Catching the Market That Drives the Globe

This year Canada and Japan are marking the 80th anniversary of the establishment of diplomatic relations between their two nations. As one of the co-chairs of the Canada-Japan Interparliamentary Committee, I met with my parliamentary counterparts a few weeks ago to discuss mutual issues of concern and co-operation.

Japan has been enjoying its longest period of sustained economic growth in the post-Second World War period, but Canada has been under-achieving relative to its trade competitors. Now is the time to regain the initiative and take advantage of the world's second largest economy (which will remain so into at least the next decade.)

Given the fact that it continues to generate record reserves—$1 trillion (U.S.)—and is the biggest net creditor, Canadians need to pay closer attention to a country that many have either ignored or taken for granted since the rise of China in the past two decades. Although our relationship with China is important, we must also recognize that Japan must remain a significant partner for Canada.

Japan represents a significant market for many Canadian exporters, but the Japanese market is also a world-leader in automotive, advanced manufacturing and electronic goods. The need for minerals, energy, and agri-food sectors helps Canada's efforts to gain Japanese attention as a secure and dependable supplier. My recent meetings with Japanese officials underscored the desire for Canada as a valuable partner, with energy resources as an example.

In 2006, Japan was Canada's sixth ranked source of foreign direct investment (FDI), with stock value at $11.3 billion (2.2 per cent of Japan's global total) through more than 550 Japanese subsidiaries and affiliate companies employing tens of thousands of Canadians. Canadian direct investment in Japan stood at $4.9 billion, or 94 per cent of our worldwide Canadian direct investment abroad (CDIA) total.*

In 2007, two-way trade in goods totalled $24.6 billion, of which Canadian exports totalled $9.2 billion (down 2.8 per cent from 2006), making Japan Canada's fourth largest merchandise market.

In 2007, Canadian exports of services to Japan reached $1.4 billion. When trade in goods and services ($26.8 billion in 2007) is combined with CDIA and FDI flows, Japan is by far our largest commercial market in the world's fastest growing region.*

As hubs for various global companies, Tokyo and Osaka are important entry points to a global business environment, and especially as an entry point for markets in China and South Korea. Given this factor, there has been little media attention about this relationship, as the focus has been on China and India. Yet Japan, a country of 120 million people, has an economy that is greater than all of Asia combined.

We need to take advantage of the opportunities in Japan and not be complacent by treating it as less important than other countries. Both countries have taken their relationship for granted and indeed the relationship has been neglected in recent years.

Certainly the decision to close our consulates in Osaka and Fukaoka in 2007 were viewed by the Japanese in a very negative light. If we continue to allow our market share to decrease, then countries such as the United States and Australia will fill the void.

On a positive note, the Liberal government in November 2005, together with the Japanese, launched the Canada-Japan Economic Framework, consisting of fifteen priority areas of co-operation: trade facilitation; customs; investment; science and technology; information and communication technology; tax convention; transportation; e-commerce; anti-competitive activities; tourism promotion; social security; food safety; e-government; energy and natural resources; and climate change.

A key outcome of the framework was a joint study on the costs and benefits of further promoting and liberalizing bilateral trade and investment. In October 2007, the Report of the Canada-Japan Joint Study on Benefits and Costs of Further Promotion of Bilateral Trade and Investment was published.

This report concluded "that a Canada-Japan [free trade agreement] could yield economic benefits for both countries as a whole." As a result, the two countries have decided to revisit the possibility of an FTA. Japan in particular is watching the current Canadian discussions with the Republic of Korea on a FTA, and if one is concluded, it would be an impetus for Japan to move forward with Canada on an agreement.

The report also commented favourably on the usefulness of initiating a bilateral dialogue on regulatory reform to address regulatory barriers, seen as key impediments to bilateral commerce; investment promotion and co-operation; and updating the double taxation agreement between the two countries. It is essential that these issues be addressed in a timely fashion.

In my recent meetings in Tokyo, I pushed for a strengthening of the relationship both in terms of trade and investment, and in areas of increased co-operation of peacekeeping.

The Conservatives' approach to Japan, as it is to Asia in general, has been a failure to understand the importance of the region and the need to promote and cultivate relationships. A strategic approach to trade, diplomacy and investment is critical if we are to compete and demonstrate that Canada does matter to Asia and in particular to Japan.

As I indicated earlier, this is the 80th Anniversary of diplomatic relations between our two countries, and we must take the opportunity to move this important relationship to a new level. There is no question that Canada's national interests will be damaged if we do not develop a more aggressive and co-ordinated approach to the Japanese market.

Bryon Wilfert is the co-chair of the Canada-Japan Interparliamentary Committee and the Official Opposition defence critic. He is the member of Parliament for Richmond Hill, Ontario.

* Source: Department of Foreign Affairs, Canada