The Financial Post presents a six-part series on the tectonic economic transformation underway in Japan. Today, in part six, how new trade deals between Canada and Japan could benefit both sides.
TOKYO — Prime Minister Justin Trudeau’s visit to Tokyo in May prompted his Japanese counterpart Shinzo Abe to say that he hoped Canada would help the push to ratify the Trans-Pacific Partnership, a proposed deal that will reduce trade barriers between 12 Pacific Rim countries making up 40 per cent of the global economy.
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Abe showed clear enthusiasm for the deal, but Trudeau during a press conference did not, and only reiterated that his government is still planning a thorough, cross-country review before coming to a decision.
The disparity between the two leaders’ positions on the trade deal shows that Canada and Japan, despite having a long history of business and trade together, remain far apart in many ways. For both, larger markets such as the United States and China tend to be the more immediate focus.
But there is a growing sense in Japan that the two countries could grow closer economically in the coming years as the world becomes increasingly protectionist. In the U.S., both Hilary Clinton and Donald Trump have adopted protectionist trade policies into their official platforms. In the United Kingdom, the Brexit vote has tilted the country further away from integration with the global economy.
Canada and Japan have traditionally had a pretty straight-forward trading relationship: Canada exports its raw materials to Japan, an island nation with few natural resources, which then sends over finished manufacturing goods such as vehicles and heavy machinery.
Trade value both ways has been relatively flat in recent years, with Canada exporting about $9.6-billion worth of products to Japan in 2015 and importing about $14.8-billion worth.
Yoichi Kimura, senior director of global strategy at the Japan External Trade Organization (JETRO), said Canada and Japan make for natural trading partners in a world that is becoming more insular.
“There is a trend of protectionism between many countries,” he said. “We see it all over the world. This is a reason why the Canada-Japan relationship is so important. Both countries value free trade.”
But it remains a lopsided relationship. Kimura points out that Japan, mainly through factories and dealerships set up by Japanese automakers, pumps a lot of foreign direct investment into Canada. Little, however, goes the other way: Japan’s FDI into Canada is 11 times higher than the reverse relationship.
Hisako Komai, a senior manager in the international affairs bureau at Keidanren, an influential Japanese business advocacy group, said there are many reasons why Canadian companies should try to jump into the Japanese market.
“Japan has a certain scale; the size of the market is quite large,” she said. “Consumer demand levels in Japan are also quite high.”
Japanese companies, meanwhile, see Canada’s growing consumer market as attractive, but Komai admits the country is also seen as a gateway to even larger markets such as the United States and the European Union.
That could change if some of the myriad trade barriers are removed between Japan and Canada.
Important negotiations are now underway that could definitively change their trade dynamic, including a free trade agreement. Currently, different free trade agreements cover different industries and rules, but the hope is that tariffs and restrictions between Canada and Japan will be generally eased in order to facilitate more business.
There are also other bilateral efforts underway to spur business. This past March, the second Joint Chamber Symposium of the Japan-Canada Chambers Council was held in Vancouver, with 200 attendees from the government and private sectors. The council is a way for businesses and corporate leaders from both countries to get together and promote business relations.
“I felt there was a rising momentum in the conference, especially from the Canadians, who wanted to change the traditional relationship,” said Shinichi Isobe, head of global strategy for North America and Oceania at JETRO, who attended the symposium. “Both sides wanted to find new fields to make corporate investments.”
The attendees agreed to hold a third meeting, scheduled for April 2017 in Sendai, Japan.
Wilf Wakely, president of the Canadian Chamber of Commerce in Tokyo, chair of the Wakely Foreign Law Office and a Canadian who is a long-time resident of Japan, said that there are myriad business opportunities for Canadian companies in Japan.
“There is plenty of bank financing for projects here in Tokyo,” said Wakely, adding Japan is home to thousands of pension funds.
Wakely sees a lot of opportunity for deals and knowledge transfer when it comes to Public-Private Partnerships, which Canada has a lot of experience in. In such projects, private companies help fund and maintain government projects, creating profits for both.
This is a reason why the Canada-Japan relationship is so important. Both countries value free trade
Japan has had its own successful PPP deals, but there is room for many more, especially given some of the massive infrastructure projects in the country. For example, an ultra-fast maglev (magnetic levitation) train — which can travel at 500 km/h — is currently being built from Tokyo to Osaka. For that project, the government will provide a low-interest loan to the company building the track.
“That’s the kind of scale this country thinks in,” Wakely said.
Keiichi Higuchi, director of the North America Economic Coordination Division in the Ministry of Foreign Affairs, said another area of opportunity is in the digital economy.
This is especially true if the Trans-Pacific Partnership is eventually signed. Part of the TPP makes a commitment to facilitate the cross-border transfer of information, while also bringing in rules to protect consumers in all 12 countries from online threats such as spam and identity theft.
The TPP could provide enormous trading potential in areas such as the sharing economy, information technology and the video-game industry, which could be one of the best ways for Canada and Japan to move their economic relationship away from the resource/finished goods model.
“The real potential is in the non-goods sector, in the digital economy,” Higuchi said. “And this is where I think Canada and Japan can really work together.”
John Shmuel reported from Tokyo as part of the Foreign Press Center Japan’s fellowship for international reporters.