China has become the third-largest destination for agricultural products worldwide and is expected to become the world’s largest agricultural importer by 2020. China will be crucial to Canada’s economic future over the next 50 years. China is, and will remain, Canada’s second-largest national two-way trade partner after the U.S.
China is also Canada’s second-largest export market, absorbing $4.7 billion of Canadian agriculture and agri-food products in 2014. Unlike many of Canada’s trading partners, exports to China have been climbing steadily and did not fall during the global economic crisis.
Although Canadian agri-food exports to China are dominated by canola products, China is also an important market for Canadian pulses, pork, beef, wheat and barley.
While China’s growing demand for agriculture and food products has benefited Canadian agriculture sectors, Canadian exporters continue to face a number of significant trade barriers which will impede trade growth. As well, China’s domestic policies of food self-sufficiency and its programs aimed at promoting and protecting domestic agriculture, continue to restrict the competitiveness of imported agriculture products and limit domestic demand for imported goods. Tariffs and non tariff barriers also restrict the range of products that can be exported to that country and raise both risk and uncertainty for exporters.
Enhancing agri-food trade with China will require that a number of issues be addressed including tariffs which remain high on many agri-food products, tariff escalation, tariff rate quotas, non-tariff barriers including inconsistent application of regulations, slow customs administration, discriminatory application of China’s VAT on imported goods, and limitations on Foreign Direct Investment.
Addressing these issues could increase and improve Canadian agri-food exports to Canada. The U.S. International Trade Commission estimated that the elimination of China’s tariff and non-tariff barriers could increase U.S. agri-food exports by U.S.$ 3.9 billion suggesting a potential increase for Canada of C$ 690 million.
Last November, Australia concluded its free trade negotiations with China, prompting Canadian business groups to call on the federal government to do the same and expand their already full-plate of ongoing trade talks. In June, China and South Korea signed a free trade agreement, the largest bilateral deal for China in terms of trade volume. China’s experience in recent FTAs (New Zealand, Australia, and Chile) suggests that they may be prepared to address tariffs and other trade barriers in some sectors (malt, barley, pulses, beef, and pork). If the consensus were that broaching a free trade agreement with China is feasible, it would require a large number of significant and highly sensitive issues be addressed. Many of Canada’s agri-food export interests are China’s most sensitive and present significant boundaries to expanding trade.