CIIT Committee Report

GOVERNMENT RESPONSE
SIXTH REPORT OF THE STANDING COMMITTEE ON INTERNATIONAL TRADE

REPORT ON AN ECONOMIC PARTNERSHIP
AGREEMENT BETWEEN CANADA AND JAPAN

Introduction:

The Government of Canada is pleased to respond to the Sixth Report of the House of Commons Standing Committee on International Trade (the Committee), entitled: Report on an Economic Partnership Agreement between Canada and Japan (the Report). The Government shares the Committee’s commitment to ensuring that an Economic Partnership Agreement (EPA) with Japan is in the best interests of Canadians and contributes to the creation of jobs, growth, and long-term prosperity.

The Government welcomes the Committee’s analysis, views, conclusions, and recommendations resulting from its examination of the Canada-Japan EPA negotiations. The Government Response addresses the important issues raised in the Report, and responds to each of the Committee’s recommendations. The Government would like to thank Committee for their Report and interest in the progress of the Canada-Japan EPA negotiations.

Canada-Japan EPA Negotiations in Canada’s Economic Action Plan:

Given the importance of open markets to Canada’s economy, Canada’s long-term prosperity is intrinsically linked to expanding commercial opportunities beyond our borders. International trade and investment have improved the ability of Canadian businesses to attract capital and other resources, tap into global value chains, and create prosperity and growth. With low taxes, a highly-skilled and educated workforce, world-class financial and physical infrastructure, Canada is a natural and attractive trading partner.

Economic Action Plan 2013 highlights the importance of open markets to Canada as a source of jobs, growth, and long-term prosperity for Canadians. Today, trade is equivalent to over 60% of Canada’s Gross Domestic Product (GDP) and exports account for one in five jobs. Openness to trade, investment and global economic engagement are thus critical to Canada’s long-term prosperity. With this in mind, the Government is actively pursuing an ambitious pro-trade plan, seeking new trade and investment opportunities, particularly with large and dynamic economies. To that end, the Government is focused on deepening our economic relationships in the Asia-Pacific region, one of the world’s most dynamic regions with an economic growth rate of two to three times the global average. Since 2006, Canada’s goods exports to Asia have increased by 57%, but there remains much more room for growth. 

In this context, the Canada-Japan EPA negotiations are a key priority for the Government of Canada. These negotiations with Japan are a major element of Canada’s growing trade policy engagement in Asia, and complement Canada’s free trade negotiations with Trans-Pacific Partnership (TPP) members (Australia, Brunei Darussalam, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, U.S., Vietnam and Japan, expected to join in July 2013), and bilateral negotiations with India, Korea, and free trade agreement (FTA) exploratory discussions with Thailand. The Canada-Japan EPA negotiations present an opportunity to expand our economic relationship with the world’s third-largest national economy, and one of Canada’s most important trade and investment partners. A comprehensive Canada-Japan EPA will improve access for Canadian businesses to Japan’s $6.0-trillion economy and 128 million consumers.

The Canada-Japan Joint Study on the Possibility of a Canada-Japan Economic Partnership Agreement (the Joint Study), released on March 7, 2012, found that there was much untapped potential in our trade relationship. Quantitative analysis in the Joint Study projected that an EPA between Canada and Japan could result in billions of dollars in new export revenue and GDP gains for both countries: a bilateral EPA could boost Canada’s exports to Japan by up to 67%, or $7 billion, and could increase Japan’s exports to Canada by up to 37%, or $4 billion, stimulating economic growth in both countries. Boosting exports to this key market means new jobs for hard-working Canadians.

A comprehensive EPA between Canada and Japan is supported by stakeholders across the country. Provinces and territories continue to be engaged in the negotiations, and have expressed their support for an expanded trade and investment relationship with Japan.

Stakeholders from across industry sectors, including apparel, forestry and wood products, infrastructure, natural resources, aerospace, and agriculture have spoken favourably of the Government’s initiative towards an EPA with Japan.

Specific Areas under Negotiation Addressed by the Report:

The Report situates the negotiations in the context of broader Canada-Japan bilateral relations, and highlights the economic, political and business environment in Japan. The Report also explores many of the key areas of negotiation, including: trade in goods, trade in services, and investment protection.

In the area of trade in goods, Canada and Japan enjoy a complementary relationship with significant potential for growth. In terms of tariff elimination, it is expected that a Canada-Japan EPA would lead to a broad expansion of trade, both in sectors with high current trade volumes as well as in sectors where there is little current trade due to significant tariff barriers, particularly in Japan. In addition to eliminating tariffs, Canada is seeking to include provisions to address non-tariff barriers as well as provisions that lead to increased cooperation with Japan and otherwise make trade more efficient, such as customs procedures designed to ensure certainty and transparency. Canada is also seeking opportunities to provide for greater cooperation in the development of new regulations with a view to ensuring that unnecessary obstacles to trade do not erode Canadian exporters’ current and future market access to the Japanese market.

In the areas of services, both Canada and Japan have sophisticated and competitive services industries with potential for further growth. A Canada-Japan EPA will reduce market access restrictions to Japan, giving Canadian service providers better, more predictable and more secure access to Japan’s services market. As the Joint Study notes, the further opening of bilateral services trade has the potential to contribute to economic growth and job creation in both countries.

Japan is one of Canada’s most important investment partners. With nearly $12.8 billion in foreign direct investment to Canada, Japan was Canada’s largest source of foreign direct investment from Asia in 2011. In 2011, the stock of Canadian direct investment in Japan totalled $8.4 billion. A comprehensive EPA would offer the potential to further facilitate growth of Japanese investment in support of the Canadian economy. Investing in Canada offers Japanese investors access to the NAFTA market of 463 million consumers, simple and straightforward procedures and an attractive business climate. The inclusion of investment provisions in an EPA will provide an additional level of stability and security for Canadian and Japanese investors, and facilitate further economic integration and promoting job creation.

Trade and investment in the energy, minerals and food sectors are key aspects of the economic and strategic relationship between Canada and Japan. Given Canada’s role as a stable and reliable supplier of energy resources and agricultural and agri-food products to the Japanese market, as well as Japan’s role for offering important export opportunities to Canada, both countries stand to benefit from closer economic ties in these areas. A Canada-Japan EPA could increase Canadian export opportunities while contributing to Japan’s energy and food security.

Government of Canada Response to Committee Recommendations:

The Government has reviewed the recommendations in the Report and welcomes the opportunity to respond to each recommendation individually.

Recommendation 1: That, as soon as possible, the Government of Canada conclude an economic partnership agreement with Japan that provides a net benefit to Canada.

Canada and Japan have long been important partners, building a strong and dynamic partnership based on shared values, including the rule of law, democracy and the mutual recognition of the importance of open and fair trade to economic growth and prosperity. Japan is Canada’s fourth-largest merchandise export market overall and our second-largest trading partner in Asia. Bilateral trade reached over $25 billion in 2012; and Japan is currently Canada’s single-largest source of foreign direct investment from Asia at nearly $12.8 billion. Japan’s large and affluent market offers tremendous growth opportunities for Canadian businesses. 

The Government is committed to improving access to strategic markets in the Asia-Pacific region and our EPA negotiations with Japan represent a landmark opportunity to deepen Canada’s relationship with one of the world’s largest and most innovative economies. With a GDP of nearly $6.0 trillion in 2012, Japan is a major global economic power, pivotal player in global value chains, a gateway to other Asia-Pacific markets, and is home to nearly 128 million consumers with considerable purchasing power.

In light of Japan’s economic strength and the Asia-Pacific region’s increasingly important role in Canada’s foreign policy, and as highlighted in Economic Action Plan 2013, Canada is negotiating a comprehensive, high-quality EPA that promotes Canadian economic interests.

A comprehensive EPA with Japan will help unlock the full potential of our bilateral relationship, leading to the creation of new opportunities, jobs and prosperity through increased trade and investment. Once fully implemented, an agreement with Japan could  provide a $3.8 billion GDP boost for Canada and generate an increase of roughly 67% in bilateral trade.

The Government’s objective is to advance negotiations as quickly as possible and to maintain Canada’s advantage as the first G8 country engaged in negotiations with Japan, particularly in light of Japan’s expanding trade agenda, with includes several new and high-profile initiatives: expected participation in the Trans-Pacific Partnership (TPP) negotiations; recently launched Japan-EU EPA negotiations; Regional Comprehensive Economic Partnership (RCEP) negotiations with the members of the Association of Southeast Asian Nations; and trilateral negotiations with China and Korea.

Canada welcomes Japan’s participation in the TPP negotiations. Canada views working together in the TPP to enhance greater cooperation in the Asia-Pacific region, and working together bilaterally on our EPA negotiations, as mutually supportive initiatives. Expanding efforts to liberalize trade in goods and services with Japan in the TPP in parallel to our existing bilateral EPA negotiations will maximize the ability of Canadian businesses to take advantage of the full range of opportunities offered in Japan. The Canada-Japan EPA negotiations provide the opportunity to address interests unique to the bilateral relationship.

The Government is committed to negotiating an ambitious and comprehensive EPA that is in the best interest of Canadians, results in overall benefits to the Canadian economy, will contribute to Canada’s long-term prosperity and create new jobs for hard-working Canadians.

Recommendation 2: That, in relation to the goods and services of interest to Canada, the Government of Canada ensure access to the Japanese market that is at least equivalent to the commitments made by the Japanese government to other countries.

The Government recognizes the importance of ensuring a level playing field for Canadians seeking to do business in Japan. By reducing tariffs, improving market access, enhancing cooperation and otherwise facilitating trade, an EPA with Japan would allow Canadians to fully leverage the complementary economic relationship and benefit from commensurate opportunities in a wide range of sectors.

In relation to goods and services, the Canada-Japan Joint Study found that there remains much untapped potential in the Canada-Japan trade relationship. Removing impediments to trade could increase Canadian exports to Japan by up to 67%, and boost Canada’s GDP by $3.8 billion. Canada’s objective in negotiating an EPA with Japan is to secure and enhance access for Canadian exporters, in turn promoting jobs and economic growth here in Canada. In particular, Canada is seeking the full elimination of Japanese import duties on Canadian export interests.

Canada and Japan have highly developed, knowledge-based economies with sophisticated and competitive services industries, accounting for a large part of our respective GDPs. The Government will seek more predictable and secure access to Japan’s services market by negotiating broad and ambitious obligations of benefit to Canadian services supplies. Improving access for services in Japan will result in additional business opportunities, contributing to Canada’s prosperity. Canada will also seek to address impediments to the movement of business people.

The Government will thus work towards an agreement that provides equivalent or better access in areas of interest to Canada than those that were achieved by Japan’s past negotiating partners. The Government will also continue to closely monitor Japan’s ongoing negotiations with trading partners such as the EU, Australia, and members of the TPP (including the U.S.), with a view to ensuring that Canadian exporters are not disadvantaged vis-à-vis their key competitors and can enjoy a level-playing field in the Japanese market. Canada’s overall objective remains to secure a competitive advantage in the Japanese market, building on our first mover advantage.

A comprehensive Canada-Japan EPA will also improve conditions for Canadian enterprises to increase their footprint in the Asia-Pacific region, using Japan as a platform to boost exports and further expand to dynamic markets in the region. Related to this, Canadians will benefit from greater economic integration with a vital access point to regional and global value chains.  

Recommendation 3: That the Government of Canada negotiates a reduction in or elimination of Japan’s escalating tariffs, especially those in relation to processed agricultural products.

Historically, Japan has been Canada’s largest overseas destination for agricultural exports and a key market of interest to Canadian producers of processed agricultural products including such food items as vegetable oil, cured meats, wheat flour and maple products. At present, Japan represents Canada’s third-largest agri-food export market after the United States and China.

A key challenge facing Canadian exporters is tariff escalation – a system under which a higher tariff is applied to a processed product than that applied on the associated unprocessed form.  The Government has consulted closely with industry stakeholder groups to identify sectors and products where this issue affects Canadian producers and companies, and will continue to do so throughout the negotiations.

The Government agrees that reducing escalating tariffs and enhancing market access for processed agricultural products and non-agricultural goods is an important goal for Canada in these negotiations and carries with it much potential for promoting increased value-added production and exports. To that end, Canada will be seeking an ambitious market access outcome in the negotiations, thereby supporting new growth opportunities for Canadian exporters.

Recommendation 4: That, concurrent with the negotiations for an economic partnership agreement with Japan, the Government of Canada advance negotiations on an organic equivalency recognition agreement between the two countries.

The Government recognizes the importance of establishing organic equivalency to facilitate the trade of organic goods between Canada and Japan. In appreciation of the growing importance of organic products to consumers in both countries, the Governments of Canada and Japan are actively pursuing organic equivalency. An equivalency arrangement with Japan will allow products certified to the Canada Organic Regime to be exported to the Japanese market without requiring additional Japan Agricultural Standards certification (and vice versa).

In November 2011, Canada formally asked Japan to engage in discussions concerning the recognition of equivalency between the Japanese Agricultural Standards for organic plants and organic processed foods of plant origin and the Canada Organic Product Regulations. Since then, technical meetings have taken place to increase the understanding of each country’s organic regimes. On October 15, 2012, the Canadian Food Inspection Agency’s Canada Organic Office received official notification that Japan had accepted Canada’s application for recognition of organic equivalency, and had initiated its formal review and deliberation process. Similarly, in accordance with the Canada Organic Office procedure for equivalency determination, Canada has initiated its formal review process of Japan’s organic regime.

The Government believes that an organic equivalency recognition arrangement will strengthen the Canada-Japan agricultural partnership by creating significant new opportunities for two-way trade in organic products, for the mutual benefit of producers, exporters, and consumers in both Japan and Canada. Discussions on organic equivalency recognition will continue in parallel with bilateral EPA negotiations.

Recommendation 5: That, following the entry into force of an economic partnership agreement between Canada and Japan, the Government of Canada develop an action plan to support Canadian exporters and investors seeking to access the Japanese market.

The Government is committed to supporting Canadian businesses in international markets through a variety of tools and policies including the Global Commerce Strategy and the Trade Commissioner Service (TCS). The 2007 Global Commerce Strategy was developed to present a more targeted and integrated use of federal government resources. The Economic Action Plan 2012 announced that the Global Commerce Strategy would be refreshed in 2013 to ensure Canada’s trade and investment objectives remain focused and relevant, and that available resources are aligned with objectives.

To assist Canadian businesses on the ground in foreign markets, the TCS offers first hand knowledge of international markets. The TCS provides practical advice and intelligence to help Canadian businesses make better, timely and cost-effective decisions in order to achieve their goals. The TCS helps companies that are looking to export, invest abroad, attract investment or develop innovation and research and development partnerships.

In Japan, the TCS provides insights into Japanese business practices, conducts market potential assessments, facilitates introductions to potential customers, distributors, sources of finance or investment, technology partners and intermediaries, among other initiatives. The Canadian private sector is supported by the TCS in the Canadian Embassy in Tokyo, the Consulate in Nagoya and the Canadian Trade Offices in Kitakyushu, Osaka and Sapporo.

Existing FTAs and other commercial agreements are taken into consideration when planning TCS activities around the world. In this context, a marketing strategy has been developed and implemented for FTAs in the Americas and will be used as a model for future efforts to promote the benefits of upcoming FTAs to Canadians. 

Recommendation 6: That following the conclusion of an economic partnership agreement with Japan, the Government of Canada review its diplomatic presence in Osaka.

The needs of the Canadian private sector in the Japanese market are met through the presence of the TCS in the Canadian Embassy in Tokyo, the Consulate in Nagoya and the Canadian Trade Offices in Kitakyushu, Osaka, and Sapporo.

The Government continues to recognize the economic importance of the Kansai Region. Since 2011, a dedicated Trade Commissioner Officer, embedded in the Osaka Chamber of Commerce and Industry, has provided support to Canadian businesses, particularly in the sectors of life sciences, clean technology and consumer products. The Government continues to place a high priority on expanding trade and the overall relationship with Japan.

It is the Government’s practice to regularly review diplomatic representation and operational requirements of Canada’s overseas diplomatic presence to address the evolving needs and interests of Canadian individuals and businesses. Accordingly, the Government will continue to assess Canada’s diplomatic presence throughout the course of the Canada-Japan EPA negotiations, as well as following its conclusion.