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Canada and Australia in Asia-Pacific: Walking the Walk or Talking the Talk

Mar 06 , 2015
  • Hugh Stephens

    Distinguished Fellow, Asia Pacific Foundation of Canada

Canada and Australia, both close allies of the U.S. and both with political and economic stakes in the Asia-Pacific region (they were founding members of APEC along with the U.S. and seven others in 1989), have nevertheless taken quite different routes with respect to the exploitation and full expression of their Asia Pacific credentials. While both countries have much in common in terms of heritage and history—and these days Prime Ministers Harper and Abbott seem to be each other’s best friends—one area where they are light years apart is in their Asian strategy, at least when measured by concrete results.

Australia grasped the reality some time ago that its future is inexorably linked with Asia although Australia, like Canada, still looks to the U.S. for its ultimate security umbrella and as an important trading partner. The U.S. is Australia’s no. 3 trade partner, after China and Japan, but Australia runs a large deficit in its trade with the US, unlike with China, Japan and Korea where it has strong surpluses.  Canada, by contrast, is still the no. 1 partner of the US in two-way trade, and the largest export destination for US products, although Canada runs a small surplus in its trade with the U.S. Canada is clearly in a different geopolitical place from Australia when it comes to economic and security relations with the U.S., but Canada—like Australia—still needs to invest in strengthening its ties with Asia in order to take advantage of Asian economic growth in the 21st century as well as to diversify away from a traditional over-reliance on the US market.

Canada and Australia may both have been present at APEC’s birth, but since then the difference in commitment to an Asia-Pacific strategy has been markedly different. Australia’s Asian persona has been pursued aggressively by successive governments while Canada’s attention has been half-hearted and sporadic, and the results show it. For example, the potential of the Chinese market has been much hyped in Canada and much has been made of the growth of Canadian trade with China over the past few years. Canadian exports to China have indeed more than tripled in absolute terms since 2004, from $6.8 billion to almost $21 billion in 2013 although Canada, like the U.S., continues to run a significant trade deficit with China. However, while absolute trade numbers have increased, Canada’s market share of Chinese imports has stagnated, remaining at just over 1% during this period. By contrast, Australia’s market share has more than doubled during the same period, increasing from 2% to 5 %, with Australian exports to China reaching A$95 billion in 2013. To cap it off, after a decade of protracted negotiations, Australia has concluded only the second trade agreement between China and a developed country (after China’s agreement with New Zealand) and the first with a real degree of economic significance.

The deal, reportedly worth $18 billion to the Australian economy over the next decade, brings a range of benefits to Australian exporters—85% of Australian imports will be duty-free upon entry into force of the agreement; tariffs on thermal and coking coal are to go within 2 years (a key area where Australia competes with Canada); tariffs on wine, seafood and meat will be progressively eliminated; service providers across a range of services will get better access.  Despite concerns about levels of Chinese investment—a concern shared in Canada—Australia will still be able to screen investment proposals by private investors from China in agricultural land (a sensitive area in Australia) and Australia’s Foreign Investment Review Board will continue to screen proposed investments by Chinese State Owned Enterprises, regardless of value. Concern about uncontrolled Chinese investment is one of the reasons for the Canadian government’s lukewarm response to China’s proposal to negotiate a comprehensive trade and investment agreement. Australia has dealt with these issues and in almost every area where Australian and Canadian products compete in the Chinese market, Australian producers will now have an advantage, either immediate or over time.

China is not the only Asian market where Australia is well ahead of Canada in terms of growing market share. The same applies in Japan and Korea and it is not just in trade volumes, but in trade infrastructure, where Australia has a large lead. According to the Asia Pacific Foundation of Canada, Australia has 11 Bilateral Investment Treaties with Asian countries. Canada, by contrast, has 3. Where Australia has 8 Free Trade Agreements with Asian countries either in force or concluded, Canada has just one (with Korea). Australia has decided to join the new Asia Infrastructure Investment Bank, led by China, while Canada has remained silent.

The differences in commitment and results have not gone unnoticed in Canada and after the Harper government’s initial years of neglect of Asia in general and China in particular, Ottawa has started to play catch up.  After initial hesitation, Canada pushed hard to join the Trans-Pacific Partnership (TPP) negotiations in 2012 as a latecomer and, along with Australia and the US, will benefit from an improved trade and investment framework with the other nine TPP partners if an agreement can be concluded. With regard to China, Mr. Harper’s most recent visit last November was, by all accounts, a success. The visit was another step in repairing a frayed relationship and led (according to the press communique) to the conclusion of $2.5 billion in contracts for Canadian companies, although the haul fell short of the total deals signed during his visit two years earlier. The visit was also the catalyst for Canada’s long-delayed ratification of its FIPA (Foreign Investment Promotion and Protection Agreement) with China. Finally, it resulted in the establishment of annual strategic dialogue mechanisms and the announcement that a Chinese currency trading hub would be established in Toronto, the first in North America. Such a facility already exists in Sydney and the modest steps forward taken by Canada were quickly overtaken by the announcement of the conclusion of the Australia-China FTA.

But building closer linkages with Asia cannot rest exclusively on the pillar of trade. Australia has recognized the need to structure its defence capabilities to take account of South Pacific and Asian contingencies. Canada has fewer assets in theatre and less capacity to project a military presence in Asia, but has started to take steps to engage more regularly, such as by attending the annual Shangri-la Dialogue meetings and a more active program of military visits. Cultural and people to people links are also important, and a key asset for Canada is its large Asian immigrant population, with China, the Philippines and India being the top three current sources for immigration. Australia too attracts significant Asian immigration.

For the U.S., its own rebalance to Asia has an important if not overriding military component but economics and trade is also an important part of the tool kit especially under Secretary Kerry where the economic dimension is being given greater prominence.  At the end of the day, Asian states will look at potential partners around the Pacific Rim and determine if they are ready to walk the walk or simply talk the talk. So far the lesson of Canada and Australia is that walking the walk requires sustained, strategic commitment, but has a big potential payoff. Australia has been taking concrete steps to solidify its relationship with Asia; Canada has been talking about it, and is only now starting to put into place an engagement program with substance. The difference in outcomes is notable. While the US cannot be compared to either of these two Pacific Rim countries, it too has to decide which road it will take.

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