Market Access Plan 2015-2017
|Tokyo||126.43 million||377,944 km²||Yen (¥) (JPY)||Japanese|
Why Japan Matters
- a priority established market under Canada’s Global Markets Action Plan;
- the world’s third-largest economy and one of Canada’s most important commercial partners;
- Canada’s fifth-largest trading partner (second in Asia) and third-largest for agri-food and seafood products;
- a major high tech and heavy industry manufacturer, a leading player in global trade, and a vital hub to access Asia and global value chains;
- an important science, technology and innovation (ST&I) leader with R&D expenditures among the highest in the world; and
- the world’s third-largest health-care market, which can provide significant potential for Canadian exporters.
Canadian exports to Japan in 2014 totalled $10.7 billion, consisting principally of oilseeds, mineral ores, mineral fuels and oils, wood and wood products, meat, cereals and pharmaceutical products. Japan has signalled a renewed openness in trade policy, demonstrated by its vigorous engagement in plurilateral, regional and bilateral free trade negotiations. Canada and Japan are engaged in negotiations on the Canada-Japan Economic Partnership Agreement (CJEPA) and the Trans-Pacific Partnership (TPP), as well as ongoing World Trade Organization negotiations.
Domestic Economic Environment
Japan faces significant economic challenges, including stagnant economic growth, recent trade deficits fuelled by soaring energy imports and a depreciating yen, a rapidly aging society, a shrinking workforce and a ballooning public debt. In 2012, in a bid to revive Japan’s economy, Prime Minister Shinzo Abe introduced a “three-arrow” economic strategy colloquially known as “Abenomics.” Abenomics consists of: (1) an accommodative monetary policy aimed at overcoming deflation; (2) a flexible fiscal policy to provide economic stimulus; and (3) growth strategies focused on structural reform, enhanced trade, as well as private-sector investment and innovation.
With respect to the first arrow of monetary policy, the Bank of Japan (BoJ) had set an inflation target of 2 percent by 2015 but now acknowledges that it does not expect to hit this core inflation target until 2016-17. Since then, the BoJ has expanded its qualitative and quantitative easing program. The current policy is to double the monetary base, mainly through purchasing government bonds. In November 2014, Prime Minister Abe delayed a second planned hike to the consumption tax (from the current 8 percent to 10 percent) for a year and a half until April 2017, as the first consumption tax hike (from 5 percent to 8 percent in April 2014) had an adverse impact on the economy. While postponing the tax hike will help Japan avoid returning to a deflationary economy, it will make it more challenging to attain Japan’s fiscal objective of a primary surplus by fiscal year 2020. In 2014, the public debt and budget deficit amounted to 246 percent and 7.7 percent of GDP respectively.
|GDP per capita||$40,130|
|Canada’s merchandise exports||$10,739 million|
|Canada’s merchandise imports||$13,295 million|
|Canada’s service exports||$1,540 million|
|Canada’s service imports||$2,014 million|
|Foreign direct investment||$17,479 million|
|Canadian direct investment in Japan||$6,052 million|
|Potential long-term annual export growth||1.0%|
Canadian Commercial Interests in Japan
Japan is identified as a priority established market in Canada’s Global Markets Action Plan. Canada and Japan have a strong commercial relationship covering a broad range of elements, including trade, investment, science, technology, innovation and energy. Japan is Canada’s fifth-largest trading partner (second in Asia), and a recipient of a significant amount of Canadian direct investment. In 2014, Japan invested $17.5 billion in Canada.
Canada and Japan have a shared interest in energy resources. The March 2011 Fukushima nuclear accident resulted in the closure of all of Japan’s nuclear power plants, significantly increasing its fossil fuel imports and contributing to its third straight year of trade deficits in 2013. Japan is the world’s largest importer of liquefied natural gas (LNG), second-largest importer of coal, and third-largest importer of oil. Japan sees Canada as a stable and economical supplier of energy, and Japanese companies, supported by the Government of Japan, have significant commercial interests in shale gas and several proposed LNG plants in British Columbia.
Canadian companies in Japan operate in a wide variety of sectors, including aerospace, agriculture and processed foods, automotive, consumer products, defence and security, education, fish and seafood, forestry and wood products, information and communications technology (ICT), life sciences and sustainable technologies.
Canadian firms with a direct presence in Japan include Manulife, Canadian Solar, Linamar, Magna, McCain Foods, Bombardier, Celestica, Air Canada, CN, CP, Husky Injection Molding, Scotiabank, CIBC, RBC, Maple Leaf Foods, BRP, Pratt & Whitney, and Bell Helicopter.
The major Japanese trading houses are among the largest corporations in the world, having offices across the globe. Japanese trading houses such as Mitsubishi and Mitsui, called Shosha, play an extremely important role in the Japanese economy. They instigate, support and manage trade as well as produce a wide range of products in almost every industry sector, from mineral water to communications satellites. The combined sales volume of the 44 Japanese trading houses amounted to approximately C$837 billion (JPY87 trillion) as of the end of March 2013.
Japanese firms and pension funds have large cash reserves. The declining population and the mature investment market with low returns are encouraging Japanese corporations to look for growth abroad, offering opportunities for Canadian companies. Japanese government and industry are also beginning to explore the concept of public/private partnerships (P3). As a P3 world leader, Canada can leverage its relationship with Japan to provide its expertise and experience to Japanese companies looking to participate in these projects.
Japan is also an important Science Technology and Innovation partner for Canada, backed by a Canada-Japan Science and Technnology agreement and a framework identifying four priority fields of cooperation: 1) stem cell research, 2) advanced materials, 3) sustainable energy technologies, and 4) Arctic research. Canada and Japan will also collaborate on space cooperation and enhanced science communication.
Japanese youth continue to be a key target market for Canada’s education sector. According to the Japanese Ministry of Education, Culture, Sports, Science and Technology, there are currently more than 560 active international exchange agreements in place between Canadian and Japanese universities. Japan is Canada’s ninth-largest market for international students (2014) and is now the leading source country for students at Languages Canada member schools. The McGill MBA Japan program is the only Canadian university campus in Japan. The campus has been formally designated a “location in Japan of a foreign university” by the Japanese Ministry of Education (MEXT), one of a handful of schools worldwide to receive this designation.
Japan is aggressive in using its significant aid budget to facilitate its infrastructure export agenda in emerging countries, with a stated goal of tripling its exports in this sector by 2020. As an example, during Prime Minister Abe’s trip to India this year, the Japanese government announced its intention to fund a total of US$28 billion in public and private investment and financing into that country over the next five years, as well as to transfer close to US$600 million to Indian infrastructure projects. As Japanese development initiatives expand, there may be opportunities for Canadian companies to partner with Japanese counterparts in third-country projects.
Key Elements for Exporters to Consider
There are some challenges associated with taking advantage of the opportunities in Japan. Japan is a demanding marketplace with language and cultural complexities, and a relationship-based business culture. While achieving success in the Japanese market may require a significant investment of time and resources, many Canadian companies that have made this commitment are rewarded with long-term, profitable business relationships.
International competition is fierce, and top suppliers to the Japanese market include the United States, Australia, China, Thailand, Brazil, and the European Union. As such, Canadian exporters face additional challenges given the low awareness and visibility of Canadian products.
To support Canadian companies’ success in the market, the Government of Canada has enhanced economic diplomacy efforts and established a trade network including the Canadian Embassy to Japan; the Canadian Consulate in Nagoya; and trade offices in Sapporo, Osaka, and Kitakyushu. Additionally, the Governments of British Columbia, Alberta, Ontario and Quebec have trade offices in Japan. The Canadian business community is also well represented by the Canadian Chamber of Commerce in Japan, the Kansai Canada Business Association and the Tokai-Japan Canada Society.
Finally, Canada is represented by honorary consuls in Sapporo, Osaka, Hiroshima and Fukuoka that supplement the Government of Canada trade office network. These honorary consuls are local prominent Japanese business people who assist in promoting Canada to their respective regions in Japan.
Sector-specific Opportunities and Challenges
Japan is a primary player in the global aerospace market and has the world’s sixth-largest aerospace cluster. Japan has been identified in Canada’s Integrative Trade Strategy: Aerospace, with aviation, maintenance and repairs, and space as subsector priorities.
There are opportunities for Canadian companies to participate as suppliers or technology partners, as Japanese aerospace companies plan to expand. There are around 30 Canadian aerospace companies active in Japan, including Bombardier, Pratt & Whitney Canada, CAE, and Bell Helicopter. Other Canadian suppliers are pursuing procurement and subcontracting opportunities with Boeing and in Japanese aircraft programs such as the Mitsubishi Regional Jet.
Japan’s limited domestic production capacity could also translate into FDI into Canada.
Agriculture and processed foods
Japan is the world’s largest net agri-food importer. Canada enjoys a reputation as a reliable supplier of high-quality food products to Japan, in part due to Japanese recognition of Canada’s strong food safety and regulatory system. Canada is currently Japan’s fourth-largest foreign supplier of food. In 2014, Canadian exports of agriculture, agri-food and seafood products to Japan were valued at $4.1 billion, accounting for 38 percent of Canada’s total exports to Japan, with canola seed as the largest overall export. Canada also maintains a significant share of Japan’s imported wheat, barley, pork and soybeans market. Efforts to address technical market access issues related to fresh cherries, flaxseed, and British Columbia greenhouse peppers are ongoing.
Additional export opportunities stem from the recent Canada-Japan Organic Equivalency Arrangement, which came into force on January 1, 2015. This provides an opportunity for organic producers to introduce new and innovative food products into this market. Food companies may also wish to tap into this mature market by catering to the needs of an aging population; 24 percent of Japanese are over 65 years old and looking for healthy products, functional foods and packaged foods. In Japan, consumers spend approximately 25 percent of their income on food, compared to about 10 percent for Canadians. This trend may shift due to the recent consumption tax increase (from 5 percent to 8 percent) which is affecting consumers’ purchasing patterns. Major Canadian food companies and sector associations such as McCain’s, Maple Leaf Foods, Canada Beef and Canada Pork International have offices in Japan.
Japan is home to several global automakers and parts producers, and the sector represents 16.4 percent of Japan’s overall manufacturing output. Japan-based original equipment manufacturers (OEMs) and suppliers are continuing to expand their production and engineering operations in North America, and are investing globally to serve other international markets. The Integrative Trade Strategy identifies Japan as a priority market in the automotive sector for promoting manufacturing and R&D investment, Canadian procurement and research collaboration.
Currently there are three Japanese OEMs (Toyota, Honda and Hino) and approximately 60 parts and machinery suppliers with capital investments in Canada. This sector also offers extensive ST&I and FDI opportunities for Canada in advanced technology vehicles.
Canadian suppliers are eager to increase their business with Japanese OEMs, mainly in North America but in other markets as well. Companies such as ABC Group, Linamar, Magna and Woodbridge Foam have established operations in Japan to help them develop sourcing opportunities and support their Japanese customers.
Japan is the second-largest luxury consumer market in the world and one of the world’s leading markets for the fashion & apparel and jewellery & accessories subsectors.
Active casual wear and relevant accessories present considerable potential for Canadian exporters, given Japanese consumers’ view of Canada as a quality source of nature and outdoor products. Niche markets also exist for affordable and unique accessories.
Examples of Canadian exporters that have succeeded in tapping into the Japanese market include: Arc’teryx, Canada Goose, Louis Garneau, m0851, Umbra, and Kanata Hand Knit.
Defence and security
Japan is among the largest defence spenders in the world but has traditionally procured its defence equipment from indigenous suppliers, often building equipment—including fighter aircraft and naval vessels—under licence from American OEMs. While Japan has been identified as a priority market in Canada’s Integrative Trade Strategy: Defence and Security, the country’s 1967 Three Principles on Arms Exports banned defence trade and international defence materiel cooperation, thereby limiting the prospects for partnerships between Japanese and foreign industry for many decades. The Japanese government’s 2011 modification of the Three Principles (retitled as the “Three Principles on the Transfer of Defense Equipment and Technology”) better reconciles Japan’s postwar commitment to non-aggression with its growing acknowledgment of the role that international cooperation and defence exports can play in contributing to international peace and security efforts, strengthening the alliance with the United States, and enhancing Japan’s defence production and technological base.
Japan’s decision to purchase the F-35 Joint Strike Fighter, its Joint Arms Development Agreement with the United Kingdom and bilateral defence-related agreements with France and Australia suggest that export and industrial partnership opportunities may exist for Canadian suppliers, including Canadian satellite companies, which are already active in Japan’s maritime and land observation market.
Japan is Canada’s ninth-largest market for international students and a large source of short-term students for Languages Canada member schools.
Approximately 80 Canadian educational institutions participate in the Embassy of Canada to Japan’s annual Study in Canada fairs. There remains growth potential in this sector, given the Government of Japan’s plans to increase the outflow of its students. However, the international education market in Japan is highly competitive, and Canada faces stiff competition from other established suppliers, including the United States, the United Kingdom, Australia and New Zealand, which are investing additional resources into the Japanese market.
Fish and seafood
Japan is the world’s largest fish and fishery products importerFootnote 1 and has the sixth-highest seafood consumption per capita in the world.Footnote 2 Japan is a segmented market, where consumers pay a premium for fresh, high-quality seafood for special occasions, but at the same time they often choose meat over fish and seafood as a more reasonably priced source of protein. An increasing number of consumers find preparation of fish and seafood at home to be inconvenient, and demand for processed and pre-cooked products is growing. Canada benefits from its reputation as a safe, reliable and high-quality supplier. According to Japan’s Customs statistics, Canadian exports in the fish and seafood sector are worth approximately $400 million.
Forestry and wood products
Japan is one of the few Asian countries that favour wood construction over concrete or brick and Japan is the Canadian forest industry’s most lucrative off-shore market (second-largest market by export volume). In 2014, Canada marked the 40th anniversary of 2x4 construction in Japan. Over this time the market share of 2x4 construction has steadily increased and now represents 12.5 percent of all housing starts in Japan. Canada is also Japan’s second-largest source of imported pulp, behind the United States.
Although forestry and wood products are already among Canada’s top 10 leading export sectors to Japan, there remains significant growth potential, especially given the aging demographic and consequent need for renovating and constructing old-age care facilities. To this end, Canada is exploring the potential of post and beam construction, as well as spruce-pine-fir cross-laminated timber products in institutional and residential buildings. Additional opportunities for Canadian suppliers are in the high energy efficiency “green building” subsector, thanks to Canada’s well-established reputation in Japan as a supplier of energy-efficient housing.
Market access-related issues are addressed annually through the trilateral Japan-Canada-United States Agricultural Standards Technical Committee (JASTC) and the Building Experts Committee (BEC) meetings.
On innovation, there are opportunities for Canadian nanocrystalline cellulose researchers and industry to collaborate with their Japanese counterparts on a variety of bio-products. There is a growing interest in Canada’s innovative wooden building technologies among Japanese government and industry professionals.
Canadian public and private sector groups, including Natural Resources Canada, Canada Wood, BC Wood, Quebec Wood Export Bureau, Coast Forest Products Association, APA - The Engineered Wood Association, Forestry Innovation Investment (B.C.), FPInnovations and Forest Products Association of Canada are also active in this market.
Information and communications technology
Japan is the world’s second-largest ICT market and a major hub for the global ICT industry, influencing industry and consumer preferences around the world. Connected vehicles, mobile media, video games, and next-generation networks have been identified as focus areas for Japan in Canada’s Integrative Trade Strategy: ICT. This sector is also a prospective area for ST&I cooperation between the two countries.
The past few years have seen 11 major Japanese ICT investments in Canada, and there remains significant potential for Canadian companies in Canada-Japan partnerships in the development of video games, animation, content and special effects. Approximately 60 Canadian firms have a presence in Japan, such as Celestica, OpenText and QNX.
Japan has the third-largest health-care market in the world and has been identified as a priority market in Canada’s Integrative Trade Strategy: Life Sciences. Given Canada’s position as a world leader in life sciences, significant opportunities for Canadian companies exist within two subsectors: pharmaceuticals and medical devices. While Japan continues to have a challenging regulatory and reimbursement environment for these products, opportunities exist for Canadian companies, especially if they work with local market entry and distribution specialists. In addition, considerable potential exists for Canadian small and medium-sized enterprises (SMEs) providing applications and component technologies for imaging and diagnostics marketed by Japanese multinational OEMs. There are also opportunities for Canadian SMEs to provide new drug candidates and new technologies for diagnostics for Japanese pharmaceutical companies overcoming their patent cliff. One such case was the acquisition of Medicago Inc. by Mitsubishi Tanabe Pharmaceutical Co., Ltd. in order for Mitsubishi to strengthen its pipeline for its infectious disease solutions.
Life sciences are also one of four priority areas of ST&I cooperation between Canada and Japan.
Given its limited domestic resources and large trading houses, Japan has been a strong source of Canada-bound FDI, with extensive investments in Canadian uranium, potash, iron ore, copper, coal, aluminum, gold, palladium, silver, zinc and lead. Though FDI remains the key driver in this sector—either in Canada-bound or Japanese investment in third countries involving Canadian firms—recent Japanese interest in Canadian coal may offer further opportunities.
Oil and gas
Japan is the world’s largest importer of natural gas, the world’s second-largest importer of coal and the world’s third-largest importer of crude oil and oil products. Energy security is a top priority for Japan, and the necessity for diversification of energy suppliers has led Japan to recognize Canada as an important potential partner. Japan has considerable interest in four proposed LNG projects in B.C., and this sector is one of the largest recipients of Japanese capital injections into Canada.
Japanese trading houses are very active in the oil and gas sector, and there remains considerable potential for Canada to promote to these companies collaborations in innovation as well as to highlight itself as a more prominent investment destination. There are also opportunities for Canadian companies to partner with these trading houses in third-country energy projects and become a part of the global value chains in these sectors.
Japan has the most attractive global feed-in-tariff regime in the world to support renewable energy. Opportunities exist for Canadian companies to compete or partner with Japanese firms, particularly in niche applications such as water treatment and carbon capture and storage, in which Canada has more advanced and cost-effective technology. Currently, renewable energy accounts for 10.7% of Japan’s energy mix. The Government of Japan’s stated objective is to increase that share to 22%-24% by 2030.
Major Negotiations and Agreements
Trans-Pacific Partnership (TPP)
The TPP Agreement is the most comprehensive and ambitious regional trade agreement in the Asia Pacific and will deepen Canada’s trade ties in this dynamic and fast growing region. The TPP currently comprises 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam), representing a combined market of nearly 800 million people and a GDP of $28.5 trillion.
Air Transport Agreement
A Canada-Japan Air Transport Agreement facilitating air travel and cargo between the two countries has been in force since 1955, and has been amended several times since, most recently in 2013. Air transport agreements play an important role in improving “international connectivity” for Canadians.
Anti-Counterfeiting Trade Agreement
Japan and Canada are signatory to the Anti-Counterfeiting Trade Agreement (ACTA), a multinational treaty aimed at establishing international standards for intellectual property rights enforcement. ACTA has yet to enter into force pending ratification by at least six signatories.
Canada-Japan Economic Partnership Agreement (CJEPA)
Prime Minister Stephen Harper and former Japanese Prime Minister Yoshihiko Noda launched CJEPA negotiations on March 25, 2012. Canada and Japan are seeking to negotiate a comprehensive agreement covering substantially all trade in goods and services; investment; government procurement; non-tariff barriers; labour and environment; and other areas. A bilateral EPA is an important vehicle to strengthen bilateral trade and investment and achieve outcomes tailored to the specific needs of the bilateral relationship.
Science, Technology and Innovation
Canada and Japan enjoy a strong partnership in ST&I, as evidenced by the Canada-Japan Science and Technology Agreement, signed in 1986. Under this agreement, the Canada-Japan Joint Committee on Science and Technology (CJJC) held its 12th bilateral meeting in January 2013, during which Canada and Japan agreed to a framework identifying four priority fields of cooperation: 1) stem cell research, 2) advanced materials, 3) sustainable energy technologies, and 4) Arctic research. Canada and Japan will also collaborate on space cooperation and enhanced science communication.
WTO Government Procurement Agreement
Japan is party to the revised WTO Agreement on Government Procurement (GPA), which entered into force on April 6, 2014. Under the revised GPA, Canadian businesses will benefit from greater access to the government procurement markets of other GPA parties for a range of goods and services, particularly at the sub-national level. According to WTO estimates, the total value of gains in market access provided by the revised GPA will be between $80 and $100 billion.
WTO Information Technology Agreement
Japan is an original signatory to the WTO Information Technology Agreement(ITA) concluded at the 1996 WTO Ministerial Conference and is also taking part in the ITA expansion negotiations. Under the ITA, Japan provides duty-free access for all products covered by the ITA.
Selected Trade Initiatives – Seize the Opportunity!
- Farnborough International Airshow, July 2016, Farnborough, United Kingdom
- Agriculture and Processed Foods
- FOODEX Japan (annual)
- JSAE Show (annual)
- Consumer Products
- Japan Jewellery Fair, Tokyo (annual)
- Defence and Security
- International Astronautical Congress, October 2015, Jerusalem
- Fish and Seafood
- FOODEX Japan 2015 (annual)
- Forestry and Wood Products
- The Japan Home & Building Show, November 2015, Tokyo
- Information and Communications Technologies
- Mobile World Congress (MWC)
- Japan IT Week Fall, October 2015, Tokyo
- Life Sciences
- BioJapan, October 2015, Yokohama
- Mining Investment Seminar, October/November 2015, Tokyo
- Oil and Gas
- Global Petroleum Show, Calgary (annual)
- LNG Producer-Consumer Conference, November 2015, Tokyo
- BC LNG Conference, October 2015, Vancouver
- Sustainable Technologies
- World Smart Energy Week, February 2016, Tokyo
- Trade Commissioner Service in Japan: The Trade Commissioner Service offers foreign market intelligence, introductions in key networks, cost- and risk-reduction advice, business problem troubleshooting and on-the-ground support.
- Embassy of Canada to Japan: Canadian government offices abroad provide a variety of services, including consular services.
- Export Development Canada: EDC services can include market knowledge, credit insurance, bank guarantees, foreign buyer financing, political risk insurance, foreign investments and foreign affiliate support.
- Canadian Tourism Commission office in Japan: The Canadian Tourism Commission (CTC) is Canada’s national tourism marketing organization. A federal Crown corporation, CTC leads the Canadian tourism industry in marketing Canada as a premier four-season tourism destination where travelers can enjoy extraordinary experiences. We provide a consistent voice for Canada in the international tourism marketplace.
- Canadian Commercial Corporation: The CCC provides assistance with government-to-government contracting.
Where not otherwise indicated, the information is provided by the Embassy of Canada to Japan. The document is not intended to provide specific advice and should not be relied on as such. It is intended as an overview only. No action or decision should be taken without detailed independent research and professional advice concerning the specific subject matter of such action or decision. While Foreign Affairs, Trade and Development Canada (DFATD) has made reasonable efforts to ensure that the information contained in this document is accurate, DFATD does not represent or warrant the accurateness, timeliness or completeness of the information contained herein. This document or any part of it may become obsolete at any time. It is the user’s responsibility to verify any information contained herein before relying on such information. DFATD is not liable in any manner whatsoever for any loss or damage caused by or resulting from any inaccuracies, errors or omissions in the information contained in this document. This document is not intended to and does not constitute investment, legal or tax advice. For investment, legal or tax advice, please consult a qualified professional.
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