Walking the Free Trade Talk

The Harper government is losing credibility on one of its core foreign policy initiatives, enhancing economic diversification beyond the U.S. through free trade agreements (FTAs). As on-going bilateral negotiations are bogged down and the Trans-Pacific Partnership (TPP) may take longer to negotiate than some of the driving nations acknowledge, negotiations over an agreement with Japan present the best opportunity for the government to follow through on their free trade focus. Taking a few symbolic, but concrete steps toward deepening engagement with Japan will make a swift conclusion of an agreement a real possibility.

If you subscribe to news releases from the Department of Foreign Affairs and International Trade, you have become somewhat immune to announcements by the Harper government that the completion of a major free trade agreement is imminent. Various cabinet members seem to be constantly popping up across the country to tout the provincial benefits of the Comprehensive Economic and Trade Agreement with the European Union, or traveling the world to announce that an agreement with South Korea is about to be concluded.

Yet over the past seven years (and while the Harper government has kept a very tight rein on all diplomatic government activities), a grand total of five trade agreements with such economic powerhouses as Jordan and Honduras have been concluded, as well as a secretive Foreign Investment Promotion and Protection Agreement with China.

While the case for FTAs is often made on economic grounds, decisions about them are political and therefore made with domestic and international symbolic impact in mind. Perhaps it is a lack of economic urgency on the part of potential trading partners combined with a Canada-centric foreign policy by the Harper government that is holding up negotiations more than specific economic sectors? If that is the case, impasses in trade negotiations can only be resolved by broader diplomatic initiatives and by focusing on the give-and-take that negotiations imply.

Negotiations over the Trans-Pacific Partnership now include Canada and Japan. Some of the leading nations in these negotiations are publicly pushing hard for a speedy negotiation process. So is there any hope for Canadian bilateral free trade agreements (FTAs)? More specifically, is there any hope for a Japan-Canada Economic Partnership Agreement (EPA) for which the second round of negotiations will be starting in Ottawa today and continuing until April 26?

Negotiations over the TPP are the new backdrop to bilateral Japan-Canada negotiations. Conventional wisdom had held that the new Japanese government under Prime Minister Shinzo Abe would want to stall on TPP given the significant domestic opposition to multilateral negotiations that are likely to attack “sensitive issues” (rice, for example) head-on. Yet, Abe has proven unexpectedly popular and even a looming Upper House election did not prevent him from fully committing to TPP last month.

While the U.S. has approved Japan’s entry into these negotiations, Canada oddly withheld its approval for a day longer than any other participant. Approval was finally announced, but the delay raises the question of whether the Harper government sees Japanese entry into TPP as a bargaining chip in bilateral relations, or as competition to these negotiations.

TPP is an ambitious initiative. While its proponents remain confident of its huge potential benefits, the many obstacles that lie ahead have left many wondering about the time it will take to conclude an agreement. Canada and Japan’s initial reluctance to join the negotiations is an indicator of the lingering doubts about TPP in both countries. The likelihood of a speedy conclusion of the TPP does not seem high despite U.S. and Australian enthusiasm. Should TPP falter, an EPA with Japan would offer some of the economic diversification that has motivated the Conservative focus on the announcement of FTA negotiations all along. Bilateral negotiations can also serve as a preview of positions in TPP negotiations that may be of use to Canadian and Japanese negotiators.

The economic case for the bilateral EPA is clear. The joint Canadian-Japanese study that preceded the opening of negotiations last November estimated economic benefits of nearly $4 billion per year from an EPA to Canada. The case is so clear that the report of the House of Commons Standing Committee on International Trade was most noticeable for its three-party unanimity in endorsing negotiations. The MPs could not have been much clearer in their recommendation “[t]hat, as soon as possible, the Government of Canada conclude an economic partnership agreement with Japan that provides a net benefit to Canada.” The substantive benefits that would convince even the NDP to re-think its long-standing stance on free trade under the leadership of international trade critic Don Davies and to endorse a free trade deal: an increase in trade and thus an economic boost for Canadians in a context of a close match of values (democracy, labour, and environmental commitments) with a G-8 economy.

To Canada the benefits seem obvious. The only dissenting voice appears to be from the auto industry despite the fact that Japanese manufacturers have exported more Japanese-branded automobiles from Canada than to Canada since 1993, a situation that stands in stark contrast with South Korean automobiles. But the riding of Jim Flaherty, the Finance Minister, is at the heart of Canadian automobile manufacturing and this sector thus always has the potential to upend negotiations. The current version of this near-veto is manifesting as fears regarding any side agreements about automobiles between the U.S. and Japan in the TPP context.

 But Canadian efforts to secure an EPA in the past have met with a lack of enthusiasm in Japan.

An obstacle to capturing the Japanese government’s attention to focus on an EPA is the emerging prospect of a trilateral trade pact between China, Japan, and Korea. Initial discussions of such a deal were held in Seoul in late March. While this deal faces many obstacles, if concluded it would cover roughly 20 per cent of world trade and an area of with significant growth opportunities for the Japanese economy. This prospect demands attention.

Japan is also opening talks about an EPA with the EU. The first round of these talks was held in Brussels from April 15 to 19. Trade with the EU is a multiple of Japanese trade with Canada, of course, and therefore an EU deal is of greater potential significance for Japan.

The EPA negotiations with Canada are thus competing for attention with other deals in Japan. At the same time, Japan has been a latecomer to the negotiations of bilateral deals so the Abe government is facing some urgency similar to that faced by Harper to actually conclude a significant deal. The Canada-Japan negotiations are seen as relatively unproblematic for their absence of exports in either direction that challenge protected industries or sectors.

What can be done to hasten EPA negotiations with Japan?

Both countries have recently appointed new ambassadors for whom the negotiations must be the top priority. While these negotiations have been placed in the hands of trade negotiators (who are, of course, currently not working overtime), the government should empower new Canadian ambassador Mackenzie Clugston to engage Japan through a number of specific steps.

Given the importance of foreign policy symbols to the Japanese Ministry of Foreign Affairs and the politicians overseeing it, there is a lot of room for symbolic gestures to build on the goodwill toward Japan that was produced by Canada’s speedy and substantive response to the Japanese ‘triple disaster’ of an earthquake, tsunami, and nuclear accident just over two years ago.

Ed Fast, the Minister of International Trade and the Asia-Pacific Gateway, recently made some symbolic overtures on his trip to Japan by speaking so much (at least through DFAIT press releases) about the bilateral partnership. The announcement of a major investment by NAMCO BANDAI Studios to open an electronic gaming studio in Vancouver serves as an important example of an expanded relationship.

A re-opening of the Consulate General in Osaka which was hastily and without prior consultation with the Japanese closed by the Harper government in 2007, and a re-thinking of the relocation of Canadian visa services for Japanese citizens from Tokyo to Manila last year are other symbolic gestures that would also serve as substantial steps in facilitating free trade and vital people-to-people exchanges.

These are the steps that can be taken to hasten negotiations of an agreement if the Harper government wants to avoid adding yet another free trade agreement to its list of agreements that are interminably “just around the corner”. And they are certainly worth the effort, for they will facilitate an EPA will bring clear benefits, and may serve as a model for achieving success in the TPP negotiations as well.

 This is an expanded version of a comment published by the National Post on Monday, April 22, 2013