A free trade agreement with Japan would be welcome news for B.C. exporters, but executives shouldn’t hold their breath that one will be signed any time soon.
Last month, Ottawa’s International Trade Minister Peter Van Loan announced that Japan and Canada had agreed to study the benefits of a free trade agreement between the two countries.
In an interview with Business in Vancouver, Van Loan said Japan, which has the world’s third largest economy, has traditionally been reluctant to enter free trade agreements, but economic problems there have forced it to adopt a new outlook. “In November, after two decades of economic lethargy… [they] decided they needed to do some things to break out of the box,” Van Loan said.
Although it’s still early days, the minister said such an agreement could reduce tariffs for Canadian exporters, as well as increase access for services and labour.
The benefits of an agreement would likely be felt first in B.C., which accounted for 46% or $4.1 billion of Canada’s total exports to Japan in 2010.
The next closest province was Alberta with a 16.6% share of total exports to Japan.
“By virtue of geography, B.C. is obviously positioned to do very well with increased trade with Japan,” Van Loan said.
Canada’s top export to Japan is coal, which totalled $1.8 billion last year.
B.C. shipped nearly $1.6 billion of that coal to Japan, as well as billions of dollars in copper, lumber, wood pulp and aluminum exports.
Forestry companies have applauded Canada’s decision to enter free trade talks with the Asian country.
Vancouver-based Ainsworth Lumber (TSX:ANS), an oriented strand board manufacturer, said Japan was the white knight market that helped it generate positive results in 2010 while the U.S. housing market continued to struggle.
President and CEO Rick Huff said a free trade agreement makes sense.
“I think the upside for us is if it reduces the trade barriers so we can get new products into the Japanese market,” Huff said.
Chris McIver, vice-president of sales and corporate development at West Fraser Timber (TSX:WFT), confirmed that Japan charges tariffs on Canadian lumber imports.
“If that goes away that makes us that much more competitive in the market, and that’s a good thing,” McIver said.
But the question is, when would a free trade agreement likely be signed?
Mark Mensing, president and CEO of Canada Export Centre in Vancouver, is skeptical that an agreement will come to pass at all.
“How about any free trade agreement? They talk and regurgitate the same shit year after year … a free trade agreement would be great, but it’s just government speak, nothing is happening.”
He pointed to the fact that former prime minister Jean Chrétien made rumblings about a free trade agreement with Japan in 2000. Mensing added that Canada has been in negotiations with South Korea since 2005 and an agreement is still pending.
But Van Loan took issue with the remark. He said Canada has signed free trade agreements with eight countries since the Conservatives took power in 2006, though the agreements are with smaller economies such as Jordan, Iceland and Panama. The federal government is negotiating with some 50 countries. Its main focus is on the European Union and India. That means an agreement with Japan could be a long way off.
Meanwhile, B.C. lumber exports to China eclipsed Japan for the first time ever in 2010. According to BCStats, the value of lumber exports to Japan have dropped 74% to $648 million in 2010 from a 1995 peak of approximately $2.5 billion. This while lumber exports to China soared to $667 million in 2010 compared with $7 million in 1995.
Although exports have decreased, McIver said lumber producers realize more value for their products in Japan than in China.
Joseph Caron, a former Canadian ambassador to Japan, said the Asian country’s economy is not in decline.
“It has serious fiscal problems and demographic problems, but it still has state-of-the art companies and investors around the world.”
Margaret MacDiarmid, B.C.’s tourism, trade and investment minister, supports trade negotiations with Japan. Although most of B.C.’s exports to Asia are resource-based, she believes the province could also export services related to life sciences, clean energy, environmental technology and digital media sectors.
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