It may be a case where winning feels more like losing.
Canada is taking China to the WTO over the ongoing dispute over canola seed. But even if Canada prevails, there’s no guarantee China will resume shipments, and the victory could prove Pyhrric, as any tarrifs that Canada might then legally impose could end up costing the Canadian economy as a whole more than it gains, according to a recent study by University of Manitoba agricultural economists Ryan Cardell and Derek Brewin.
“This is not to suggest that Canada should not pursue a formal WTO case, but a decision to impose retaliatory sanctions after winning a case could turn a symbolic victory into a pyrrhic victory,” the paper, entitled Blackleg or blackmail? Economics of the Canada — China canola trade dispute, says in part.
“The decision to proceed with retaliation, should Canada win a dispute, is not an obvious one.”
Nevertheless, farmers and industry organizations say Canada must make its case before the WTO because China, contrary to WTO rules, it has refused to engage with Canada to try address its concerns that led to a de facto boycott of Canadian canola seed starting in March.
China claims Canadian canola seed shipments were contaminated with weed seeds and plant diseases — a charge the Canadian Food Inspection Agency says it can’t verify.
Many observers believe China’s real beef is Canada’s arrest last December of Huawei executive and Chinese citizen Meng Wanzhou at the request of the United States.
China was Canada’s biggest export canola seed export customer in 2018. A defacto ban on Canadian canola shipments is now costing farmers $1 billion annuals according to the Canola Council of Canada.
Canada is seeking bilateral consultations with China through the WTO International Trade Diversification Minister Jim Carr said in a statement Sept. 6.
Under WTO rules, Canada and China should meet within 30 days, and if these talks fail, Canada can request adjudication by a panel, Reuters reported.
The WTO timeline means there is slim chance of a resolution before Canadians vote in a federal election on Oct. 21.
“Our government is committed to rules-based international trade and has continued to advocate on behalf of Canadian farming families since China raised concerns over Canadian canola earlier this year,” Carr said.
Canola groups including the Canola Council of Canada (CCC) and Canadian Canola Growers association welcome Ottawa’s action (see related story).
But even if the WTO rules in Canada’s favour it doesn’t guarantee China will resume imports of Canadian canola seed. Nor will the imposition of retaliatory tariffs, which means they could be an increased cost to Canada with no net benefit in the end.
Canadian tariffs on Chinese clothing or electronics is a tax on Canadian consumers and “is not likely to affect their (China’s) trade policies on (Canadian) agricultural products,” Cardwell said in an interview Sept. 12.
But trade rules matter and many countries who lost trade challenges complied with WTO rulings without penalties, Cardwell added.
For months canola farmers and the Canola Council of Canada have urged the government to take China to the WTO, but since it’s a slow and costly process, countries try to fix trade issues before going that route, Cardwell said.
“Countries don’t want to have a formal dispute,” he said.
“It’s like a divorce or a lawsuit — you don’t want it to go to court. It’s not good for anybody.
“It’s in everybody’s interest if it gets solved before that. I’m sure there were some bilateral negotiations going on and only when they went nowhere did the government take the decision to formally notify the WTO that they were going to pursue a case.”
Somerset farmer Edward Grenier is happy it did.
“That’s why the WTO is there,” he said in an interview Sept. 12. “If the reason China isn’t taking Canadian canola (seed) is found that’s one thing, but I think it’s purely a political move and it’s the farmers of Western Canada suffering because of it. Canola is under $10 (a bushel) now and our costs keep going up. People will be growing canola and losing money.
“The WTO is maybe a way to find a resolution to this problem.”
Brian Inness, CCC vice-president of public affairs, agrees. Under WTO rules countries have a right to protect domestic crop production against foreign pests, but they also have an obligation to explain scientifically what pests present a threat and implement safeguards “that are the least trade-distorting as possible.” China hasn’t done that, he said in an interview.
In addition to complaints about certain weed seeds, China also complained Canadian canola seed contains a strain of the fungal disease blackleg that China doesn’t have. But Canada and China signed an agreement in 2016 on how to reduce the risk to China, which includes Canadian canola going to 16 designated crushing plants located far away from China’s canola growing area, Innes said.
“Agreements matter, rules matter and enforcing rules is important for predictability,” he said.
While WTO rules cover phytosanitary concerns, there’s lots of wiggle room and it’s possible China has a legitimate complaint, University of Manitoba agricultural economist Derek Brewin said in an interview Sept. 12.
But the fact China has not met with Canadian officials, or provided scientific evidence to back its claims, supports the notion geo-political factors are really what’s at play, Brewin said.