- Canadian Meat Business
The upside to an agreement makes it well worth pursuing
April 3, 2012
EDMONTON, AB, Apr. 3, 2012, Troy Media/ – The recent announcement between Prime Minister Stephen Harper and Japanese Prime Minister Yoshihiko Noda launching Canada-Japan free trade negotiations met with varied reactions.
Canadian trade negotiators, who face tight government deadlines and limited resources in finalizing the EU comprehensive economic and trade agreement and delivering an agreement with India, are probably asking “Why us? Why now?”
Reaction from the business community is probably mixed, with Canada’s manufacturing (including automotive) and electronics sectors wondering what an influx of Japanese products might do to their Canadian market share. Energy, agricultural and forestry producers may be looking forward to big, new opportunities.
And, similar to the business community, reactions from provincial governments probably vary depending on their relative economic exposure to increased Japanese imports versus more export opportunities.
The Alberta perspective
From Alberta’s perspective, there are opportunities and hazards. Both are explored in a recent study by the Western Centre for Economic Research (WCER) entitled: Towards a Canada-Japan Economic Partnership Agreement: An Assessment of Trade Barriers to Alberta’s Exports.
As the study name suggests, Japan has historically been inclined to enter into Economic Partnership Agreements (EPAs), which are considerably less comprehensive than full fledged free trade agreements. From 2002 to 2010, Japan concluded 11 EPAs which provide benefits such as enabling technology transfer in return for allowing Japan to keep its highly protected agriculture sector closed to foreign competition. But Premier Yoshihiko has recently indicated a willingness to raise the stakes rather than be left behind in an increasing global array of bilateral free trade initiatives.
It is important to note that Canada does have precedents for economic cooperation with Japan. The Science and Technology Cooperation Agreement of 1986 and the Canada-Japan Economic Framework of 2005 have formed a basis for further exploration of common interests. This means negotiations on a free trade arrangement will be based on a high level of mutual understanding of domestic strengths and vulnerabilities.
The stakes for Canada and Alberta are significant. Japan is Canada’s fifth largest export destination and Alberta’s third. In 2010, Canada’s merchandise exports to Japan exceeded $9 billion with about $1.5 billion of that coming from Alberta. This only equates to about two per cent of what Alberta exports to the U.S., but the opportunity to gain greater access to a growing and increasingly wealthy part of the world can offer a large payback in additional customers for existing products and new opportunities for products we export in small amounts or not at all.
In 2012, Alberta’s top exports to Japan were: canola seeds accounting for about 25 per cent of the total; meat (beef and pork) and coal, each at about 20 per cent; and wood pulp, cereals, wood and various metals, all at significantly lower percentages. Over the past 20 years, the annual value and volume of these exports has varied considerably.
Obviously, the big gains for Alberta would be in commodities currently facing high Japanese tariff rates – primarily beef and some grains. Most of the other exports noted above face insignificant tariffs.
But as trade negotiators like to say, “No free trade is really free,” and that is where the interesting part of the negotiation begins. All countries supplement tariff rates with so-called non-tariff barriers. These special conditions which exporters must meet in order to sell their products in the destination country can greatly increase the cost of exporting. Japan is a country noted for its complex approach to these barriers which are usually designed to protect domestic producers from foreign competition and involve a high degree of administrative discretion, yet still permit supplementary imports when domestic production is not sufficient to satisfy domestic demand.
Examples of non tariff barriers include: levying special charges when imports of some commodities (such as beef) are above prescribed levels; requiring unnecessary testing and labelling of food products which have already been tested before leaving Canada; banning certain food additives which are widely used in other countries; constraining capacity or charging exorbitant rates for cold storage and distribution of food products within Japan; or requiring secondary quality certification for imports like wood products. Negotiating the reduction or removal of such barriers is a time consuming and complex process, yet it is as important as reaching agreement on tariff structures.
These negotiations will be particularly tricky in the case of Japan. If these non-tariff barriers can be satisfactorily addressed, Alberta’s exporters would definitely benefit.
While the undertaking of a Tree Trade Agreement represents a big commitment, the upside to Alberta makes it well worth pursuing.
Jason Brisbois is the Director of the Western Centre for Economic Research at the Alberta School of Business. More information on Alberta’s trade with Japan and Japanese trade barriers can be found in the study authored by Dr. Rolf Mirus and Nicholas Emter. It can be accessed at http://www.business.ualberta.ca/Centres/WCER.aspx
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