Good morning, Mr. Chairman, honourable members of Parliament.
It's a great pleasure to be here. I am presenting here as an academic, as someone who has a lot of time and experience studying Japan—the Japanese political economy—but not representing any larger interest. What I'm going to attempt to do is to give a big picture of what this EPA could bring. It's more about the foreign policy advantage for Canada than the specifics, although I'll get to specifics toward the end.
I have roughly 20 years of experience going back and forth, doing research in Japan, living in Japan. I was a visiting fellow with the ministry of finance there for a year. I often go to METI, which is the main ministry in charge of trade negotiations, and I have taught Japanese politics here in Vancouver for many years.
First, the big picture is that we are in the middle of very fluid times. As we know, the global economy is in the midst of big uncertainties—the Doha Round, the WTO round, is stuck—and power is shifting toward emerging economies like China.
In these times when things are very uncertain, it triggers a lot of entrepreneurial behaviours for a lot of states. The tool of favour right now for those manoeuvres tends to be FTAs, free trade agreements. Free trade agreements are seen by a lot of countries, particularly those very entrepreneurial ones, like Korea, or increasingly Japan, as the main tools to rebalance foreign policy and geopolitics.
The successful countries of tomorrow are those that are quite aggressive, using the tools of FTAs and being very nimble in leveraging their comparative advantage. Actually, two very good examples in Asia are Korea and Singapore. They have been very, very aggressive using this and taking advantage of the global economy in these uncertain times. In this context I would say that Canada's comparative advantage is to be a bridge between the west—that is the U.S. and Europe—and the emerging economies of the Pacific, and of course China and India, but also being very active with Japan.
So now let me turn to Japan. Japan is in a very interesting position right now. It's a pivotal player in a bigger geopolitical fight or competition between the U.S. and China. On the one hand, Japan, like Korea, Taiwan, and other economies of East Asia, is getting more and more integrated into the Chinese economy. Japanese exports 10 years ago used to be just 10% to China and 20% or 30% to the U.S. Today we are at 22% to China, 18% to the U.S., and by 2020 we'll be 30% to China and 10% to the U.S.
Japan is increasingly hooked to the Chinese mainframe, but this is not matched by a strong institutional capacity. There was no investment treaty—they've just signed one now—and in general, although Japanese industry is pushing for more East Asian integration, the Japanese politicians and Japanese public are a bit ill at ease with this growing integration with China. There's an interest in keeping a second strong leg across the Pacific with the U.S., and now Canada.
At the same time, on the U.S. side, the U.S. is in the midst of this big effort. After 10 years of not paying too much attention to Asia, there's an effort to pivot back into Asia, and the U.S. is using the TPP as part of APEC as a wedge, in a way, to pull those economies a little further from China. Japan is the key actor in this battle.
Canada finds itself in the middle of this big game. There's a big geopolitical game going on, and of course Canada is in the midst of an effort now to take advantage of the rise of Asia. We know the Prime Minister went to China and is really putting a lot of emphasis on China, building a stronger economic linkage with China. But balancing the China strategy with a very strong Japan strategy for the sake of Canadian prosperity also makes a lot of sense.
Japan is Canada's oldest diplomatic partner. The diplomatic relations go back more than 78 years. What's interesting is that Japan is actually much more similar to Canada than we often think. It's the same Westminster parliamentary system, the same kind of constitutional monarchy, and when we look at opinions, we find very, very similar positions among the public—similar values, in fact, among the Canadian public and the Japanese public.
It's really a natural partner for trade, but also for a lot of other foreign policy initiatives. Canada has an advantage now with Japan in terms of being a first mover within the G-8. Japan doesn't yet have any FTA with G-8 countries. The FTA game is often a competitive one. It is not so much about the FTA in itself. It's also about beating the other competitors. For example, having an FTA before Australia or before Europe, both of which are being negotiated, would give a lot of advantage to Canadian exporters. The timing is also quite important.
Japan right now has different priorities. On one hand, it is moving forward with the trilateral FTA with China and Korea. This is a slow process. It's very difficult politically. On the other side, there's the TPP, which is also politically treacherous. It's very difficult to move now under the current conditions. The Canadian EPA falls in the middle of this and is seen in a way as the path of least resistance by the Japanese reformers or the Japanese government. There is a good window of opportunity independent of domestic politics.
I should add a few words on the Japanese current political context. It's a difficult context. There is no way to hide this. As you are probably aware, Prime Minister Noda is staking his political life now on an increase in consumption tax from 5% to 10%. He is facing double opposition, first from his own party, the other leader, Ozawa, and second from the opposition, the LDP, which controls the upper house. As we speak, Noda and Ozawa are supposed to meet today, actually. It will be a very, very difficult time for the Prime Minister to get an agreement within his own camp, let alone get support in the upper house.
Noda is in a difficult political moment. He is facing the fight of his life. That gives us several scenarios. Either he will fall before the September deadline for his leadership, there is a new election within his party, and then they will have a new Prime Minister and possibly a new election, or he will negotiate with the opposition to pass his consumption tax and then have a new election as part of that deal in the summer or the fall. There is that context, which makes things difficult; however, within that context, once the air is cleared by the fall, a Japan-Canada EPA is still the easiest free trade initiative for Japan to move forward with.
We should compare that to the TPP. The TPP is extremely divisive in Japan. On one hand, the Prime Minister and reformist politicians have pushed the TPP for three reasons. Number one is they want to keep a balance between the integration with China and North America. They want to keep the two in balance. Number two, they want to strengthen the U.S.-Japan alliance and their relationship. Number three, they want to use the TPP as a catalyst for structural reforms, because Japan is still kind of stuck. Yet this TPP is facing very high opposition from a large group of members of Parliament, from both the DPJ and the opposition LDP. So it doesn't look as if there is any way for the TPP to move forward politically right now.
By contrast, the EPA with Canada is seen by reformers and the DPJ leadership as a much more feasible option. I had a conversation last November with the former vice-president for international affairs of the DPJ, Iwakuni Tetsundo. He told me actually that he was hoping Canada would come to Japan and try to move fast with the EPA—at the time, it was not concluded—because he said there was no organized opposition to an EPA with Canada within the DPJ or within the major interest groups, in part because there is no rice issue, there are no orange issues, no mikan issues, and no tea issues. They are very sensitive products in general with Asian countries or with the U.S. By contrast, things like beef and fisheries can be negotiated. There is room for pushing the frontier.
In turn, the Japanese leadership hopes that an EPA with Canada will unblock its larger free trade agenda. In fact, moving forward with Canada would do a favour to the ministry of trade. In that sense, it may be willing to put some political impetus behind it, and maybe not be too tough a negotiator, because this is part of a first move that will unblock its larger trade agenda.
I would like to add a larger point. An EPA with Japan would probably improve trade at the margin on certain products, as we just heard from the two last speakers. There will probably be an improvement with beef and seafood. Maybe GM-free products, particularly canola, will have an improvement as EPAs. Usually it's a chance for negotiating all the conditions, the indirect rules, etc., for Canada to get an advantage over competitors.
The larger benefit for Canada would be that the EPA would become a catalyst for much bigger upgrades in the relationship between Canada and Japan. That, in turn, will probably mean that Canada and Japan will have closer relationships, more people-to-people exchange, and more government cooperation across each area—it will spill over to other areas.
In conclusion, at a time when Canada is in a key rebalancing with China, and Japan as well, having an EPA with Canada would further establish Canada as a Pacific power and a power of the 21st century, and it would play a critical role in this geopolitical rebalancing.