Canada, Japan take step toward free trade
Agriculture seen as biggest obstacle
EST Tuesday, March 08, 2005
TOKYO -- Canadian and Japanese officials have quietly begun negotiating the terms of a study that could lead to a free-trade agreement within the next several years.
The road to a potential deal is still risky and obstacle-strewn, but it could allow Canada to leapfrog ahead of the United States and become one of the first Western countries to secure a free-trade agreement with Japan.
Agriculture, as always, is looming as the biggest threat to a possible deal. Some analysts say Japan is unlikely to drop its traditional policy of shielding its farmers from foreign competition, despite its agreement to study a Canadian deal.
But Japan has become much more open to free-trade deals in the past two years, and there are hints it might be willing to consider one with Canada. It recently signed a free-trade agreement with Mexico, for example, despite disputes over agricultural issues. And it has launched free-trade talks with 10 Asian countries at an accelerated pace -- partly because of concerns that China might otherwise become the Asian economic leader.
Prime Minister Paul Martin and his Japanese counterpart, Junichiro Koizumi, agreed to the trade study in January when Mr. Martin was in Tokyo during his Asian tour. But the announcement was buried at the end of a vague and lengthy statement on economic issues, and it never actually used the words "free trade" -- to avoid putting any pressure on the Japanese, who want to keep the option of rejecting the free-trade route.
The agreement between Mr. Martin and Mr. Koizumi specifies that the trade study will have a one-year deadline. The terms of reference for the study are due to be negotiated by July at the latest, so the study should be completed by the summer of 2006.
The study is significant because it is normally the first step toward a free-trade agreement between Japan and any other country, and it often leads to a full-fledged negotiation on free trade.
"It's a real coup for us," a Canadian official said. "It would put us ahead of the Europeans, for example. It means we'll actually be talking about improving our trade relations in a very detailed way, and about a possible free-trade agreement in the not-too-distant future. It has fundamentally changed where we stand with the Japanese."
Other analysts, however, are skeptical an agreement can be reached in the next two years -- even if the agricultural issue is removed from the negotiations. Japan is too preoccupied with its free-trade talks with its Asian neighbours to be able to focus on Canada, some observers say.
"The pipeline is full," said Neil Moody, executive director of the Canadian Chamber of Commerce in Japan. "There are too many economic partnership agreements already in the works."
Much of Japan's trade agenda is driven by a fear of losing ground to China, which has launched its own free-trade negotiations with the nations of southeast Asia. Japan does not want to see China taking over the Japanese role as the regional economic power in Asia.
But to move beyond the developing world and into a possible deal with an industrialized Western economy such as Canada could be too big a leap for Japan to contemplate at the moment.
Instead, the Canadian officials are hoping the events of the next 18 months -- including the World Trade Organization negotiations and the current trade talks between Japan and Australia -- could resolve some of the agricultural issues that would otherwise block a Canada-Japan deal. If all goes well on those fronts, the climate for a bilateral free-trade deal could be much better by mid-2006, when the trade study is finished.
With the second-richest economy in the world, Japan is still considered a key market for Canadian goods. But Canada's trade with Japan has slipped in recent years. Canada has only a 2-per-cent share of the Japanese import market today, compared with 3.2 per cent in 1995.
Ottawa is hoping that the new study will create momentum to revitalize the trade relationship.
Canada's chief exports to Japan -- including agricultural, forestry and fish products -- are some of the most sensitive industries in Japan, where domestic pressures have created barriers to imports.
Business lobby groups such as the Canadian Council of Chief Executives are among those who have lobbied hard for a trade agreement between Canada and Japan.
Thomas d'Aquino, president of the CCCE, said the group is "extremely pleased" with the announcement of the trade study, which he called an "important development" that could pave the way for improved trade relations between the two countries.
But other analysts caution that a free-trade negotiation might not be the best solution to the barriers Canadian exports are facing.
Rather than tariffs and quotas, regulatory barriers are the main problem for most Canadian exports.