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Canada Should Stop Panda-ring to China

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The Prime Minister's visit to China netted more than a couple of pandas for a decade. It got Washington's attention.

The optics -- notably concerning the oil sands -- was the main aim of the high-level visit. And it worked. The threat that Canada would divert energy to China instead of the U.S.-led Mitt Romney to hoist approval of the Keystone XL pipeline to the top of his political agenda.

There is little doubt that a new version of the Keystone, with a different route or by train, will be approved even if President Obama wins a second term. The Keystone project was ill-conceived from beginning to end. The route was foolish and oil sands production should be upgraded in Canada or shipped by looping existing pipelines from north to south.

The timing made it impossible for any sitting president to approve, especially when to do so would alienate a large chunk of the base of his support. Any mega-project should be broken down into bite-sized pieces, avoid election cycles, and operate under all radars.

For instance, the equally gigantic Alberta Clipper pipeline -- now under construction -- was approved without a murmu in 2009 by President Obama to carry oil sands production through Wisconsin to Chicago refineries.

This is the lesson of the oil sands controversies. Canadian corporations and governments must stop being naïve. Politics and geopolitics trump everything including good will, free trade agreements, contracts, handshakes, and trust.

Which brings me to China.

Canada cannot be naïve when it comes to Beijing either.

There is no way that Canada should embark on a special relationship with China and fortunately, the Canadian delegation did not bite when Beijing indicated that China would welcome a "free trade deal" between the two countries.

A special bilateral arrangement with China would be exponentially more dangerous than relying on the U.S. Congress or American politicians to do what makes economic and energy sense.

China will eat Canada, or any other country, for lunch.

The Prime Minister's trip to China should be followed up with equally prominent visits to the other major Asia-Pacific nations where Canada is on the short end of lop-sided trade relationships. The most asymmetrical relationships involve Singapore, South Korea, Japan, Taiwan, and Thailand as well as China.

Canada has a great deal of work to do in Asia: In the first nine months of 2011 Canadians exported $33.8 billion exports to 16 Asia-Pacific nations and imported $64.8 billion imports. A reversal of these figures must be a trade priority.

Here's the playbook for the PM in that region:

1. The Prime Minister should undertake similar high-level trade missions even in countries with long-established relationships but which import dramatically less from Canada than they could, like Japan or South Korea.

2. Canada must seek trade deals and arrangements that will facilitate the purchase of Canadian-made manufactured or value-added products instead of signing deals to buy more commodities that are already available to any buyer globally. This means deals for lumber, paper, furniture or building modules, not logs and pulp; building materials not raw materials and for cars, trucks, planes, trains, financial services, and machinery.

3. Canada must make it clear to Japan, South Korea, China and the rest that reciprocity is a priority: No investment or market access in their countries and none will be granted in Canada.

4. Canada should firmly state that it seeks bilateral relationships where whatever value-added products Canadians import are offset by similar exports. For instance, Japan and South Korea tax and restrict car imports from North America through devious means that are unfair trade and contrary to the World Trade Organization rules. They should be put on notice, in concert with Americans, this must stop.

5. Finally, just as the China visit got America's attention, visits to all the Asia-Pacific countries will get Chinese attention. These countries must be played off against one another just as America must be played off against Asia.

Fortunately, the Prime Minister, who has blasted China for its human rights violations, gets it.

So do others. Canadians must be reminded about the scandal involving China's Sinopec Shanghai Engineering. The company now wants the Supreme court of Canada to exclude it from appearing in a Canadian court to defend 53 charges of workplace violations against it, outstanding for three years, linked to the death of its own Chinese guests workers at an Alberta oil sands plant.

This illustrates that these countries, and their corporations, can be ruthless when it comes to their own interests. And Canada must be too. This is not about friendship, but about business. This country must realize that it can and should leverage its resources to get value-added and manufacturing export business.

Pandas are one thing. Pandering is another.

This article first appeared in the Financial Post.

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