By Carlo Dade, Dan Ciuriak and Sharon Sun
Published in the Globe and Mail

October 21, 2019

Canada just received more bad news on the trade front.

Japan and the United States signed a partial trade agreement this month that should come into effect on Jan. 1.

The agreement, which for the Japanese market covers only agriculture and digital services, essentially gives the U.S. back everything it lost, and a lot of what Canada gained, when U.S. President Donald Trump walked away from the original Trans-Pacific Partnership agreement, now renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

While this is not good news for Canada, neither is it disastrous.

If Canadian business can move quickly to refocus efforts on advantages it still has over the U.S. in Japan, it can still do well. Getting this response right in Japan will also prepare Canadian business for the return of U.S. competition in other CPTPP markets as the U.S. moves to sign or update bilateral trade deals.

But none of this will happen by itself. It will take deliberate, decisive and, most of all, quick action by Canadian business and government export-support agencies.

Canada had done especially well in Japan in taking agricultural market share away from the Americans. Based on Statistics Canada numbers, the Canada West Foundation has calculated that Canadian exports of some types of beef jumped by 105.9 per cent in the first year of the agreement and 128 per cent as of August, 2019. Similarly, goods such as barley and pork have increased by 70.4 per cent and 9.6 per cent respectively in the first year of the CPTPP. This has been small but welcome relief for Canadian agricultural exporters hit hard by trade difficulties with China.

Almost all of this is put in jeopardy by the new Japan-U.S. agreement which, on day one, hands U.S. agricultural exporters the same tariff advantages in Japan that Canadian exporters had to go through two rounds of tariff cuts to achieve. U.S. agriculture has been hit hard by the country’s trade wars, and will move aggressively to take back market share in Japan. The United States has the trade support services, money and geopolitical leverage to do this with devastating effect.

The partial deal also covers trade in digital services with Japan – but that is largely it. For the Japanese market, everything else that is traded, from manufactured goods to services, most of which is covered by the CPTPP, is still an area of potential advantage for Canadian firms. Canada needs to move aggressively to defend hard-won agricultural market share in Japan and to lock down these other advantages before the U.S.-Japan agreement is expanded.

First, new modelling by the Canada West Foundation has uncovered US$1.9-billion of non-traditional, non-obvious Canadian export opportunities in Japan under the CPTPP. These are goods that are not traded in significant amounts, but which can grow under the trade agreement. Many other forms of modelling do not include such specific detail. Businesses and export promotion agencies can use this information to find new opportunities that match specific firms, including small exporters that thought the CPTPP opportunity in Japan was only barley, beef and pork. This information needs to be plugged into Canadian export promotion strategy and activities.

Second, Japanese companies can use materials imported from Canada to make goods and offer services to any and all members of the CPTPP under the preferential terms of the agreement. Even with their new, bilateral agreement, this is not something U.S. firms can offer Japanese customers. Canadian firms and export promotion agencies that support them need to think creatively about how to exploit these advantages in the supply and production chains while they last.

Finally, any actions taken in Japan must be replicated in other CPTPP markets. The Americans will eventually forge new or updated bilateral trade deals to force their way back into competitiveness in other CPTPP markets.

Before that happens and the current window of opportunity closes, as we are seeing with agriculture in Japan, government and business need to urgently respond. This means using the new modelling not just for existing CPTPP members, but also for countries queued up to join the agreement. Instead of wasting time and waiting for countries to ratify the agreement before acting, this preparatory work needs to be done in advance, so business can hit the ground running when new markets open.

As the CPTPP expands and as the Americans force their way back into the region, Canada needs to step up its export promotion game, above and beyond the considerable work currently being done, if it wants to take the opportunities on the table to grow exports into new markets and out of dependence on the U.S. and China.

As the U.S.-Japan agreement reminds us, the clock is ticking.

Carlo Dade is the director of the Trade & Investment Centre and Sharon Sun is trade policy economist at the Canada West Foundation. Dan Ciuriak is president of Ciuriak Consulting, and conducted the trade agreement modelling for CWF.