In November 2022, Canada released its long-awaited Canada Indo-Pacific Strategy (CIPS). The new plan outlines five interconnected objectives:
Some questions for Canadian businesses in Japan and the broader region immediately arise. First, what’s with the name, and what does it mean for us? Moreover, what resources will Ottawa deliver to Japan and the region, and will this strategy complicate our trade relationship with China?
First, the geographic framing of using Indo-Pacific in the name reflects the reality that the 21st-century’s center of economic gravity will be the regions connected by the Pacific and Indian oceans. These regions are home to three of the planet’s most populous countries: Indonesia, India and China. They are also home to consequential economies such as Japan, South Korea and China, as well as the geographic center of major trade agreements and standard-setting frameworks that include the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), the Japan-EU Economic Partnership Agreement and the new Indo-Pacific Economic Framework (IPEF).
Based on the region’s economic promise, Global Affairs Canada stresses in CIPS that: “The Indo-Pacific region will play a critical role in shaping Canada’s future over the next half-century. Encompassing 40 economies, over four billion people and $47.19 trillion in economic activity, it is the world’s fastest-growing region and home to six of Canada’s top 13 trading partners.”
Encompassing a New Reality
Adjusting the frame from the Asia-Pacific to the Indo-Pacific reflects the reality that many of our current regional economic and regulatory institutions, such as Asia-Pacific Economic Cooperation (APEC), were set up when South Asia and India in particular were not significant economic players. Expanding to the Indo-Pacific showcases the new economic realities of India and China’s economic largesse and the creation of new institutions that include South Asia in their development.
Second, for Canadian businesses in Japan and the region, Canada’s recognition of the region’s economic importance and its role in expanding the CPTPP alongside Japan means Canadian companies will have a larger market and preferential access. A deepening Canada-Japan trade relationship will include an end destination for energy, critical minerals and agricultural products.
Third, CIPS advocates the launching of a Canadian Trade Gateway in Southeast Asia as a “market entry point and catalyst for Canadian businesses to grow their engagement and presence in the region and enhance Canada’s profile as a commercial and investment partner.” The hope is for a permanent presence: “Canada’s Trade Gateway will expand Canadian business and investment networks, linking businesses to existing incubators and accelerators and increasing their awareness of Indo-Pacific markets, with an emphasis on sectors and solutions where Canadian innovation responds to regional demand.”
While engaging with the Northeast Asian economies of Japan, South Korea, China and Taiwan as well as Southeast Asia is essential to a sustainable Canadian Indo-Pacific presence, broad engagement with India and South Asia is also crucial. Negotiating and implementing a Canada-ASEAN free trade agreement, a Comprehensive Economic Partnership Agreement with Indonesia, and expand market access to India by concluding an Early Progress Trade Agreement (EPTA) as a step toward a Comprehensive Economic Partnership Agreement will open up numerous opportunities for Canadian businesses.
Bolstering Facetime and Supply Chain Resilience
To enhance Canadian economic engagement in the Indo-Pacific, CIPS will appoint a new Canadian Indo-Pacific Trade Representative to advance Canada’s regional trade policy, promotion and economic cooperation objectives there. This will be essential to spearheading trade opportunities and identifying niches that Canadian businesses could fill.
To bolster facetime in the region, CIPS has already launched a new series of large-scale Team Canada trade missions that involve Canadian businesses, provinces and territories and other relevant partners and organizations. Canada will showcase the capabilities and competitiveness of its exporters and innovators to ensure their success in the region and facilitate long-term trade and investment opportunities.
As much of the region prioritizes relationship-based trade partnerships, regular and large-scale trade missions will bolster business-to-business relations in the region by building trust and personal relationships.
On the supply chain front, CIPS recognizes that a host of factors including the COVID-19 pandemic and geopolitics have compromised supply chains. These disruptions affect Canadian business engagement in the region and that of our partners by reducing confidence in supply chains overly concentrated in any one country.
To boost supply chain resilience and Canada’s economic security, CIPS has committed to greater Canadian involvement and alignment with regional initiatives, such as the Australia-Japan-India Supply Chain Resilience Initiative. It will also bolster global supply chain resilience and sustainability by engaging in technical, policy and high-level cooperation through APEC on standards, conformity assessment procedure and best practices to enhance trade.
CIPS also aims to expand natural resource ties—related to trade, investment and science, technology and innovation—with priority Indo-Pacific partners, and to strengthen Canada’s Science, Technology and Innovation partnerships with key economies, including Japan, Korea, India, Singapore and Taiwan, to support international co-innovation projects and commercialization-oriented research and development partnerships for Canadian small and medium-sized businesses with Indo-Pacific partners.
These initiatives will be a boon to Canada-based businesses because they will open markets and enhance trade with reliable, like-minded partners through shared initiatives and technological development based on existing standards.
The China Question
Fourth, many Canadian businesses have strong links to China, and there are concerns that CIPS will negatively affect their business interests there.
CIPS recognizes that “China’s sheer size and influence makes cooperation necessary to address some of the world’s existential pressures, such as climate change and biodiversity loss, global health and nuclear proliferation. And China’s economy offers significant opportunities for Canadian exporters.” Notwithstanding the numerous opportunities the Canada-China trade relationship presents, CIPS also recognizes that economic coercion, the growing risk of the arbitrary application of Chinese law, and a track record of “behaviours and policies that erode the existing rules-based international order undermine Canadian interests, whether they come from countries that are big or small—but they are especially challenging when pursued by rising powers with divergent national values.”
With this in mind, CIPS highlights why Canada has to diversify its diplomatic, trade and economic engagement throughout the entire Indo-Pacific, based on expanding trade agreements and working with like-minded countries to foster a rules-based region that instills stability in its political economy.
Simply stated, China is part of the Indo-Pacific, not the whole Indo-Pacific. Canada needs to design its engagement with the region recognizing its heterogeneity in character, needs and opportunity.
Canadian businesses in Japan and the region should welcome this all-encompassing Indo-Pacific strategy. It charts out regional engagement at the levels of diplomacy, trade, institution building and security. These are key elements for fostering platforms for commercial engagement, opening markets and investing in establishing rules that make investment more predictable, profitable and sustainable.