China-Canada trade ties stall over cabinet divisions

CBC News has learned a splitaround the cabinet table has stalled what was once a warming trade relationship with China.

The dispute has pitted some of the most powerful members of cabinet against each other on an issue that Prime Minister Stephen Harper has pegged as critical to the future of Canada's prosperity.

Concerns from some cabinet ministers, including Jason Kenney and James Moore, began around the takeover of Alberta energy company Nexen by China National Offshore Oil Company.

But sources tell CBC the prime minister's concerns today focus on the threats of cyber espionage and cyber security.

This cooling of the relationship is in stark contrast to just two years ago.

Documents obtained by CBC under Access to Information show the prime minister had a different message during his trip to China.

One briefing note for the meeting with the former Chinese President Hu Jintao states Canada's "Desired Outcomes" for the trip as concluding the Foreign Investment Promotion and Protection Agreement and a "subsequent launch of exploratory trade discussions."

Our leaders seem to run scared, if you will when there is public apprehension- Yuen Pau Woo, president Asia Pacific Foundation

Those trade talks were about to be announced that summer.

David Mulroney, Canada's ambassador to China in 2012, says there were lots of possibilities in the spring.

But then, he adds, "things got complicated very quickly."

The government was dealing with growing concern over the CNOOC takeover of Nexen.

By the end of that year, the Harper government would say yes to that deal, but place restrictions on any further takeovers by state-owned enterprises.

But concerns about China continued to rise.

The Asia Pacific Foundation does a poll every year about Canadians' views about trade with China.

The foundation's president, Yuen Pau Woo, said the number of Canadians who were cool towards China was at its highest level in five years last year.

And that's why, he believes, the foreign investment treaty signed in 2012 has not yet been ratified by cabinet, nor have those exploratory talks ever happened.

"Our leaders seem to run scared, if you will, when there is public apprehension, when there's dissent from within caucus, when the opposition starts making trouble, and all of this does not provide for the stability and long-term vision that we need in order for bilateral relations to strengthen," Woo told CBC.

Risk and opportunity

Sources tell CBC that dissent reaches into cabinet room, with Jason Kenney and James Moore on one side, while John Baird and Joe Oliver would like closer trade ties with China.

And while the prime minister is somewhere in the middle, Mulroney admits there are risks to forming closer ties to China.

"China is to a certain extent a security threat when it comesto things like cyber espionage, or even traditional espionage," Mulroney said.

But, he added, "We need to look at both sides the risk and the opportunity and decide on an intelligent approach that maximizes the upside and minimizes and mitigates the very real downside."

Trade Minister Ed Fast will travel to China next month.

Fast wouldn't "speak for caucus" nor would he comment on what goes on in cabinet but, he insisted the "government is committed to growing our relationship with China, but first steps first. We wanted to make sure that we bring the foreign investment promotion and protection agreement into force."

That investment agreement is being challenged in a federal court in B.C. by the Hupacasath First Nation. The government recently won that court battle, but the small First Nations community is appealing.

A pulp mill in Thurso, Que. is wondering if the cooling relationship is to blame for a 13 per cent duty China has just imposed on dissolvable pulp, which is used to make rayon.

Mill president Yvon Pelletier said that duty will cost his company $20 million a year in revenue.

Not all countries that export dissolvable pulp to China were hit with the duty, Pelletier pointed out.

"I've been dealing with China for 13 years. It's a relationship-based country. So, most definitely, if there was a much improved relationship at all levels of the government, I would think that maybe China wouldn't have proceeded with (duty against) Canada," he said.