Canada and Japan have an historic opportunity to more fully develop a long-standing and successful relationship — to build upon an already strong foundation and capitalize on the potential that technology brings to 21st century trade, investment and economic activity.

Following on a very successful Team Canada Mission to Japan in September of 1999, and at the request of Prime Ministers Chrétien and Obuchi, the Business Council on National Issues (BCNI) and its Japanese counterpart, the Keidanren, agreed to conduct studies on ways and means to inject dynamism into the Canada-Japan trade and investment relationship.

Both studies came to the same overall conclusion. After decades of relative success in a rather comfortable, complementary relationship, our trade and investment patterns essentially have become stagnant.

The value of bilateral trade flows over the past decade has grown very little, especially when compared with our overall trade picture. Bilateral investment flows have increased, but remain at low levels. Despite growth in the knowledge-based economy, the mix of products being traded has changed only marginally over the past decade.

With results like this, why is this an historic opportunity? Why pursue a renewed relationship with Japan? What is in it for Canada?

Nearly a decade ago, the BCNI drew attention to a number of important developments in the Japanese and Canadian economies and the opportunities they represented. At the time, the BCNI advocated that Canada — government and business alike — devote priority attention to Japan in order to ensure that Canadians would be well placed in pursuing interests across the Pacific.

Japan has changed a great deal over the past decade. For example, in its recent White Paper on International Trade 2000, Japan’s Department of International Trade and Industry concluded that a ‘multi-layered perspective’ to trade policy will be important to future prosperity, centered on but not limited to further progress multilaterally.

In part, limited prospects for any launch of a global round of trade and investment liberalization is leading to increasing Japanese interest in bilateral and regional relationships. Japan is giving serious consideration to an enhanced relationship with Singapore. Discussions have taken place with South Korea. And the Japanese private sector seems very interested in Mexico. Given the potential for further political, institutional and economic change in Japan in the years ahead, the time has come for Canada to take action.

From Canada’s perspective, the broad strategic focus is an important factor. A successful Japan strategy is a prerequisite to a successful Asia strategy. The evidence suggests that not only have our exports to Japan stagnated, but Canada’s exports to the entire region are in relative decline — even though Asia has recovered from its devastating crisis. As documented by the Asia Pacific Foundation in its Canada Asia Review 2000, Canada’s share of Asia’s major markets slipped from about 2.7 percent in the mid 1980s, to 1.4 percent in 1998, and to less than one percent as of early 1999. Canadian companies have stepped up to the plate and invested heavily in the financial and manufacturing sectors in Asia since 1997. But much more needs to be done.

A more dynamic relationship with Japan means asking ourselves some fundamental questions. What is it going to take to put Canada on the map globally? What will attract the Japanese private and public sector to make a major new commitment to Canada?

On this score, A. T. Kearney’s Global Business Policy Council Foreign Direct Investment (FDI) Confidence Index is instructive. According to the survey of CEOs, CFOs and other top decision-makers of the world’s 1,000 largest firms, Canada ranks 13th overall as a destination for FDI and eighth among the top ten destinations for American firms. But Canada does not rank in the top ten destinations for Japanese firms (or European firms for that matter).

This report raises several issues. First, FDI has played and should continue to play a critical role in Canada’s economic prosperity. Further domestic policy reforms will be necessary to improve Canada’s ability to attract foreign direct investment in the face of increasing global competition. Second, both the public and private sectors have to be more effective in building and marketing Canada’s brand abroad.

To be sure, many Japanese companies have made important investments in Canada. But, by and large, Japanese firms continue to hold a dated view of Canada’s economic strengths.

That is why the Team Canada Mission last year focused on our advantages in the information and communications technology areas. It is also why the 23rd Annual Conference of the Canada Japan Business Committee, the largest regular gathering of Canadian and Japanese private sector individuals, convened in May, 2000 with a focus on high technology and financial services, as well as on other newer and more traditional areas in our relationship.

At this meeting, the BCNI suggested that a series of confidence building measures would be necessary to add to past successes and to make new beginnings in future areas of economic prosperity. The Council recommended a commitment to the goal of comprehensive trade and investment liberalization within five to seven years and an agreement in principle to mount a bilateral negotiating process to achieve comprehensive free trade on a step-by-step basis. Keidanren and BCNI will continue their work over the next year to develop a possible set of parameters and time-frame for further discussions.

A great many challenges remain. There are sensitivities on both sides that require mutual recognition and consideration. The ultimate goal of freer trade and enhanced investment relations between Canada and Japan is sound. Commitment from the private sectors in both countries, however, will be critical to enabling further progress at the government level.