This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 OTTAWA 000382 
 
SIPDIS 
 
GENEVA FOR USTR 
 
STATE FOR EB/TPP/BTA AND WHA/CAN - HOLST 
 
DEPT PASS USTR FOR ALLGEIER, MELLE AND CHANDLER 
 
USDOC FOR 4322/ITA/MAC/WH - BENDER AND HERNANDEZ 
 
USDOC PASS ITC 
 
TREASURY FOR IMI 
 
E.O. 12958: N/A 
TAGS: ETRD EINV PREL CVIS KFRD CH CA
SUBJECT:  CANADIAN TRADE MISSION TO CHINA HIGHLIGHTS 
       ENERGY, EDUCATION, TECHNOLOGY, TRANSPORTATION 
 
REF:      (A) OTTAWA 228 
          (B) 04 OTTAWA 2885 (Canada investment rules) 
          (C) 04 OTTAWA 625 (Canada-Asia trade) 
 
 
¶1. SUMMARY/INTRODUCTION:  Economic relations with China were 
a key focus of Prime Minister Paul Martin's January tour of 
South and East Asia (which also touched on tsunami relief 
and a range of political issues - see ref A).   China 
displaced Japan in the past decade as Canada's largest 
trading partner after the United States.  In recent years, 
growth of this trade has been concentrated in resource-based 
commodities such as wood and wood pulp, metals, energy 
products and chemicals.  A separate report will outline 
Chinese investors' interest in Canada's energy sector. 
 
¶2.   Ref C outlined Canada's trade relations with major East 
Asian partners.  Canadian businesses share most of the 
problems of their U.S.-based counterparts (indeed, in many 
cases they are the same corporate entities, and/or Canadian 
content is trans-shipped through U.S. firms).  Canadian 
officials have come to view these trade relations in a 
continental framework. 
 
END SUMMARY/INTRODUCTION 
 
TRADE THRUSTS:  SERVICES NOW, OIL TO COME? 
------------------------------------------ 
 
¶3.    International Trade Minister Jim Peterson led the 
trade side of the January 18-25 Canadian mission, which 
visited Shanghai, Beijing and Hong Kong.  Some 280 Canadian 
companies were represented, and over 100 company-to-company 
agreements were signed, along with ten government-to- 
government agreements in a range of areas.  While some of 
these "agreements" merely commit the parties to further 
talks, there appeared to be real substance in the following 
areas: 
 
¶4.   ENERGY AND MINING:  Canada and China have formed a 
deputies-level "joint working group" on energy, with 
specific reference to oil sands and nuclear technologies. 
Canadian policymakers are thinking of China as a strategic 
market for oil (see septel) and forest product exports from 
western Canada.  One Canadian firm signed a five-year 
agreement to supply crude oil to China.  More immediately, 
Canadian firms will provide a variety of services to help 
develop energy resources in China, such as oil and gas, 
thermal electricity generation, and coal-based methane and 
methanol.  Others agreed to help explore and develop gold 
and other metal deposits, and to develop mining facilities 
in China.  The GOC continues to seek stronger investor 
protection for these players, some of whom have ventured 
into exploration in China only to find themselves excluded 
from the benefits of development and production. 
 
¶5.   EDUCATION AND TRAVEL:  Nearly 30 commercial agreements 
were signed in the educational services area alone.  In most 
cases, Canadian organizations would help establish training 
programs in China, in a range of areas from auto repair to 
nursing.  Some of these programs would prepare Chinese 
students for entry into programs in Canada.  Also, on 
January 21, 2005 China granted "Approved Destination Status" 
(ADS) to Canada, meaning that Chinese citizens are now able 
to travel to Canada for tourism; previously Chinese could 
only visit for business purposes.  Canadian interests spent 
five years negotiating ADS, which they expect will reverse 
the recent decline in Chinese tourism to Canada and raise 
the number of Chinese visitors to one million per year by 
¶2010. 
 
¶6. TECHNOLOGY:  Numerous deals involve Canadian firms 
providing products and services in areas such as 
livestock genetics, pharmaceuticals, cancer 
diagnostics, fiber optics, wireless communications, 
data exchange, multimedia production, imaging, and 
satellite TV.  One telecom industry veteran who took 
part told us that the Chinese tend to be overly focused 
on engineering, and can benefit from North American 
help in learning the crucial "human side" of technology 
businesses:  project management, quality control, brand 
development, marketing, and customer service. 
(Comment:  While Canadian media have quoted 
intelligence sources' warnings about Chinese 
technological espionage, this did not come up in our 
conversations with trip participants.  End comment). 
 
CHINA IN THE INTERNATIONAL SYSTEM 
--------------------------------- 
 
¶7. In addition to the deputies-level working group on 
energy mentioned above, Canada and China have also 
formed a deputies-level "strategic working group" to 
deepen cooperation in the multilateral arena.  On the 
economic side, this group is tasked to do the 
following: 
 
-- support a meeting of G-20 leaders. 
 
-- identify areas for cooperation in APEC and the WTO. 
The two sides promised to make joint efforts for the 
early conclusion of the Doha Development Agenda. 
 
-- work together in multilateral environment fora. 
 
¶8. A joint statement said that "China reiterates its 
concern on the issue of market economy status and 
underlined the significance it attaches to the issue. 
Canada acknowledges that China has made significant 
gains in the process of building a mature market 
economic system."  One senior Canadian official 
acknowledged that market economy status is not 
something that can be "conferred" by trading partners, 
but said this wording was a result of pressure from the 
Chinese.  Officials have told us that this wording will 
make no practical difference in how Chinese exports are 
treated in AD/CVD investigations; the Chinese have 
probably been pushing the issue to bolster their case 
for market economy status with the U.S. and other 
trading partners. 
 
NORTH PACIFIC SHIPPING "FAST TRACK" 
----------------------------------- 
 
¶9. Vancouver, Canada's dominant West Coast port, has 
been challenged in recent years to keep up with the 
expansion in trans-Pacific goods traffic.  One feasible 
Canadian alternative is Prince Rupert, near the 
southern tip of the Alaska panhandle, where a 
transcontinental rail line already connects to a deep- 
water harbor.  Promoters have advanced the idea that if 
this underused grain port were redeveloped for 
container and/or commodity traffic, its northern 
location - which makes it relatively close to key East 
Asian ports - would give it an advantage over other 
ports on North America's west coast in "fast-tracking" 
goods to central and eastern North America. 
 
¶10. Prime Minister Martin endorsed this "Pacific 
gateway" concept in his speech in Beijing on January 
21, saying that Vancouver and Prince Rupert form "the 
ideal gateway from China to North America and from 
North America to China."  The GOC is considering 
helping to finance the expansion of Prince Rupert's 
infrastructure. 
 
¶11. Prince Rupert is also the port through which crude 
oil from Alberta's oilsands would most likely be 
shipped to Asia.  Enbridge, a major pipeline firm, is 
proposing to build this line and is seeking commitments 
from Asian refiners. 
 
 
--------------------------------------------- ----- 
TABLE 1 
CANADA'S EXPORTS BY COUNTRY 
(BILLION CANADIAN DOLLARS, JANUARY-NOVEMBER DATA) 
--------------------------------------------- ----- 
                    2004      PERCENTAGE CHANGE 
MARKET              EXPORTS   OVER 2003 
UNITED STATES       322.3      7.0 
JAPAN                 7.8      5.1 
U.K.                  6.7     20.9 
CHINA                 6.0     41.9 
MEXICO                2.7     35.3 
 
ALL COUNTRIES       379.9      8.4 
 
--------------------------------------------- ----- 
TABLE 2 
CANADA'S IMPORTS BY COUNTRY 
(BILLION CANADIAN DOLLARS, JANUARY-NOVEMBER DATA) 
--------------------------------------------- ----- 
                    2004      PERCENTAGE CHANGE 
MARKET              EXPORTS   OVER 2003 
 
UNITED STATES       191.0      1.4 
CHINA                22.0     28.5 
MEXICO               12.3      9.4 
JAPAN                12.2     -3.9 
U.K.                  9.0      6.3 
 
ALL COUNTRIES       324.9      5.0 
 
--------------------------------------------- ----- 
TABLE 3 
2004 VALUE AND YEAR-ON-YEAR GROWTH IN CANADA'S 
EXPORTS TO CHINA, SELECTED H.S. CATEGORIES 
(BILLION CANADIAN DOLLARS, JANUARY-NOVEMBER DATA) 
--------------------------------------------- ----- 
CATEGORY                 2004 VALUE     Y/Y GROWTH 
 
27- FUELS ETC.           62.8            12.2 
     2709- CRUDE OIL     23.1            21.9 
29- ORGANIC CHEMICALS     4.2            43.6 
44- WOOD                 20.1            27.3 
     4407- LUMBER        10.5            31.9 
     4410- PARTICLE BD    3.9            39.3 
     4418- WINDOWS ETC    2.1            24.7 
72- IRON AND STEEL        4.7            29.4 
74- COPPER                2.1            45.8 
75- NICKEL                2.5            83.9 
87- MOTOR VEHICLES       72.9             3.9 
88- AIRCRAFT              7.6           -18.8 
 
 
SOURCE:  STATISTICS CANADA 
 
CELLUCCI