Comment: Canada-Japan relations: Time to hit reset

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committe for Pacific Economic Cooperation (CANCPEC)

Canada-Japan relations are at a low ebb politically and need to be rescued by urgent and decisive action.

One of our largest trading relationships has been put at risk by the perceived snub offered to Japanese Prime Minister Shinzo Abe in Vietnam in November when Prime Minister Justin Trudeau missed a scheduled press conference intended to announce that Canada, Japan and nine other Trans-Pacific Partnership countries had reached agreement in principle on a revised trade pact. Worse still, it was Canada’s last-minute case of cold feet that almost sank the agreement.

It is time for a reset to restore this important bilateral relationship. The best way to do this is to double down now to resolve the outstanding differences between Japan and Canada that are hindering conclusion of what has been relabelled the Comprehensive and Progressive Trans-Pacific Partnership.

Japan and Canada have long had an important economic and political relationship. Canada has had a fascination with Japan going back to before the Second World War. Postwar Japan became one of Canada’s largest trading partners, the fourth most important destination for Canadian exports.

In recent years, however, bilateral trade has stagnated, while trade from our competitors, such as Australia, has grown exponentially. Still, bilateral trade totalled more than $26 billion in 2016. Unlike our trade with China, Canada-Japan trade is roughly in balance.

Japan is also an important source of foreign direct investment, in the resource and manufacturing sector. While Korean and European auto makers do not manufacture any cars in Canada, Japanese companies (Toyota and Honda) have invested in car-assembly operations here.

In fact, Toyota produces more vehicles in Canada than any of the Big Three.

Japan is a strong market for Canadian agri-food, seafood, forest products and mineral products, but we face competition from the U.S., Australia and the EU. The EU and Australia have concluded free-trade agreements with Japan, giving them preferential access.

The U.S. does not have an agreement with Japan, although during the original TPP negotiations, the U.S. pushed hard for improved access to Japanese markets.

If the revised TPP (without the U.S.) can be successfully concluded, Canada will reap the benefits of improved market access to Japan without U.S. competition, and will be on a level playing field with Australia. Japan has shown little interest in negotiating a bilateral agreement with Canada, and if Canada does not lock in its market gains in Japan through the Comprehensive and Progressive TPP, it will have missed a generational opportunity not only to gain preferred access to the Japanese market for Canadian products, but to enjoy a preference over the U.S. competition.

Abe has staked his reputation on concluding the TPP. Japan pushed the remaining partners to continue discussions after U.S. President Donald Trump’s precipitate withdrawal. For Abe, the TPP is about reforming and opening up the Japanese economy, but it is also a long-term strategic play, strengthening Japan’s position vis-a-vis China.

Canada is “inside the tent” for now, but the recent spanner we threw in the works in Vietnam has resulted in threats to conclude the TPP without Canadian participation. That would represent a significant setback for Canadian trade diversification, needed even more given overt protectionism in the U.S.

Canada had some substantive concerns with a new agreement, over dairy supply management, culture and, particularly, the rules of origin for autos and auto parts. Canada wants to preserve auto-sector manufacturing jobs in Ontario by ensuring that Chinese-made parts in Japanese cars do not displace Canadian parts, but it is ironic that both Korean and European manufacturers are enjoying a phase-out of Canadian auto tariffs while Japanese companies, which have invested in Canada, still face a tariff barrier.

It is important that Canada and Japan resolve this issue quickly so that Canada can stay on the TPP train.

Japan will continue to push the new TPP through to its conclusion, likely this year. Canada has a choice. We either find a way to compromise with Japan, or miss out on a unique opportunity to gain significantly improved access to the Japanese market.

The stakes are high for Canada, for Western Canada and B.C. in particular. The next few months will be crucial in finding a way to reset the Canada-Japan relationship. Let’s seize the moment.

[Cross-posted with permission from the author. This article is originally published on the Times Colonist website, dated January 18th 2018]