This is the third article in a series on trade and Canada’s three territories (Yukon, the Northwest Territories and Nunavut). While the first and second article examined the territories’ trade with the Arctic states, this article examines their trade with China, Japan, Korea, India and Singapore, which are the Asian Observer states of the Arctic Council. As these states engage with the Arctic more and more, it is important to understand their regional economic interests and the potential trade and economic benefits that may exist for Canada’s three territories. This article begins by identifying Canada’s free trade agreements with the Asian Observer countries, and then provides an overview of the current levels of trade between the five countries and the three territories. Finally, it looks at the challenges and opportunities of growing interest in the Arctic.
Currently, Canada is a party to two free trade agreements[1] with three of the Asian Observer countries, as shown in Table 1. First, Canada, Japan, and Singapore are signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that came into force at the end of 2018 following ratification by six of the eleven signatories.[2] Second is the Canada-Korea Free Trade Agreement (CKFTA) that came into force at the start of 2015.[3]
Other free trade agreements are also in various stages of negotiation or exploration. For instance, Canada is engaged in “Exploratory discussions for a possible Canada-China Free Trade Agreement”[4] although discussions do not seem to have advanced since 2017.[5] This is not the only free trade discussion that appears to have stalled. Canada and India are also in the process of negotiating the Canada-India Comprehensive Economic Partnership Agreement (CEPA); however, there seems to have been little to no movement on the negotiations since August 2017.[6] Discussions for the Canada-Japan Economic Partnership Agreement also appear to have stalled in 2014.[7] Finally, negotiations for a bilateral free trade agreement with Singapore ended in 2009,[8] although Canada and Singapore, amongst others, are currently engaged in ongoing “Exploratory discussions for a possible Canada-ASEAN Free Trade Agreement.”[9]
This suggests that Canadian businesses should have better access to markets in Japan, Korea and Singapore. However, that may not be the case, especially for businesses in Yukon, the Northwest Territories and Nunavut.
Table 2 provides an overview of the total value of import and export trade between Canada, the three territories, and China, India, Japan, Korea, and Singapore in 2018. The table shows that of these five states, China is Canada’s largest trading partner despite not having a free trade agreement in place. Canada, as a whole, also imports more than it exports to these countries.
The table further shows that the three territories do not trade with all of the Asian Observer countries. In 2018, none of the Territories traded with Singapore, although this might change following implementation of the CPTPP. Additionally, Yukon did not import from India or export to Korea, while the Northwest Territories only imported a small amount of goods from Japan and exported to China, India, and Korea, and Nunavut imported from China and exported to China and Japan. With regards to exports, Nunavut exported to the least number of countries, though Yukon had the lowest dollar value in exports overall.
To appreciate where the challenges and opportunities lie, we need to understand the economic interest of the Asian Observer countries in the Arctic. India, for example, has a lengthy history of Arctic exploration and scientific activity, as discussed in another PRPI article by Hriday Sarma. According to India’s Ministry of External Affairs website, “Today India’s interests in the Arctic region are scientific, environmental, commercial as well as strategic”[10] although their focus seems to remain on their scientific and environmental interests. That being said, India has started to import energy resources from the Arctic,[11] which might be indicative of a desire to further their economic interests in the region. Singapore also has the potential to contribute to Arctic economic development through the provision of shipping services and building oil and gas rigs.[12]
China seeks to expand their global trading capabilities and is investing in a series of new rail and shipping routes in neighbouring countries as part of their Belt and Road Initiative (BRI).[13] The Arctic factors into the BRI through the Polar Silk Road and potential for new shipping routes through Arctic waters. This would save time and money and is important for China’s economic prosperity. Indeed, “China understands the importance in the opening of Arctic shipping routes to boost its export-driven economy.”[14] Similarly, Japan is interested in the possibility of new shipping routes through the Northern Sea Route (NSR) and “…in August 2012, the Ministry of Land, Infrastructure and Tourism (MLIT) set up a board in order to examine the route’s feasibility and logistics for Japanese shipping companies, including ports in the northern part of Japan.”[15] More recently, Japan has recently sought to enter the Arctic energy market through investment in Russia’s Novatek.[16] Korea also has interests in the Arctic shipping industry and has positioned itself to be a supplier of Arctic vessels, such as tankers and icebreakers, and can also provide Arctic capable telecommunications.[17] Additionally, “Korea has aspired to become a hub for the distribution of oil and other commodities transported through or from the Arctic.”[18] However, despite this interest in Arctic shipping, Moe and Stokke have found that China, Japan and Korea’s “interest in Arctic shipping is real but increasingly cautious, and expectations are considerably lower today than in 2012/2013.”[19] All this is to say that while there is interest in Arctic shipping, it will likely still be some time before these routes are developed.
Another challenge is that China’s Arctic investments are often met with suspicion. For example, China’s 2018 bid to finance an airport development project in Greenland was rejected by the Danish government out of consideration for Denmark’s relationship with the United States and possible security concerns.[20] More recently, at the 2019 Arctic Council Ministerial Meeting, Secretary of State, Mike Pompeo, expressed concern about collaborating with Chinese companies on Arctic infrastructure projects.[21] This sentiment was not shared by all, and to this end, just over a week later at the Arctic Circle’s Shanghai Forum, Andrew Leslie, a Canadian Member of Parliament, sent the message that “Canada “welcomes” the chance to work alongside China in the Arctic”.[22] Certainly, the politics of Chinese investment amongst Arctic states could prove challenging when seeking funding for future development projects.
Closer to home, Canada and China are at loggerheads over the house arrest of Huawei’s CFO Meng Wanzhou in Vancouver and the detention of Canadians Michael Kovrig and Michael Spavor in China.[23] Additionally, the Canadian government is in the midst of determining whether or not it will ban Huawei.[24] Although these events are being addressed at the federal level, there are consequences for the territories. For example, these issues have “caused the Northwest Territories government to put a trade mission to China on hold” in February 2019 despite previous efforts to generate Chinese interest in goods from the NWT.[25] Certainly, there are missed opportunities for the territories as long as diplomatic relations remain shaky.
Geography poses another challenge as many of the Asian Observer states are generally interested in shipping activities through the NSR to European markets. This means that territorial trade opportunities may not improve even if new shipping routes become viable. Furthermore, I have previously written that federal funding for infrastructure development in the Canadian North has yet to prioritise port development, meaning that options to bring goods in and out of the three territories via the Northwest Passage (NWP) would likely remain limited even if trade routes through the NSR were connected to Canada and the NWP. This is further complicated with Canada’s capacity to monitor and enforce its shipping regulations in the NWP. That being said, the government is seeking to improve its monitoring capabilities as evidenced in the recommendations from the Senate’s most recent report on the Arctic[26] and through the potential use of drones.[27]
There is, however, the potential for the territories to expand their trade to Asian markets through existing free trade agreements. For instance, trade relations could be developed between the three territories and Singapore under the auspices of the CPTPP, and, similarly, Nunavut may explore opportunities to trade with Korea via the CKFTA. For these opportunities to come to fruition, however, there needs to be political and economic will in both the territories and with the other states for these opportunities to amount to anything. This will mean that territorial and Federal leaders must work together to develop appealing trade mission strategies that promote the economic strengths of the territories and what they have to offer.
The lack of transportation infrastructure in the Canadian North is certainly a challenge to expanding the territories’ trade relations with the Asian Observer countries. While there are potential opportunities to seek infrastructure investment from outside sources, this may not be looked upon favourably by some of Canada’s Arctic partners. Additionally, the implementation of free trade agreements does not automatically result in new economic opportunities, especially for Canada’s three territories. In order to improve trade opportunities, there needs to be a better understanding of what goods are currently being traded between the territories and China, India, Japan, Korea, while possibilities for trade with Singapore need to be examined. With this information, a clearer picture should emerge on how to better facilitate territorial trade with the Asian Observer countries.