Category Archives: US China Trade War

Has Canada become Collateral Damage in the US-China Trade War?

Renaldo Weekes, Guest Contributor 

The trade tensions between the United States (US) and China have subsided for a while as each side has promised not to introduce new tariffs during a 90 day period starting from December 1, 2018, when US President Donald Trump and Chinese President Xi Jinping had a dinner at the G-20 summit in Argentina. Negotiations resume on January 7, 2019 and, so far, it seems that not much has changed as both have committed to their previous stances on the matter. However, the overall context of the negotiations has changed. Canada has arrested Huawei Technologies Co., Ltd’s Chief Financial Officer Meng Wanzhou at the US’ request. Shortly thereafter, China arrested two Canadian citizens, Michael Kovrig and Michael Spavor. Many see China’s actions as a tit-for-tat response to Meng’s arrest and wonder if Canada will now become collateral damage in a trade war between the US and China.

Why were Meng and the Canadian duo arrested?

Meng has been accused by the US of allegedly violating its sanctions on Iran by defrauding multiple US banks. On a layover in Canada, she was arrested by Canadian authorities on request from the US. She has since posted bail and is required to wear an ankle monitor and stay in her residence from 11 p.m. until 6 a.m. Kovrig and Spavor were arrested on suspicion of engaging in activities that were considered as breaching national security. The pair reportedly is subjected to three interrogations a day, must sleep with the lights, does not have access to legal representation and can only have consular visits once a month. Both Canada and China have denied that the arrests of the Canadian pair are related in any way to the arrest of Meng Wanzhou but Canada has said that the arrests were unfounded.

Did Meng’s arrest influence Kovrig and Spavor’s arrests?

Some may see it as a coincidence that Kovrig and Spavor, both Canadians, were arrested in China shortly after Meng, a Chinese heavy-weight, was arrested in Canada. As mentioned earlier, both countries have denied that the arrests are related. However, some persons, including former diplomats, are quite sure that the opposite is true. Reportedly, Chinese officials are concerned about Meng’s arrest. A Canadian parliamentary delegation, currently in China, has engaged in talks with Chinese officials about the pair of Canadians they arrested.  The officials demanded to know why Canada arrested Meng. It is public knowledge that Canada has detained Meng for bank fraud on the US’ request but it seems as though the Chinese believe there is more to the arrest than meets the eye. Fearing the worst, they may have retaliated by detaining two Canadians in order to keep Canada in check. It seems probable that Meng’s arrest had an impact China’s decision to arrest the Canadians.

Do the arrests have an effect on the trade war?

The trade war between the US and China has been quite contentious as each side continually laid tariffs on the other party’s goods until recently. When dealing with any high stakes negotiation such as this one, persons may wonder if external issues would impact the talks. This is especially the case in the current situation as the US has pointed out many problems it wants China to fix such as alleged forced transfer of intellectual property from foreign companies and restricted market access. There is also the issue of the disputed South China Sea where, as recently as today (Monday, January 7, 2018), China claimed that the US violated its domestic and international law by performing acts interpreted as provocation near the sea.

As it relates to the arrests, China’s actions may be ostensibly seen as its modus operandi whenever one of its citizens is arrested overseas, and not related to the trade war. In a previous tit-for-tat situation in 2014, Canadian aid workers Kevin and Julia Garratt were detained for the same national security reasons as the pair of Michaels shortly after Canada arrested Su Bin, a Chinese man wanted for industrial espionage in the US. Mrs. Garratt was released on bail while Mr. Garratt remained detained for more than two years until his eventual deportation, which occurred after Su Bin was extradited to the US and sentenced.

However, as mentioned earlier, Chinese officials seem to believe that Meng’s arrest was political. One may infer that the Chinese may not want the US to receive Meng as this may give additional leverage to the US in the trade talks. China’s paranoia may have been bolstered by comments President Trump made which insinuated that Meng’s arrest may assist in securing the “the largest trade deal ever made.” China may, therefore, seek to create its own leverage by punishing Canada, a US ally, in whatever way it can. China may refrain from committing any additional acts that directly affect the US but still continue current acts with which the US is concerned.

Canada’s situation

Canada is in a sticky situation. China will continue to punish Canada until it secures Meng’s release. Though it is a US ally, Canada’s citizens are the ones being used as pawns in China’s game so it will have to navigate this situation mostly on its own merit. This situation can be, theoretically, immediately remedied by Canada releasing Meng, rejecting the US’ extradition request. China may likely release the Canadians in return and refocus its attention solely on the US. However, this decision cannot be made lightly. Should Canada disregard all credible evidence of Meng’s crimes in order to appease China or will it repeat its 2014 decision of extradition? When weighing this decision against the well-being of your own citizens, it is not an easy decision to make. Canada must keep in mind that this is not a simple tit-for-tat situation for China as is usually the case but a piece on the battlefield. China cannot allow the US to gain what it sees as additional leverage. This ostensibly personal spat is being fought against the backdrop of the US-China trade war.

If Canada arrested Meng outside of the context of a trade war between the US and China, the situation probably would have been the same. The US would have still made the request to Canada as Meng’s arrest was predicated on her committing bank fraud with the intent of violating the US’ sanctions on Iran. China would have still arrested the two Canadians in retaliation since this is its established modus operandi. The weighing of Meng’s crimes versus its citizens’ well-being would still be an issue. As mentioned earlier, the US has a number of issues with China’s actions. Therefore, if not the trade war, Canada may have been collateral damage in some other dispute. It is safe to conclude that Canada is indeed collateral damage in the US-China trade war. However, the trade war is just the biggest of many disputes that have the potential to create more collateral damage.

Renaldo Weekes is a holder of a BSc. (Sociology and Law) who observes international affairs from his humble, small island home. He has keen interest in how countries try to maneuver across the international political and legal stage.

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Global Trade Policy in 2019: What to Watch?

This article has been updated.

Alicia Nicholls

Happy New Year to all! 2018 was without doubt a nail-biting year for global trade policy developments. In our first blog for the year, we take a look back at some of the key trade policy developments in 2018 and five developments to watch for 2019!

  1. US-China Trade Tensions and Truce?

Starting with the scary; 2018 saw an escalation in global trade tensions among major trading powers. Without doubt, the election of President Donald Trump in the US in 2016 has led to a more nationalistic, protectionist and unilateral turn in US trade and foreign policy. Under his ‘America First’ ideology, President Trump issued proclamations hiking tariffs on imported steel and aluminum under the guise of national security, with only a small handful of countries being spared.

Tensions between the US and its other key trading partners, such as Canada and the EU, were inflamed, but China was the main target of US trade action. According to the BBC, the US has imposed tariffs on over $250 billion dollars of Chinese goods and had threatened an additional $260 billion, while China has imposed tariffs on $50 billion dollars of US goods and threatened tariffs on an additional $60 billion. Both countries agreed to a truce in December to suspend any further tariff impositions for a 90-day period while talks resume.

Trade talks held between the US and China this week have been hailed as positive by both sides, but the two economic behemoths are still a long way from resolving long-simmering tensions. US President Donald Trump appears confident that China will acquiesce to the US’ demands given the current slowdown in the Chinese economy. However, the US has not escaped the trade tensions unharmed as, for example,  soybean farmers have been affected by the reduced Chinese demand for their produce.

The WTO has warned that the uncertainty around the escalating trade tensions was beginning to adversely impact business and investment confidence, with potential implications for continued global trade growth. Moreover, in its Global Economic Prospects – January 2019 report, ominously titled ‘Darkening Skies’, the World Bank has warned of darkening clouds over the global economy and softening global trade and investment flows.

2. WTO Reform

On the multilateral scene, the crisis in the WTO’s Appellate Body due to the US’ blockage of appointments appears to have given new political will and urgency to the need to reform the WTO, which is facing its greatest existential crisis since its founding in 1995.

The US’ continued blockage of appointments/re-appointments to the organisation’s seven-member Appellate Body has now resulted in only three sitting Appellate Body members – the minimum for the Body to function.

Several WTO members have tabled proposals for reforms on discrete issues, such as transparency/notification, while the European Union (EU) and Canada have both placed more comprehensive reform proposals on the table, including reform of the dispute settlement system.

However, WTO members are still a long way from deciding on how deep and wide-ranging the reform agenda should be. The US, which has for a long time expressed grave reservations about the Appellate Body, has so far not been convinced by any of the proposals tabled.

This year will be critical for deciding on the way forward for WTO reform, especially since the loss of yet another Appellate Body member will result in the Appellate Body being unable to operate, with grave implications for the prompt settlement of disputes and the rules-based multilateral trading system, on a whole.

3. Regional Trade Agreements – AfCTA, USMCA, CPTPP, EU-Japan 

On the regional trade agreement scene, there were several positive and major developments in 2018. One of the most exciting was in March, 2018 when forty-four African states signed the Africa Continental Free Trade Agreement (AfCTA) in Kigali, Rwanda. Since then, five other States have signed the agreement. Thirteen African States have ratified the agreement thus far and further ratifications will be needed before it comes into effect.

President Donald Trump made good on one of his major trade policy promises – the renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico to make it ‘fit for purpose’ for the 21st century. In November 2018, the three countries announced they had agreed an agreement under a new name – the United States, Mexico and Canada (USMCA) Agreement. Some of the major changes include more stringent rules of origin (RoO), extension of terms of copyright protection, a sunset clause and provision for a 6-year review.  The Agreement is awaiting ratification in the three countries.

After the US’ withdrawal from the Trans-Pacific Partnership (TPP) under President Trump, the remaining eleven TPP parties signed a successor agreement termed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018. The Agreement came into effect on December 30, 2018, and its parties account for an estimated 14% of global GDP.

Five years after negotiations began in 2013, the EU and Japan signed the Economic Partnership Agreement and the EU-Japan Strategic Partnership Agreement. The Agreement, which is on track to come in effect in February 2019, is the first free trade agreement to make explicit reference to the Paris Climate Change Agreement which was signed in 2015.

4. Bolsonaro’s Brazil

South America’s largest country, Brazil, elected Jair Bolsonaro who took office as president at the beginning of 2019. Riding the wave of right-wing populism, Mr. Bolsonaro has expressed support for the unilateral foreign policy espoused by his US counterpart and has expressed apathy about Mercosur. Brazil is one of the most influential emerging economies, both hemispherically and internationally. The implications of the South American nation’s shifting foreign and trade policy will, therefore, be key to watch.

5. Brexit Uncertainty

Of course, one of the biggest trade policy developments to watch in 2019 will be the UK’s impending withdrawal from the EU – Brexit – which, as it stands, is to take place on March 29, 2019.

After nearly two years of intense negotiations, the EU-27 and the UK finally arrived at a Draft Agreement on the UK’s Withdrawal from the EU and a Political Declaration Setting out the Framework for the Future Relationship between the EU and the UK in November 2018. The EU-27 leaders endorsed the two texts at a special emergency meeting of the European Council.

However, in the face of strong opposition to the deal, particularly the ‘backstop’ provisions regarding the Northern Ireland/Ireland Border, UK Prime Minister Theresa May cancelled a crucial House of Commons vote on the deal which she likely would have lost. Mrs. May has sought to obtain further binding concessions from the EU, but without success thus far.

This week, the British House of Commons MPs voted in favour of an amendment requiring the Prime Minister to present to Parliament a Brexit Plan B within three days, in the event that MPs reject the current Draft Withdrawal Agreement in their vote rescheduled for next week Tuesday. Meanwhile, Labour Leader Jeremy Corbyn is calling for a general election to break the Brexit deadlock.

The Brexit deadline looms, but the May Government has ruled out requesting an extension under Article 50. With the timeline for the UK’s withdrawal ticking and the real threat of a potentially economically disastrous ‘no-deal’ exit, this will be one of the major trade policy issues to watch in 2019.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.