Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation. He recently visited Japan on an official visit program run by the ministry of foreign affairs.
Has Canada lost its opportunity in Asia?
That may seem an odd question given the optimism surrounding the Trans-Pacific Partnership agreement (TPP), but on the other side of the Pacific, it is a real debate.
Canada’s reputation as an unreliable supplier of goods, its hostility toward its own natural resource endowment and a stubborn refusal by the federal government to even acknowledge that there is a problem – much less take decisive action – are hardening Asian skepticism toward Canada as a trade partner.
Even Canada’s competitors in these markets are worried. Given the void of U.S. leadership, countries that fight for market share need Canada in Asia for strategic political reasons. They are worried that Canada remains unaware of its diminished reputation. This is taken by some to mean that Canada will continue to be an unreliable provider of goods, and by others to mean Canada is not really interested in Asia and will be an unreliable ally.
Lost sales and lost investment are on the line. Japan has recorded more than 1,000 overseas acquisitions totalling a record US$191-billion last year and its foreign investment is projected to go even higher this year. A country that is trying so hard to diversify its economy from the United States and is so leery of China simply cannot afford to miss out on Japan’s investment spree. Yet, instead of encouraging Japanese investment, Canada’s actions (or lack thereof) speak loudly to deter it.
Japan is a major investor in liquid natural gas (LNG) in Canada, despite having lost hundreds of millions of dollars in previous natural gas investments in Canada. Its current investment is driven less by anything that we have done and more by fears of increasing long-term political instability in its alternative investment opportunity, the United States, and its growing penchant for unilateral trade action. However, this premium of “not being as bad as the United States” has limits and any failure or delay beyond the necessary and exhaustive work that has already been done may be the final blow to Japanese patience. Yet, Canada seems unaware and this makes Japan even more nervous.
On being a reliable supplier, Canada’s ranking on the perception of the quality of its trade infrastructure speaks for itself and speaks loudly in Asia. Canada has in the World Bank performance on trade logistics rankings from Top 10 just more than a decade ago to 20th today – and, given Canada’s frustrating lack of investment in key trade infrastructure, this ranking is poised to drop further. Canada’s sub-ranking for timeliness is even lower, at 22nd. This drop comes just as the TPP agreement gives Canadian exporters significant tariff advantages over the Americans and levels the tariff playing field in the booming global middle-class markets of the TPP and also of course the outright rich market of TPP member Japan, the world’s third largest economy.
The worry in Asia is not just that Canada cannot deliver goods today but more that, unlike other countries selling to Asia, it cannot assure that it will be able to do so reliably in the future. What Asia has seen from Canada is brief spurts of attention to trade infrastructure and then loss of interest, knowledge, capacity and focus as governments and domestic political winds change.
Canada will continue to sell our corn, cattle and canola to Asia, but what’s at stake are the new, big opportunities. All of these issues have been simmering, some would say boiling, for a while and they will come to a head for Canada this summer in Japan at the Group of 20 meeting in Osaka.
Infrastructure is once again on the G20 agenda, as it was five years ago at the summit in Brisbane. There, Australia essentially embarrassed Canada by demonstrating how an export-dependent economy uses intelligence, political will, and long-term strategic planning to build necessary infrastructure and give Asian markets confidence in a long-term commitment, across governments, that this will continue. Or pretty much everything that Canada has not done.
Five years later, with the TPP coming into effect, Canada returns to another Asian G20 summit, in the market most concerned about Canada’s trade infrastructure, with nothing to show that it has learned or done anything.
The only good news in all of this is that proposals for dealing with our range of problems have been developed by the Canadian Chamber of Commerce, Business Council of Canada, the Canada West Foundation and others, and the Osaka G20 is still three months away.
A credible signal that Canada is working to follow the Australian model on strategic trade infrastructure is not the answer to all the questions and worries that Asian markets and governments have about Canada. But it is at least a signal that Canada is not completely lost.
It may be the last minute, but it is not yet too late for the government to take this work to Osaka.