Business Interests

The Japanese market represents a great opportunity for Canada says Milos Barutciski. Canadian business needs to seize it.

By: /
16 April, 2013
By: Milos Barutciski
Chair of the International Trade and Investment Group at Bennett Jones LLP

Canadian and Japanese trade officials will meet next week (April 22-26) for the second round of trade negotiations toward a free trade agreement (or as the parties prefer to call it, an “Economic Partnership Agreement” or “EPA”). The EPA negotiations are taking place at a critical juncture in Japan’s recent history and Canadian business has a clear interest in helping to shape these negotiations.

Following more than a decade of deflation and stagnant growth, Japan’s recently elected government led by Prime Minister Abe is pursuing an ambitious trade agenda. The Japanese government has clearly signaled that it is prepared to come to grips with protectionist forces in certain segments of its business and public sectors, and among the broader public at large, in order to stimulate growth. Japan’s recent decision to request participation in the Trans-Pacific Partnership (“TPP”) negotiations with 11 Pacific countries (including Canada and the U.S.), against strong opposition among segments of the population during the election, sends a clear message to this effect. The Japanese government has recognized that a more liberal trade and investment regime, both inbound and outbound – export and import – are essential to secure the country’s long-term economic interests. This is a dramatic acknowledgment for a country that practically created the notion of an export-led economy.

Japan is the third largest economy in the world. It is a leading exporter (industrial, automotive, electronic goods), but also a major importer (energy, natural resources, and a wide range of advanced industrial, commercial and consumer goods and services).  Canada’s trade and investment relationship with Japan is already significant. Japan is Canada’s 5th largest trading partner and 6th largest source of foreign investment. Given the complementarities between our two economies, the relationship offers immense potential for expansion.

Canada’s ability to meet this potential will be a challenge for both Canadian trade negotiators and Canadian business. In particular, it is essential that Canadian companies devote the management attention and resources early in the negotiations to identify the scope for future expansion of their trade with Japan and communicate their interests to Canadian negotiators. Trade is not a theoretical exercise. Bargaining chips and negotiating leverage in the international trade and investment arena are a scarce resource and are best spent in an informed manner in exchange for valuable consideration. The information resides in corporate boardrooms and executive suites, not at the Department of Foreign Affairs and International Trade. It is essential that this information is conveyed to Canada’s negotiators early in the process so that they can focus their efforts where it counts and use it to secure the greatest advantage for Canadian companies and their employees.

The potential is plainly evident in some sectors given Japan’s dependence on energy imports (mostly from politically unstable regions) and its large market for natural resource imports more generally. However, Japan presents an attractive market for a much broader range of goods and services, including in agri-food, fisheries, professional services and energy-related services. Its population is one of the wealthiest in the world on a per capita basis, but also one of the oldest with a rapidly increasing median age, thus presenting opportunities in health services and technology.

Gaining market access in areas of interest to Canada will require a focused negotiating strategy that carefully balances Canada’s export interest in breaking through non-tariff barriers in a range of agri-food, fisheries and industrial goods and commercial service sectors against Japan’s interest in eliminating tariffs (currently 6.1%) in the auto sector as well as securing access to Canadian energy and natural resources. This is more easily said than done. To take auto trade as an example, reducing tariffs for imports of Japanese vehicles will presumably have an impact on Canadian automotive production, including by Japanese companies who have invested in Canadian production (Toyota and Honda). Canadian negotiators will want to ensure that trade gains do not become investment losses. Among other things, Canadian negotiators will want to ensure that Canada’s “offensive” trade and investment interests, including access to Japan’s auto industry for Canadian parts manufacturers, are clearly articulated and to press diligently to address market access barriers identified by Canadian companies.

The fact that Japan has signaled its desire to join the TPP negotiations sets the stage for Canada and Japan to move diligently to bring their bilateral negotiations to an early conclusion. There are clearly difficult areas that will require attention (autos on the Canadian side and fisheries, forestry and agricultural sensitivities on the Japanese side). However, some of the more contentious subjects that have constrained Canadian trade negotiators in the past (supply management and special treatment for cultural industries, to name just two) do not play a significant role in the bilateral Canada – Japan context. Negotiators will be thinking tactically to identify areas where progress is more attainable at lesser cost in a bilateral (EPA) or plurilateral (TPP) context and adapt negotiating positions accordingly. Indeed, it may well be in the interest of both parties to reach agreement on certain issues bilaterally sooner rather than later in order to leverage their respective bargaining positions in the TPP process going forward.

In conclusion, the tactical and strategic trade-offs that Canadian negotiators will be required to make during the Canada-Japan EPA negotiations are best made with the full engagement and participation of Canadian stakeholders, and in particular businesses and their employees who stand to gain the most from an expanded trade and investment relationship.

Before you click away, we’d like to ask you for a favour … 

 

Journalism in Canada has suffered a devastating decline over the last two decades. Dozens of newspapers and outlets have shuttered. Remaining newsrooms are smaller. Nowhere is this erosion more acute than in the coverage of foreign policy and international news. It’s expensive, and Canadians, oceans away from most international upheavals, pay the outside world comparatively little attention.

At Open Canada, we believe this must change. If anything, the pandemic has taught us we can’t afford to ignore the changing world. What’s more, we believe, most Canadians don’t want to. Many of us, after all, come from somewhere else and have connections that reach around the world.

Our mission is to build a conversation that involves everyone — not just politicians, academics and policy makers. We need your help to do so. Your support helps us find stories and pay writers to tell them. It helps us grow that conversation. It helps us encourage more Canadians to play an active role in shaping our country’s place in the world.

Become a Supporter

Also in the series

Driving the Partnership Forward

Driving the Partnership Forward

By:

David Worts on why eliminating the tariff on auto imports from Japan to Canada will be good for both countries.

Agri-Ambitions

Agri-Ambitions

By:

Kathleen Sullivan on why agri-exports can’t be left out of a Canada-Japan free trade agreement.

Walking the Free Trade Talk

Walking the Free Trade Talk

By:

Julian Dierkes on why Japan presents an opportunity to turn free trade rhetoric into reality.

A New Energy Relationship

A New Energy Relationship

By:

Kay Tsujimoto on why fossil fuels could energize the Canada-Japan relationship.

No Time Like the Present

No Time Like the Present

By:

Sadaaki Numata on why Japan and Canada need to concentrate on closing a free trade deal.

Abe’s Bold Moves

Abe’s Bold Moves

By:

Len Edwards on what Abeonomics could mean for the Japan-Canada relationship.

The Promise of an EPA with Japan

The Promise of an EPA with Japan

By:

Perrin Beatty makes the case for Canada to focus on negotiating an ambitious Economic Partnership Agreement with Japan.

Building Bridges

Building Bridges

By:

Canada doesn’t need to choose between strengthening relations with either China or Japan says James Manicom.

The “Only Choice”

The “Only Choice”

By:

Atsushi Tago and Srdjan Vucetic compare the Canadian and Japanese F-35 decisions.

Common Values, Challenging Differences

Common Values, Challenging Differences

By:

Gerald Wright on the past, present, and future of the Japan-Canada relationship.

Economic Ties

Economic Ties

By:

Canada’s economic relationship with Japan, the third largest economy in the world, is an important one – and will become only more important should the two countries agree on a free-trade deal.