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Canadian Prime Minister Stephen Harper speaks as Japan's Prime Minister Yoshihiko Noda, unseen, listens during a joint press conference at Noda's official residence in Tokyo, Sunday, March 25, 2012. Japan and Canada have agreed to formally start talks aimed at forging a free trade agreement between the two countries. If established, the pact would be Japan's first with a country from the Group of Eight major economies.

Issei Kato/AP/Issei Kato/AP

Prime Minister Stephen Harper has given a big jolt to his ambitious trade liberalization agenda by announcing free-trade negotiations with Japan, but critics are already questioning whether the policy will bear real fruit.

During a weekend meeting in Tokyo, Mr. Harper and Japanese Prime Minister Yoshihiko Noda announced the formal launch of talks aimed at reaching a treaty to spur trade and investment between the nations.

"This is a truly historic step that will help create jobs and growth for both countries," Mr. Harper said, noting that Japan is the world's third-largest economy and Canada's fourth-largest export market.

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But the negotiations will be long and difficult, especially if the Canadian side aims to reduce the complex web of non-tariff barriers that pose serious hurdles for foreign companies trying to compete in Japan.

With the lack of momentum in global trade liberalization, the Conservative government has launched a host of bilateral talks, currently pursuing treaties with the European Union, South Korea and India. Earlier on his current trip, the prime minister announced Ottawa would also begin free trade talks with Thailand.

"They seem to announce negotiations everywhere they go but whether they ever finish one is another question," said Michael Hart, a former trade negotiator now with Carleton University's Norman Paterson School of International Affairs.

Mr. Hart said it's not clear that a traditional trade agreement would have much impact in opening the Japanese market to Canadian companies. Japan has no free-trade agreements with other major industrialized countries.

"The problem is Japan does not function similar to a western economy," he said. "They have what they call 'administrative guidance' that are very effective non-tariff barriers. There is a quiet understanding among their companies" that results in de facto protectionism.

Two-way trade between the countries stood at $22.6-billion in 2010, and Mr. Harper said a new treaty could boost Canada's exports there by 60 per cent. Canada now ships mainly agricultural products and natural resources to the Asian economic giant, though there is a substantial manufacturing component.

Some 76 per cent of Canada's imports came in autos and auto parts, machinery and equipment, and electronics and electrical equipment. A recent study by the two governments said growth in Canada's economy would increase between a quarter and a half of a percentage point if a trade deal is concluded.

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Business groups welcomed the free-trade push. Agriculture is one sector counting on greater access to a prosperous market of 127 million people. The Asian giant accounted for 10 per cent of Canada's grain exports and the Grain Growers of Canada said they see "new prospects and opportunities" from the trade negotiations.

Manufacturers want to see Japan open its market to foreign competition, though analysts warn that many of the non-tariff barriers are difficult to address in a formal trade deal.

"Japan is a strategic commercial partner," said Jayson Myers, president of the Canadian Manufacturers & Exporters association. "However, it is also a country with whom we've had a persistent trade deficit when it comes to manufacturing. These negotiations provide the appropriate forum to resolve ongoing concerns."

In 2010, Canadian manufacturers sent $4.6-billion worth of goods to Japan, versus imports of $12.8-billion. Much of that gap occurs in the automotive sector, where Canada maintains a 6.1-per-cent tariff on Japanese autos and parts.

Canadian Auto Workers economist Jim Stanford said the Harper government has clearly seized on the trade liberalization agenda to send a message that it is pursuing a jobs agenda, though he noted it is not clear such deals would be in Canada's benefit.

"If you are signing free-trade agreements for the optics of being active, that's where you can end up signing things that don't actually benefit Canada," Mr. Stanford said. "Signing the agreement becomes the goal rather than actually accomplishing something."

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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