A Trade
Refocus

The winding road of Canada–Japan trade relations

Canada–Japan trade and diplomatic ties have existed for decades. And now, in the wake of the economic changes being wrought worldwide, these bilateral bonds appear likely to be further strengthened. A key mechanism in this is the Trans-Pacific Partnership (TPP).

The free trade agreement is designed to strengthen and deepen economic ties among the member states of Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Mexico, Chile, Peru, Canada, Japan and, until January 23 this year, the United States when President Donald Trump signed an order with-drawing from the TPP.

It was originally designed to create a strong trade hub in the Pacific region, and had long been on the trade agenda of the 12 countries that signed the agreement in February 2016. Although the United States has withdrawn from the agreement, the remaining 11 members continue to pursue the deal, albeit with some initial reluctance after Washington’s pullout.

The Canadian spoke with Perrin Beatty, CEO of the Canadian Chamber of Commerce, and Steve Dechka, co-chair of the Japan-Canada Chambers Council about the current status of the TPP, and how Japan and Canada might continue to build ties.

Working Relationship

The Japanese business environment — and, more broadly, that of other Asian nations — is demonstrably different from that of countries in other regions. Thus, creating an environment that allows non-Japanese business to grow in Japan, and the harmonization of standards is a crucial part of both the Canada–Japan relationship and the TPP.

That the agreement is considered significant for trade is evident, given that 11 states are still pursuing the agreement even without the participation of the United States. The TPP is regarded as a 21st century agreement because it goes far beyond tariffs to set standards for the environment, labour, intellectual property, state-owned enterprises and much more. It is also more ambitious than the China-backed Regional Comprehensive Economic Partnership.

“It’s modern, it deals in a range of areas that previous generations of trade agreements didn’t cover,” Beatty explained.

While many worry that the accord has been weakened by the United States having bowed out, Japan has made clear its intent to pursue the pact, in the hope that the United States might join at a later date.

Meanwhile, there is disagreement among some Asian countries regarding whether the partnership should go ahead unchanged, merely with some amendments to the ratification formula, or whether there is a need for more negotiations, which probably would lengthen the process.

“My argument would be, this should be left as intact as possible, with as few changes made as possible,” Beatty said.

As with Canada’s Comprehensive Economic and Trade Agreement with the European Union, this kind of agreement represents a breaking down of barriers and collaboration between countries.

When asked whether there were any areas of concern in the agreement for either Canada or Japan, Beatty explained that, since one party is looking for access to protected areas of the other’s economy, there are bound to be concerns in any agreement. He chooses, thus, to focus on the benefits.

The beef and pork industries will see reduced tariffs over time if the TPP is ratified.

According to the Canadian federal government, if the TPP is ratified, Canada will have free trade agreements with 51 countries, representing about 60 per cent of the global economy.

There are benefits for specific industries in both Canada and Japan. Beatty named agri-food, fisheries and lumber as under-served sectors in Canada that would benefit from the agreement.

Among those to gain most would be Canada’s beef and pork industries, with tariffs on pork products eliminated in 10 years, and the 50 per cent tariff on beef, reduced to just 9 per cent in 15 years.

Canadian consumers can also expect to see lower prices over time for cars, as the current 6.1 per cent tariff on passenger vehicles would be phased out.

Another reason for an agreement such as this is the degree to which the global positions of both Japan and Canada benefit. “Here’s an opportunity where two G7 nations can show some leadership in Asia,” Dechka said.

Further to this, Dechka explained that the idea behind TPP was “to have the Chinese come to the table, with a strong negotiating position on our side.”

Bilateral Argument

Both Dechka and Beatty emphasized that an option for Canada and Japan is a bilateral agreement, which would be more favourable than waiting for the TPP to be ratified.

Japan currently is Canada’s fourth-largest merchandise export market and second-largest trading partner in Asia. Further, reasons abound for there being a strong relationship and a natural partnership.

“We are, by far, the closest resource-based economy to Japan,” Dechka explained.

Despite this, the trade relationship has taken a different tack. “The relationship — if you look at the statistics, too — has been going in the wrong direction,” Dechka explained. “We lack the ministerial visits we need, and we lack the interest from the Japanese side.”

However, he explained, this is not the fault of the ambassadors, councils or similar government bodies. Instead, the problem lies in the business community, which currently is opting for easier business opportunities elsewhere.

Although the historical, cultural and political significance of Canada–Japan ties remains strong, Dechka and Beatty both believe that the relationship is underdeveloped. At a conference in Sendai, Miyagi Prefecture, the importance of this relationship and ways to encourage its growth were discussed.

“The important thing for the conference is reigniting the relationship, because in our view as a council, the Canada–Japan trade relationship, and the relationship in general has not been growing in the right direction over the past 10 years,” Dechka said.

Specifically, the need to spark interest on both sides of the Pacific was a key topic. Gaining the attention of young people, furthering education programs, engaging the media and developing the cross-fertilization of ideas.

Some of the reasons for this lack of development in the trade relationship, Dechka puts down to Japan’s fixation on the TPP. “It was clear that the Japanese side was more interested in the multilateral side of things than the bilateral.”

A bilateral agreement could be a way to encourage other countries to join the TPP. In fact, Beatty believes that an Economic Partnership Agreement (EPA) with Japan would accelerate the TPP process.

“The most important element here is that the two economies are so complementary, there are relatively few areas where we compete with each other. And, as a consequence, if Japan and Canada can’t do a bilateral deal, it’s very hard to understand what other countries can,” Beatty said.

A bilateral agreement such as this would position Canada as a bridge between the Pacific and North America, and one where there is easily shared, common ground.

The Japanese are dealing with a country that respects the rule of law, and has business practices similar to their own

ー Perrin Beatty, CEO of the Canadian Chamber of Commerce

This is something with which Dechka said the council is grappling. There are no sectors or areas of animosity; yet it is taking a long time to lay the groundwork.

What Next?

“We believe it needs to be at a level of government to government; we need to make it clear that it is a high priority to Canada,” Beatty stressed. Before the G7 meeting, Beatty wrote to Canadian Prime Minister Justin Trudeau urging him to raise the option of an EPA directly with Prime Minister Shinzo Abe.

Beatty observed, “The TPP does not eliminate the value of a bilateral agreement with Japan, and we believe both countries should make a bilateral agreement a priority, in addition to pursuing the TPP.”

However, trade agreements simply offer opportunities to the business community. Dechka and Beatty are looking to encourage the business community to act on these opportunities and further drive the Canada–Japan relationship.

Aside from trade, Dechka, who developed a passion for Japan after being exposed to the people and its culture at a very young age, believes education is crucial.

“One of the things the two councils want to do is build that bridge and get young people interested in Canada, get young people interested in Japan,” he explained. “I still have that passion today and it is why I am still involved. We need that type of commitment and passion in others if we are going to reignite the relationship,” he said.

With Canada having attained 150 years of Confederation — of which Japan has been a part since as far back as 1877 — there is every reason for the relationship to develop, be that through the TPP or a bilateral trade deal.

Photo: Hannamariah/123RF, and NIL00138/123RF

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