Global Insider: Canada-Japan trade relations
World Politics Review | 05 Apr 2011
Global Insider: Canada-Japan Trade Relations
Canada and Japan announced in February that they were formally studying the possibility of concluding a bilateral free trade agreement. In an email interview, Carin Holroyd, a political science professor at the University of Waterloo, discussed economic relations between Canada and Japan.
WPR: What is the current state of trade relations between Japan and Canada?
Carin Holroyd: Trade between Canada and Japan looks, in many ways, as it has for decades. Canada sells about $9 billion annually of primarily resource products — coal, canola, lumber, copper, pulp and paper, aluminum, wheat, meat and fish — to Japan. In return, Canada purchases approximately $13 billion of primarily motor vehicles and parts, nuclear reactors and parts, and consumer electronics. Japan was Canada’s second-largest export market from 1973 until the mid-2000s. At that point, although the value of Canadian exports to Japan remained relatively constant, Canada began to sell more to both the United Kingdom and China.
The trade statistics, however, understate the expanding economic relationship between the two countries. Canadian high-technology and service companies have had significant success in Japan over the past 15 years. Japan has $13 billion worth of foreign direct investment in Canada, particularly in the auto sector.
WPR: What drove both parties to consider a deal?
Holroyd: The announcement that Japan and Canada are studying the feasibility of establishing an economic partnership agreement has been a long time in the making. The two countries signed the Canada-Japan Economic Framework Agreement in 2005 and launched a joint study to investigate the benefits and costs of further promotion of bilateral trade and investment. Although that review, which was completed in October 2007, indicated many areas of potential collaboration and potential, there was more interest in pursuing a free trade agreement on the Canadian than the Japanese side. It appeared for several years as though the drive for a more comprehensive economic partnership had stalled.
In November 2010, Japan announced a new policy on free trade agreements — the Basic Policy on Comprehensive Economic Partnerships — with the objective of opening Japan up to the world through trade and investment. Canada was specifically identified as a priority country by the Japanese. Progress on the Transpacific Partnership Agreement, a regional trade agreement of which neither Japan nor Canada are currently members, was also a likely spur to exploring closer cooperation.
WPR: What are the greatest areas of potential benefit to the two sides, and what areas might derail the agreement?
Holroyd: Business leaders in both countries indicate that technical arrangements — tariff and nontariff barriers — are not a major impediment to Canada-Japan commercial relations for most sectors. Therefore, the greatest potential benefit of a free trade agreement is that it would draw greater attention to the commercial possibilities in both countries. The Canada-Japan economic relationship has long been characterized as one of unfulfilled potential. Specific sectors that could benefit from an enhanced profile include energy, environmental technologies, automotive, science and technology cooperation, digital media and telecommunications. Agriculture and issues around food safety are likely to be the biggest stumbling blocks. Rebuilding from the recent earthquake and tsunami will also be a serious distraction for Japanese officials in the coming months.
