Japan wants more business with Canada but senses our ambivalence

by Colin Robertson

The Globe and Mail
March 31, 2015

It is the world’s most populous metropolis with 35 million residents (we Canadians are 33 million). With towers, temples and the Imperial Palace, Tokyo is a labyrinth, intersected by triple-decker roadways, canals and efficient subways.

For Canadians, Tokyo is a good place to do business, with reach into the rest of Asia, but our success requires sustained, focused discipline of which the Japanese are masters.

In the 70 years since the Second World War, Japan has embraced a lively democracy. But the kingdom of 6,852 islands has problems. Japan imports half of its food, and since the Fukushima disaster curtailed nuclear generation, almost all of its fuel.

More serious is its demographic challenge. The Japanese population – 127 million – is aging. It declined by 268,000 in 2014.

Is Japan fated to become just a bigger Singapore? It’s doubtful.

Through innovation and quality delivered by iconic firms like Sony, Mitsubishi and Toyota, Japan maintains its global standing as the third-largest economy. Its economic stimulus program is rebuilding its earthquake resistant bridges, tunnels and roads. Japanese students are top performers in the OECD’s PISA testing for reading, science and math.

Fiscal expansion, monetary easing and structural reform – the three main arrows in Prime Minister Shinzo Abe’s reform quiver – are into their third year. Even though the Japanese renewed Mr. Abe’s mandate last December, the jury is still out on his reforms. He now wants Japanese women to enter the traditionally male-dominated work force, a big cultural shift.

Japanese security policy and its post-war constitutional commitment to pacifism is evolving (Japan is the second-largest contributor to peacekeeping).

Japan still carries wartime baggage: Its abuse of “comfort women” still aggravates China and Korea. Then there is Mr. Abe’s curious historical revisionism. With the approaching 70th anniversary of the end of the Second World War, there is an expectation of renewed Japanese atonement.

The rapid rise of China and its creeping offshore territorial expansionism makes the Japanese, and their neighbours, anxious. Japan remains dependent, but less confident, in the reliability of the U.S. security umbrella, notwithstanding the Obama administration’s pivot to have 60 per cent of the U.S. fleet in Pacific waters.

Prime Minister Abe visits Washington next month to discuss the Trans-Pacific Partnership (TPP) negotiations and the scope of Japanese Defence Force reforms.

A successful TPP hinges on the Japanese-U.S. negotiations around agriculture and automobiles (to which Canada and Mexico should be party). Japanese concessions on agriculture (like Canada on supply management) will hinge on U.S. congressional passage of Trade Promotion Authority.

The recent controversy and division over the Chinese-inspired Asian Infrastructure Investment Bank points to the need for better Western consultation. The West tells China to participate in the rules-based international order but the West needs to demonstrate its willingness to work with China.

For Canada, Japan is a major market and investment source. A joint study in 2012 concluded that reducing barriers could increase Canadian exports to Japan by 67 per cent.

For Japan, we are a source of food and, potentially, energy. A Japanese Foreign Ministry official recounted that he “eats Canadian – your wheat in my pasta, pancakes and noodles and your malt in my beer.” Japan would like closer security and defence technology ties with Canada.

We pursue closer economic relations through two negotiating tracks: the twelve-nation TPP and, though it plays second fiddle to the TPP, a bilateral economic partnership agreement.

Japan wants more of our oil and natural gas. Japex has investments in Alberta’s oil sands and British Columbia’s gas fields. But new investments won’t come easily given the current abundant global supplies. Japanese officials also wonder about our ability to find the necessary social licence for new pipelines and terminals.

We have real assets: our resources; existing family ties (since 1980, half of our immigration has come from Asia); good schools and universities. Transit through our West Coast ports, now with improved pre-clearance, accesses the fastest shipping route between Asia and North America.

But we handicap ourselves: Through our inability to build the necessary infrastructure; our schizophrenia on foreign investment, especially state-owned enterprises; poor marketing of our educational services; and a peripatetic approach to the essential official visits.

Japan would like to do more business with Canada but, like the rest of Asia, it’s not waiting for us to get our act together. Meanwhile, Australia sets the pace on how to do business in Asia.

Like other Asians, the Japanese sense ambivalence about Canada’s commitment to the Pacific. For our own interests, we need to do better.

Colin Robertson is Senior Strategic Adviser, McKenna, Long and Aldridge LLP. He recently took part in a tour of Japan, sponsored by the Japanese government, for members of the Canadian Defence and Foreign Affairs Institute

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