CJSBC VP John Tak presents in Ottawa to the Standing Committee on International Trade

House of Commons – Standing Committee on international trade

Study: A Comprehensive and High-Level Economic Partnership Agreement (EPA) with Japan

Meeting Date:      Tuesday, June 5, 2012

Time:                   11:00 a.m. – 12:00 p.m.

Location:              Room 306 – 151 Sparks Street

Clerk of the Committee:  Paul Cardegna

Remarks:  John Tak

First of all, let me say thank you to the Government of Canada for holding this meeting and for inviting me to comment on the issue of a Canada-Japan Economic Partnership Agreement.  I also thank the Committee members for your hard work on these public hearings and for your valuable and admirable service to Canada and Canadians. Thank you – I really appreciate the long hours and the dedication.

In opening, I’d like to give you a brief insight into my background.

I studied business at the British Columbia Institute of Technology and then graduated from the University of British Columbia in 1982 with a B.A. in Asian Studies and a major in Japanese language.  While my last name sounds Asian, it’s actually Dutch.

Following my graduation from UBC, I studied in Tokyo at Stanford University’s Centre for Advanced Japanese and did post-graduate research in the Economics Department of Kyushu University in the city of Fukuoka.  My post-graduate education in Japan was paid for with $30,000 in scholarships kindly awarded to me by the Japanese Ministry of Education and the Japan Foundation.

I speak and read Japanese and used these skills to open and manage Magna International’s first office in Tokyo.  I also spent five years in Tokyo as the Senior Representative managing the Government of British Columbia’s trade and investment office.

While at Magna International our exports of Canadian made autoparts to Japanese automakers increased to $90 million and since then Magna has grown them to hundreds of millions with expansion to other tough, competitive markest such as Korea. After Magna, I joined Mitsubishi Corporation following their $50 million investment in Magna.

Let me say that Canadians can successfully export value-added, manufactured products to Japan.  And, we absolutely must do so to improve our economy and create jobs.

Therefore, on a personal basis, also in my role as Vice President representing the Canada-Japan Society of BC, and as the Vice President of International Business for the Factors Group of Nutritional Companies (Canada’s largest manufacturer of health supplements), I strongly encourage the Government of Canada to negotiate and sign a bilateral, free trade agreement with Japan.

There are many strong reasons to complete such an agreement and few to argue against it.  I often look with envy at Australia which shares many similarities to Canada in its economic structure based on a strong foundation of natural resources.  We share a British colonial history and we share the international language of business – English – while Canada alone further benefits from our other national language – French

Where we differ in regards to Japan is the strong effort that Australia puts into penetrating the Japanese market.

Japan is Australia’s second largest export destination, and Australia is Japan’s third largest source of imports.

For us, Japan is Canada’s fifth largest export destination, but on the other side of the ledger,

Canada is only Japan’s 14^th largest source of imports.

The actual trade numbers are compelling.  In 2011, Canada exported about $11 billion worth of goods to Japan.  In the same year, Australia exported just over $50 billion worth of goods to Japan.

The math here says that we can and should export more to Japan.

We can do a better job in selling to the Japanese by doing so in the way that they want to be sold to. Japan market experts in Canada share the common view that the majority of our $11 billion in exports were purchased from us by Canada market experts in Japan. We have an opportunity to increase our exports by selling, real selling, to Japan

A free trade agreement with Japan would act as a strong catalyst to promote increased Canadian exports by removing trade impediments such as tariff and non-tariff barriers and by raising the profile of Japan in Canada and Canada in Japan.

Driven by the desire to better understand the potential impact of an EPA, simulations using the Global Trade Analysis Project (GTAP) model and database were recently carried out by both Canada and Japan.  The analysis estimated that such an agreement could mean gains of up to $3.8 billion a year in Canadian gross domestic product, with our exports to Japan increasing by as much as 67 per cent.  That could mean up to $19 billion in Japan-bound exports.

A free trade agreement with Japan is not without risks, but they must be objectively analyzed.  The auto sector has expressed concern about liberalized trade with Japan in this sector.

Japanese cars being imported into Canada pay a tariff of about six per cent, and there’s concern that a free-trade deal would reduce or eliminate this tariff meaning, conceivably, that Japanese cars would be cheaper in Canada and Japanese competition for Canadian car makers would be tougher.

That’s true but it should be noted that Japan imposes no import tariff on cars manufactured in Canada. Even so, North American auto makers have only gained a sliver of the auto market there.

The claim from some Canadian auto makers, obviously not the Japanese ones, is that non-tariff barriers prevent them selling in Japan.  However, as pointed out earlier Magna International and other Canadian auto parts companies successfully sell several hundred million dollars worth of Canadian made parts every year to Japanese auto makers.

Furthermore, consider the success of Harley Davidson in selling its North American built motorcycles in Japan.  Why did non-tariff import barriers not prevent Harley Davidson from gaining solid market share in Japan?  When I worked in Japan I was able to attend Japanese trade shows and head office meetings operately freely in Japanese.  However, none of my counterparts in GM, Ford, or Chrysler spoke Japanese.  They often complained about Japanese not buying their cars and had little response to the fact that they didn’t build cars with the steering wheel on the right side of the car for Japan which is a right-hand drive vehicle market.

One cannot ignore the opportunity to trade with China, but must also recognize that engaging in trade with Japan is somewhat less risky given that Japan is more familiar with and accepting of western trade negotiating styles, contracts, and dispute resolution mechanism such as binding international arbitration.  An EPA with Japan would enhance this even further.

Along with an EPA, the Government of Canada should reopen its Consulate General and Trade Office in Osaka along with the immigration and visa office just closed in Tokyo.  This is not the right message to be sending our fifth largest trading partner.  Again, take a look at what Australia is doing in this regard if we envision the possibility of moving to the plus $20 billion in export range.

In negotiating the EPA, Canada should seek to have Japan eliminate the current 12.5% tariff they impose on health supplement products imported from Canada.  Canada imposes no tariff on the majority of health supplement ingredients we import from Japan.  The Factors Group imports a considerable volume of health supplement from Japan and it makes no sense for Japan to then slap a 12.5% import tariff on our products that contains some of those ingredients.  We will be able to compete on a more even footing if this Japanese import tariff elimination is achieved.

Since March 5, 2010 the Canada Border Services Agency (CBSA) reduced most tariffs to ‘duty free’ for raw health ingredients imported from Japan.  Others are on track to be reduced on a year-by-year schedule.  I encourage Canada to eliminate tariffs on the following key ingredients that Canadian health supplement companies can use to manufacture superior and effective health supplement products.

1)     Miscellaneous Edible Preparations – Other which includes mixed raw materials that are nowhere else specified.

HST 2106.90.99.99 – this category has a duty rate of 10.5% – includes SunActive Fe, SunActive Zn, Sunkatol

2)     Peptones and its derivatives – other

HST 3504.00.9000 – this category has a duty rate of 6.5% – items that are included here would be for example lactoferrin and sardine peptides.

In closing, let me say that I support comment to date that an EPA with Japan would:

i.     offer a platform for further deepening the already well-established strategic partnership between Canada and Japan;

ii.     be an important step into the two countries’ shared aspiration to foster further regional economic integration based on market principles toward the realization a Free Trade Area of the Asia-Pacific (FTAAP);

iii.     deliver substantial economic gains for both countries including increased economic growth, production, national wealth and consumer welfare; and

iv.     offer stable access to reliable supplies and demand of resources such as energy and other natural resources as well as food products.