Canada should look to Australia as a warning on the possible dangers associated with a free trade agreement with China, writes Andrew Pickford.

By Andrew Pickford, Feb. 8, 2018

In the pages of Inside Policy, there has been discussion of the potential for a bilateral trade agreement between Canada and the People’s Republic of China (PRC), as well as the impact such an agreement may have on Ottawa. References to the Australia-PRC FTA experience and Canberra’s response have been made. As of 2018, it has become clear that Australia’s reliance on trade with the PRC is starting to have some significant implications on its ability to make strategic choices, with Beijing increasingly leveraging its economic power in ways which at times might conflict with Australia’s national interest.

While Australia is an imperfect comparison to Canada, the extent to which Beijing has sought to influence decisions made in Canberra serves as a warning to those who expect a Canada-PRC trade agreement to manifest sans attached strings.

The PRC is now Australia’s largest trade partner, with total merchandise trade now over AUD$157-billion. The China-Australia Free Trade Agreement (ChAFTA), which came into force on December 20, 2015, means that 96 percent of Australia's goods exports to China are eligible to enter duty-free or with preferential access. ChAFTA was negotiated at a time when bilateral trade had already reached a substantial level. This contrasts with the limited PRC-Canada trade.

The other key economic partner of Australia is the US. Two-way investment between the US and Australia is more than AUD$1.47 trillion. This is a nearly as large as Australia’s GDP. The US is the largest foreign investor in Australia by a significant margin. Furthermore, through the Australia, New Zealand, United States Security Treaty (ANZUS), the two nations are security partners. The emerging tension between Australia’s trade and security relationships, as they relate to the PRC and US respectively, has given rise to the notion of a “China Choice,” which is predicated on a diminished Australia-US relationship in favour of a realignment towards Beijing. This choice is but one element of a broader debate within Australia about the future of its strategic relationship with the US, as economic and demographic trends shift power towards the Indo-Pacific.

The practice of the PRC of building influence through economic statecraft has been well documented and can most clearly be felt and observed among the nations surrounding the South China Sea. In the case of Australia, the desire by the PRC to influence domestic political processes has several drivers.  Beijing perceives Australia as a US proxy and a potential weak link in the Western alliance and “Five Eyes” network. Until recently the PRC has sent extremely senior diplomats to Canberra, whose primary mandate appears to be to reinforce the notion that bilateral trade and economic relations have both commercial and political aspects. The commodity-focused trade of iron-ore, liquefied natural gas (LNG) and increasingly agriculture, has also been subject to Chinese political considerations, which while unstated in public comments, weighs on the minds of Australian decision makers.

The practice of the PRC of building influence through economic statecraft has been well documented.

The broader and more systematic focus of the PRC to influence Australian political processes and public opinion should be viewed as a long-term effort that may already be paying dividends. In a public opinion poll conducted by the Lowy Institute, 36 percent of respondents identified China’s foreign policies as a threat to the vital interests of Australia. Some 42 percent put the Presidency of Donald Trump in the same category. This could be partially attributed to the media commentary of the Trump administration, especially by the national broadcaster ABC, but it highlights the cumulative influence of the PRC’s positioning as a peaceful benefactor of Australia’s economy.

The first public indication of Chinese efforts to influence debate within Australia occurred during the 2008 Olympic torch relay through Canberra and Sydney. A large presence of pro-PRC government supporters clashing with Tibet and human rights campaigners, demonstrating the ability of the PRC to mobilize its nationals and the large Chinese diaspora. This also shone light on the influence held by the government of the PRC over Chinese language media in Australia.

Another key conduit for the PRC to expand influence is through the funding of academic institutions and programs. This can particularly be seen among the Confucius Institutes, which spread a positive and lightly pro-China image through language and cultural programs. In more targeted efforts, the PRC, either directly or through surrogates, funds academic programs and centres. The most striking example of this is the Australia China Relations Institute (ACRI) at the University of Technology, Sydney, led by former NSW Premier and Australian foreign minister Bob Carr. Academic critics on the left and right identified the ACRI as being close to the PRC embassy and operating as a “propaganda arm” for the PRC Communist Party.

Bob Carr, who is still involved in the Australian Labor Party (ALP), has influence over current members of parliament and exploits these connections to promote pro-PRC positions and expanded influence. Large PRC political donations to the ALP (as well as the centre-right Liberal Party) may be one reason for these actions. Such was the concern of the influence of PRC-donors on the political process that, in 2015, the head of the Australian Security Intelligence Organisation flagged this with the heads of the organizational arms of the three main political parties.

Another key conduit for the PRC to expand influence is through the funding of academic institutions and programs.

A 2017 ABC Four Corners-Fairfax investigation into PRC Communist Party links to the Australian political system raised these issues in a systematic manner. Based on an analysis of PRC actions, investments and diplomatic moves, it appears that there has been a concerted effort by the PRC to influence Australia political system since at least 2000, with limited and less structured efforts beginning even earlier.

What is surprising for outside observers is the success of the PRC in influencing Australian defence and strategic policy. Two examples are worth highlighting. In 2009, then ALP Defence Minister Joel Fitzgibbon resigned, in part, after undeclared gifts, including a suit and flights, were received from a PRC-linked businesswoman. In 2017, Carr-aligned ALP Senator Sam Dastyari defended the PRC’s policy in South China Sea, in defiance of ALP policy, while standing next to a wealthy Chinese businessman and ALP donor. Senator Dastyari would ultimately resign from parliament in early 2018. However, it became clear that the systematic attempts by the PRC to influence Australia’s political system needed to be addressed.

The Foreign Influence Transparency Scheme Bill was introduced in December 2017 and remains before parliament. This would ban foreign political donations; require a registry of those seeking to influence Australian politics on behalf of other nations; and expand the definition of espionage to include the “possession” of sensitive information. This legislation was introduced due to growing concerns by the intelligence community about the influence of Chinese Government agents and political donations. Official PRC and local proxies reacted furiously, and bilateral relations have remained tense ever since.

At the strategic level, some within the governing Liberal Party have started to publicly signal concern about growing PRC influence in the region, including the South Pacific, Papua New Guinea as well as across the broader Indo-Pacific region. Furthermore, the emergence of the quadrilateral — a US aligned grouping involving itself, Australia, Japan and India— and enhanced bilateral Australia-Japan strategic relations (likely Joint Forces Agreement) are part of the pushback against concerns over aggressive PRC expansion.

In many ways, influencing Canada may be more attractive than targeting Australia.

Despite earlier success in repositioning, there is a potential reversal of China’s recent expansionary trends. Actions by the Trump administration in its first year slowed US strategic decline in the Western Pacific after a period of gradual concessions during the eight years of President Obama. With a growing economy, clearer defence focus on the broader Indo-Pacific, an ambitious National Security Strategy and a changing dynamic on the Korean Peninsula, abandoning Washington for Beijing may not be only a bad moral decision by Canberra, but a bad strategic decision. Beijing understands these dynamics and will likely continue to link trade and political matters throughout 2018 and will have a clear interest in the 2019 Australian federal election.

In pursuing a PRC FTA, Ottawa should not naively expect Beijing to act in its national interest, nor to separate political and economic issues. In many ways, influencing Canada may be more attractive than targeting Australia. After all, Canada is literally next door to the US, the PRC’s primary strategic competitor. The experience in Australia shows the extent to which the PRC can influence a political system as trade ties deepen economic reliance. More worryingly for Canada is the PRC links with the Trudeau family, including the Pierre Elliott Trudeau Foundation through substantive donations, which were documented in The Globe and Mail on November 22, 2016, which may distort the cost-benefit analysis of any proposed deal.

Canada’s involvement in the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership is a positive development, even though actions by Trudeau in November 2017 almost derailed the entire agreement. Similarly, a positive conclusion to NAFTA would provide more flexibility. Aside from the negative impact of a rushed and poorly structured Canada-PRC trade deal, political leaders should consider carefully examine the experience of other Western democracies with the PRC.

Andrew Pickford works between North America and Australia in the areas of strategy, economic analysis and energy with a range of organisations, both private and public.