Canada: Won’t get fooled again?

In the wake of Meng Wanzhou’s departure, after almost three years in detention, Canadians are probably asking “Was it worth it?”

The answer is “Probably not.”

In December 2018, acting on a U.S. extradition request, Canada detained Meng Wanzhou, the Chief Financial Officer of Huawei Technologies Co., Ltd., the world’s largest maker of telecommunications equipment. Meng was accused of fraud and conspiracy to circumvent U.S. sanctions against Iran by allegedly lying to HSBC bank about the relationship between Huwaei and Skycom Tech, a Hong Kong-based company the U.S. said attempted to sell U.S. equipment to Iran.

The case wound its way through the Canadian courts, and, on September 24, the U.S. withdrew its extradition request (“Never mind!”) after Meng entered into a deferred prosecution agreement (DPA) under which she pled not guilty and paid no fine, but conceded “to the best of her knowledge and belief” to a statement of facts prepared by U.S. prosecutors that said she knowingly made false statements to HSBC. (The DPA expires in December 2022.) Meng left Canada that day and was treated as a hero on her arrival in China.

Also arriving home that day were Canada’s “Two Michaels,” Michael Kovrig and Michael Spavor, who were arrested days after Meng was detained in Canada. Their arrest was thought to be a case of “hostage diplomacy” by China. China had insisted that their arrests were not related to Meng’s arrest, but their rapid release (for “health reasons”) proved the opposite.

Cooperating with the U.S. hasn’t been consequence-free for Canada. Aside from the arrest of the Michaels, another Canadian, Robert Schellenberg, was sentenced to death in Chinese court for drug trafficking. In addition, economic relations with China were likely damaged as Canadian and Chinese businessmen were reluctant to travel and invest in each other’s countries.

The China trade is more important to Canada than the U.S., where there is a vigorous conversation about decoupling its economy from China. In Canada, 60 per cent of GDP is generated by foreign trade, as opposed to 35 per cent for China and 26 per cent for the U.S. China is Canada’s second biggest market, and it’s logical for Ottawa to continue its policy of lessening reliance on the U.S. market, especially after being whipsawed over l’affaire Meng.

Though Chinese investment in Canada had been slowing before 2018, most likely due to a fall in commodity prices, heightened political tensions “could be nudging state-owned enterprises (SOEs) away from placing bets in Canada,” according to Gordon Houlden, director of the Alberta-based China Institute.

China also barred pork imports from Canada due to the presence of traces of a banned (in China) substance and declared that the presence of the contaminants “reflects that the Canadian meat export supervision system exists obvious safety loopholes.” China is Canada’s third biggest pork export market at nearly US$500 million per year. China also retaliated against Canada’s canola exports, costing the country an estimated $2 billion.

Canada might have been willing to ride out the storm if the U.S. followed through on the extradition and made a solid case against Meng, but the American about-face comes less than a year after President Biden cancelled the permit for the Keystone XL oil pipeline from Canada to the U.S., rendering the U.S. potentially liable for $15 billion in damages to the Canadian developer. If the U.S. expects Canada to cooperate with its campaign against Huawei and remove the firm’s 5G technology from its wireless network, it picked a lousy way to do it.

The U.S. already stiff-armed France over a submarine deal and casually abandoned thousands of Afghans as it retreated from the country: America is starting to viewed as ‘Harmless as an enemy; treacherous as a friend.’

The U.S. may have taken advantage of Canada’s strict rule of law ethic just to secure Meng’s admission of wrongdoing to use in a future prosecution of Huawei. The fact that the U.S. so readily abandoned the extradition means the likely goal was to get her admission, though this may have been the consolation prize after she and her government vigorously fought the extradition by hiring better lawyers.

What are the lessons learned from this sorry tale?

Other allies may be more reluctant to cooperate with the U.S. to seize Chinese figures.  That reluctance will stem not only from concern about hostage-taking by China and worry that economic and political relations with Beijing will slide, but also the possibility that U.S. authorities will abruptly abandon the pursuit.

China’s message to its own was “No matter what it takes, we will get you back (if you’re important to us).” That will likely make its citizens resistant to cooperating with the U.S. going forward. China will highlight that it went all-out to rescue its citizen, and it will contrast that with America’s abandonment of U.S. citizens, green card holders, and Afghan partners when it retreated from Afghanistan.

And Beijing won’t mind if American executives start to wonder if their country would make a similar effort to spring them if they were ever incarcerated — or would the consular officer just hand them a list of local lawyers and wish ‘em good luck?

If the Justice Department so easily abandons a high-profile target like Meng, this may invite politicians to intervene (as President Trump said he would do — for a trade deal). If the political class sees a benefit in intervening or doesn’t want to mortgage political and economic relations with Beijing to the decisions of a prosecutor, future Justice Department actions against Chinese bad actors could be weaker from the start.

James Durso (@james_durso) is the Managing Director of Corsair LLC, a supply chain consultancy. He was a professional staff member at the 2005 Defense Base Closure and Realignment Commission and the Commission on Wartime Contracting in Iraq and Afghanistan. Mr. Durso served as a U.S. Navy officer for 20 years and specialized in logistics and security assistance. His overseas military postings were in Kuwait and Saudi Arabia, and he served in Iraq as a civilian transport advisor with the Coalition Provisional Authority.  He served afloat as Supply Officer of the submarine USS SKATE (SSN 578).