China has responded to tariffs on its electric vehicles by asking the World Trade Organization (WTO) to investigate the export price of canola.
What is canola?
Canola is the product of a plant, rapeseed, whose basic qualities have been improved by Canadian producers to produce an oil widely consumed throughout the world and sold under the name of canola. Canola is produced in quantity in the provinces of Saskatchewan (53%), Manitoba (29%) and Alberta (17%). Canada produces 20 million tonnes of canola annually, making it the world’s largest producer. This production is sold mainly on foreign markets, particularly in China.
Why target canola?
Canola is one of Canada’s top exports, along with oil and wheat. This is not the first time that the commodity has been targeted by China to put pressure on Canada. In 2019, Beijing reduced its canola imports following an escalation of the conflict that followed Canada’s arrest of the head of Chinese telecommunications giant Huawei and the detention of two Canadian nationals on Chinese soil.
Pork, of which Quebec is a major exporter, had also been targeted by China.
This time, it was the imposition of 100% tariffs on electric vehicles made in China that triggered the request for an investigation at the World Trade Organization concerning Canadian canola producers, which the Middle Kingdom accuses of selling cheaper on export markets than on their domestic market, which constitutes dumping and is prohibited by international trade rules.
China imports a lot of agricultural products and does not hesitate to use this weapon to retaliate against the tariffs imposed on its products. It has also asked the WTO to investigate meat and alcohol exports from Europe, where tariffs also target Chinese electric cars.
What will be the impact of the Chinese decision?
Canola prices on commodity markets have plummeted following the announcement of China’s WTO request. A WTO investigation can be lengthy. In the last canola dispute, China resumed imports before the WTO ruled on Canada’s complaint. The financial impact of this Chinese response to Canada’s tariffs on Chinese electric vehicles is difficult to predict. Between March 2019 and August 2020, when China reduced its canola imports, Canadian producers estimate they lost more than $2 billion.
Sources: Canola Council of Canada and Statistics Canada