The Dragon, Canada's friend and foe
By Paul Weinberg

TORONTO - The irony of China using the power of the state rather than free markets to boost its industrial, technological and economic development is not lost on Canadian trade unionists, unable over the past two decades to convince their own government to adopt similar measures. Instead, Canada's traditional role as a supplier of energy, minerals, agricultural products and other raw commodities for the global superpowers, primarily the United States but increasingly China, "has been cemented", says Jim Stanford, an economist with the Canadian Auto Workers Union.

On January 20, Chinese Premier Wen Jiabao and Canadian Prime Minister Paul Martin signed a deal in Beijing to develop uranium mines and oil reserves and to expand trade between the two countries. Martin has recently extolled the virtues of closer cooperation, saying at a recent Canada-China Business Council dinner: "From British Columbia, Canada is the ideal gateway from China to North America, and from North America to China...And thanks to 15 years of free trade, and a decade of NAFTA (the North American Free Trade Agreement), Canada can provide assured access to a continent that is largely barrier-free."

But while successive Liberal and Conservative governments in Ottawa have taken the position that free trade alone would make Canadian companies more productive and innovative, that has not happened, according to Stanford. China's economic success is not simply the result of a natural abundance of labor - which every poor country has. Rather, says Stanford, China's boom "reflects a deliberate, semi-planned strategy to construct advantage in sophisticated industries with the help of powerful state interventions: subsidized capital, investments in infrastructure, a managed currency, and of course, forcibly cheap and compliant labor."

Now that China is scouting the world to obtain raw materials and energy for its growing domestic industrial sector, Canada is viewed as a secure supplier. "Believe it or not, trade with China is reinforcing our historical status as an exporter of staples," first as a colony of Britain and then of the US, says Stanford. To the applause of Canada's leading national and business daily, the Globe and Mail, Federal Industry Minister David Emerson is taking a serious look at toughening up his country's notoriously weak laws regarding foreign takeovers of its companies.

The announcement that Chinese state companies are seriously looking at buying Canadian mineral and energy companies, including Noranda Inc, has made Canada's political elite rather nervous. The Canadian government is considering measures like forcing Chinese companies to issue shares in their new Canadian subsidiaries on Canadian stock markets. A Globe and Mail editorial also pointed to concerns about Chinese companies meeting North American standards in terms of corporate accounting and transparency.

But this focus on Chinese "state companies" overlooks the fact that foreign privately-owned multinational companies have not benefited Canadians either, says Pierre Laliberte, an economist with the Canadian Labor Congress. Laliberte points to the purchase of a Montreal-based pharmaceutical powerhouse by the UK-based Shire Pharmaceuticals Group four years ago. Because of insufficient protection under Canadian investment rules regarding the maintenance of the Canadian subsidiary and its workforce following a foreign takeover, Shire was able "to turn BioChem Pharma into a shell", says Laliberte.

He also cites Nike's reduction of its Canadian hockey equipment factories and the transfer of most manufacturing jobs overseas to Asia, where labor costs are lower, after the purchase of Canadian enterprises. "There used to be 3,000 workers," he said. "Now there are less than 100 Canadian workers there."

Still, in an official document, the Canadian Auto Workers union warns against "xenophobic and often racist fears" that China is about to take over the world through its rapid economic development. In truth, Canada has become increasingly vulnerable to a US economy burdened by excessive debt, which has ballooned due to the economic and military policies of the Bush administration, says York University economics professor Bernie Wolfe. He suggests that China, India and some East Asian countries provide an opportunity for Canada to loosen its excessive dependence on the US economy, where it sends about 84% of its exports. "It is important for a country like Canada to diversify and China is a vast market that is available to us," says Wolfe.

This dependence has also made Canada more susceptible to political pressures and mood swings from Washington, says Laliberte. Canada's billion-dollar trade surplus with the US masks the failure of Canadian leaders to use the state to encourage industrial and economic development, adds the Canadian Labor Congress economist. With the rest of the world, including China, Canada imports more products than it sells, he said.

Union economists are concerned that the import of cheap Chinese products made by "poorly paid and exploited" Chinese workers will further hollow out Canadian manufacturing. The Canadian government has no strategy to protect Canadian companies and workers from the negative impact of a growing Chinese economy, says Stanford. "I have estimated that our trade deficit with China is worth about 50,000 lost manufacturing jobs. The bigger it gets, the more jobs we lose. And that bilateral imbalance will get much, much bigger over the coming years."

Canada should work with other countries to force China through international agreements to raise its currency, the yuan, "which is undervalued by at least 33%", argues Laliberte. Through the application of WTO rules with regard to prison labor, China could also be pressured to stop violating the rights of Chinese workers, he adds. He says that wealthy countries and companies rushing into China for investment and trade opportunities are ignoring "a social cauldron" that could explode as millions are excluded from the benefits of this dynamic economy.

(Inter Press Service)