Having concluded significant recent trade agreements with South Korea and the European Union, the Harper government now dreams of a free trade agreement with Japan. Ottawa believes that its exports to the country of 127 million people, the world’s third-largest economy, would jump by 67% (they totalled $10.7 billion in 2013). It would add $3.8 billion to Canada’s GDP. But for Tokyo, there is no reason to rush into the negotiations, according to Japanese news sources.
“Japan wants to sign an agreement with Canada. But to be honest, another trade agreement, the Trans-Pacific Partnership [PTP] is getting a lot more attention,” said an official at Japan’s Ministry of Foreign Affairs. That would change the dynamics of bilateral negotiations with Ottawa. “There is no urgency, we are not in a hurry,” said the official. “We must wait to see what happens in the PTP before making the most effective bilateral negotiations with Ottawa.”
The unnamed official noted that talks between Ottawa and Tokyo two capitals were started there just over two years ago, with only six rounds of negotiations so far. In comparison, an Australia-Japan free trade agreement concluded in early April, had required a good 20 meetings over five years, he says.
The negotiations will be thorniest concerning food products, because Japan jealously protects its production by imposing high tariffs. Canada sends $4 billion worth of animal and plant products to Japan: Beef, pork, dairy, wheat, etc. Beef, for example, is hit with a tariff of 38.5%.
Japanese Prime Minister Shinzo Abe faces members of the Diet (the national parliament) who are very protectionist, many of whom are within his own party. They consider sacred five types of farm products: Rice, wheat, meat (beef and pork), dairy products and sugar. During the 2012 election campaign, Abe has promised both elected officials and farmers that he will not touch these products. “For Abe, it’s very hard politically. He must pick his way [between trading partners and members of parliament]” says the official.
But now there is a precedent. Last April, the same government reached a compromise with Australia. The Tokyo-Canberra agreement provides for an immediate reduction of tariffs from 38.5% to 19.5% on frozen beef, and a gradual reduction from 38.5% to 23%, spread over 15 years, on fresh beef. In return, Australia has agreed to include a total abolition of tariffs on Japanese cars entering its territory.
Tokyo wants Canada to do the same. Currently, Toyota, Honda, Nissan, Mitsubishi and others are taxed at 6.1% on arrival in the Canadian market. Nearly three-quarters of Japanese cars on the road—mainly the most popular models such the Honda Civic and Accord—are manufactured in North America. Under NAFTA they are exempt from tariffs. But luxury brands such as like Lexus, or most advanced technologically, such as hybrids, come from the other side of the Pacific. “Tokyo has an incentive to see Canadian tariffs fade,” said Toshiki Takahashi, chief economist at the Institute for International Trade and Investment.
To further complicate things, many Canadian and Japanese products can be found both at the heart of both bilateral free trade talks and the multilateral TPP negotiations. However, this can be an advantage, Takahashi believes. Demands from Washington to reduce the Japanese tariff on U.S. beef to only 9% will justify Canada’s calls for lower tariffs. “Strong pressure, coupled with the previous Australian deal, certainly benefit Canada if the parties reach an agreement,” he said.
Entering the Japanese market is very difficult, says Laura Dawson, a consultant to several states on trade and economic issues. “Japan was not very inclined to negotiate. But now that it’s launched, it is important for Canada to succeed in keeping Tokyo’s attention.”
PROSPECTS FOR JAPAN-CANADA FREE TRADE
- Canadian beef is taxed at 38.5%. Americans want this rate is 9%, far too low to Japanese tastes.
- Japanese-made cars on the other side of the Pacific—luxury or specialized models such as hybrid—are taxed at 6.1% when they arrive in Canada. Japan wants to bring down this percentage, which should make these cars more affordable for consumers.
- Canada, which exports to Japan for more than $1 billion dollars a year of wood products, wants to reduce fees, which can reach 20% for some. The goal is greater access to the Japanese market.
- Canada wants to open the Japanese market to its seafood, most of which is currently subject to duties ranging from 5% to 15%.
This story originally appeared in L’actualitÃ©.