like our open spaces and not:

            “This is perfect place for a factory, what you wasting it for?”

            Try not to fall off the seawall eh…you jammy bastard…it’s -21 C outside my door and headed downwards right now. :)

  6. In my experience working is Asia, a contract signed by the highest ranking people in the Chinese Communist Party, is just the opening phase in business negotiations.  If Harper thinks these pieces of paper and photographs mean anything at all, then Canada is in real trouble.  Canada’s Energy Policy is bring manufactured in China just like all the other poor quality items that take jobs and prosperity away from Canadians. 

    • “In my experience working is Asia, a contract signed by the highest ranking people in the Chinese Communist Party, is just the opening phase in business negotiations.”

      I worked in South Korea teaching english and now work for American consulting firm that does work for Japan/Korea automakers with plants in North America. I am far from expert on China/Orient culture but I do have some rudimentary knowledge.

      For past couple of years, I have been wondering about how world will do business with China. Buddhist/confucian culture is fundamentally different to what we have in North America/Europe, and while Japan/Korea have adapted and introduced some Western practices, China is huge and appears it’s going try and keep its traditional habits/culture and make world bend to it.

      There are many cultural norms in China/Korea/Japan that we in West would think are corrupt and should be punished and vice versa. Orient all about personal connections, friends helping friends and we think of it as influence peddling, as just one example. 

      Will China and rest of world get along? And what about India, it’s starting to have influence in world politics as well. It is all so interesting.

  7. Ah … we’ll have to wait until the pronouncement from the I-team to find out
    what really happened.

  8. Several decades ago anyone who travelled to a Communist country to meet with Communist Party officials would be shunned, ridiculed and perhaps even jailed upon their return to North America.  The political and corporate establishment closed ranks to punish anyone daring enough to “talk” to communists.  Senator McCarthy made a career out of abusing labour leaders, political scientists and politicians who dared to do this.  Tommy Douglas is still criticized by conservatives for simply attending a conference where communist party members spoke. 

    Today we have McCarthy’s ideological descendents unabashedly travelling to China to cut a business deal with Chinese Communist Party officials. Our Prime Minister, who consistently advocated for LESS government influence in the economy, is travelling with a select group of corporate leaders who stand to benefit from this deal and they all appear ready to turn over huge influence over Canada’s Energy Policy to the government of Communist China.  And it appears Canadian conservatives  are applauding; McCarthy must be spinning in his grave.  It is ironic that at this meeting with the leaders of the People’s Republic of China, which was established by and for the workers of China, our Prime Minster is accompanied by wealthy corporate leaders, but not a single worker or worker representative.  Harper’s bias is obviious when he pals with the Air Canada CEO, but shuns the people who operate Air Canada. 

    I hope the citizens of Alberta are prepared for what will hit them when the Chinese government really gets established there, but somehow I don’t think so.  American capitalists have been gentle with them, but Chinese Communists won’t.  I worked for PetroChina and have some insight in this area. 

    • So what do you suggest, specifically, that the government should be doing instead of what it is doing?

      • It would be a good idea if the government actually had an open and honest dialogue and debate with Canadians and their representatives in the House of Commons about what policies are needed to benefit Canadians, in particular Energy Policy.  Over the past few weeks the government has essentially declared that the Northern Gateway pipeline will go ahead as planed by corporate Canada, regardless of any objections by Canadians and that this is a strategic necessity for Canada. No debate.  Then, having made this energy policy obvious even to the Chinese on the other side of the globe, he takes off with a plane load of the same corporate executives to “negotiate” a deal.  I have personal experience to suggest this will be an easy negotiation for the Chinese and it will not benefit Canadians.  This is exactly how the Chinese government has taken control of various resources in developing countries around the world.  During those comfortable meetings in Bejing corrupt government leaders and their corporate pals suddenly became shareholders in ventures that robbed resrouces from the citizens they were supposely representing.  It would be nice if Harper could think of a different way of doing business with the Chiense. 

        • “the Northern Gateway pipeline will go ahead as planed by corporate Canada, regardless of any objections by Canadians and that this is a strategic necessity for Canada. No debate.”

          Umm, there’s that eentsy weentsy little matter of the regulatory hearings that must, and will, take place.  For starters.  Regulatory approval is required for Gateway and is by no means assured.  Thus your statement is on its face false and absurd.  There’s tons of debate going on with respect to this issue, at the political level, at the media level, and you can be sure that this will be debated vigorously at the regulatory hearing level.  If you want to be taken halfway seriously, then tone down the exaggeration and hyperbole.

          • All regulatory approvals are non-binding on the government.  Yes there may be debate, but the Harper government can ignore that expert advice just like they ignore expert advice on many other issues.  Harper and his ministers made statements characterizing environmental groups as foreign controlled radicals that must not be allowed a voice, when in actual fact the foreign interference is coming from the pipeline proponets that he is now meeting with in Bejing. 

  9. It appears more and more decisions about Canada and how the 1% are going to sell the rest of us out are made abroad now. Wasn’t there once a time that these decisions were made here and announced to the Canadian people prior to implementation?
    Given the trend for decisions and announcements on Canada’s future to be made abroad, why do we even have a parliament or a consultative process? Hey more public sector savings there.

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