Sadaaki Numata, former ambassador of Japan to Canada

With that assessment, Koizumi and Harper recognized that their countries might have exerted more effort to consolidate economic relations over the past few years. Since then, there have been renewed efforts to finalize an economic framework study, which started in 2005.

Canadian Minister of International Trade David Emerson said the study was ‘‘an actionoriented initiative that identified 15 priority areas considered to have the most sustainable impact in moving trade and investment relations forward.’’

The state of affairs

The two countries have enjoyed a relatively strong trade relationship, with Japan as Canada’s second-largest export market after the United States and the largest Asian foreign direct investor in the country. In 2005, Canadian exports to Japan reached $8.97 billion while imports totaled $9.57 billion.

On the other side, Canadian direct investment into Japan in 2005 amounted to $6.32 billion while Japanese direct investment into Canada that year totaled $9.23 billion.

‘‘In the past, the economic relationship can be characterized as ‘complementary,’ ’’ explains Sadaaki Numata, Japan’s former ambassador to Canada. ‘‘The traditional pattern has been that Japan exported manufactured products to Canada and Canada exported primary resources to Japan, like forestry products, canola oil and copper.’’

But that is all changing, as larger Japanese auto manufacturers began building facilities in Ontario in the early 1980s. Today, Toyota and Honda have fully owned plants in the eastern Canadian province, and have announced plans to expand and build new production facilities.

That rapid development in the automotive sector alone has accounted for 54,000 new jobs nationwide. The expansions, due for completion in 2008, represent more than $427 million in new direct Japanese investment.

‘‘The auto industry and the province of Ontario enjoy an inseparable relationship,’’ emphasizes the ambassador.

Osamu Mizutani, executive director of JETRO Toronto, says that the automotive sector has become the backbone of Japan-Canada relations, especially in the eastern part of the country.

‘‘Ontario is larger than Detroit with regard to the automotive industry in North America,’’ he says, referring to total manufacturing and revenue. ‘‘There is a large reliance on this sector in Ontario. There are more than 200 Japanese companies in the province and 50 to 60 of these are in the automotive industry.’’

Over on the west coast, the nature of trade between Canada’s western region and Japan has experienced some fundamental changes as the Canadian dollar continues to strengthen.

What was traditionally known as a source of natural resources to Japan (42 percent of British Columbia’s wood exports go to Japan), Canada is evolving into a destination for other opportunities as exports continue to reel from the strong dollar.

In 2006, Japanese automakers Toyota and Honda independently began work on new manufacturing facilities in Ontario, further cementing the automobile industry as one of Canada’s most dynamic and heavily invested areas.

‘‘Canada is a key Japanese corporate investment destination for traditional energy (coal and oil sands from Alberta) and alternative energy (gas hydrates and fuel cells from British Columbia),’’ points out Emerson.

‘‘We recognize Japan’s preeminent position as a world leader with respect to technology commercialization and applied innovation, and we seek to build on existing trade and investment linkages, and to stimulate growth on the strength of mutual comparative advantage,’’ he adds.

Economic framework initiative

In line with efforts to strengthen economic ties, the two countries have identified 15 areas of focus.

‘‘A key objective of the Canada-Japan Joint Study is to analyze the current status of the bilateral economic relationship, and examine the benefits, costs and implications of further promoting and liberalizing trade and investment between Canada and Japan,’’ says Emerson.

The joint study was proposed by former Canadian Prime Minister Paul Martin during a visit to Japan in 2005. Since then, there have been positive developments.

‘‘With respect to specific cooperation, there have been some tangible results,’’ says Numata. ‘‘In the last year and a half, we’ve been able to conclude several bilateral agreements. The first was a social security agreement, the second was an agreement on the cooperation of anticompetitive authorities. Finally, we have a customs cooperation agreement, which means that our customs authorities work together to combat smuggling.’’

The study has garnered some positive reaction. In the latest study by JETRO Toronto, out of 191 Japanese companies surveyed, 74 percent reported an operating profit in Canada in 2005.

Numata expresses hope that the study will lead to more changes to encourage Japanese investment.

‘‘We’d like to see an investment accord or a liberalization of trade services. Many Japanese companies would also like to see dialogue on regulatory reform from the Canadian government. There is a need for an agreement for a mutual recognition of standards,’’ he says.

Recognizing the importance of the relationship, the Canadian minister of international trade agrees that the joint study should bear fruit for both sides.

‘‘In keeping with the ideas contributed by Canadian and Japanese stakeholders, Canada hopes that the joint study will identify concrete and ambitious initiatives that the countries can take to enhance commercial relations,’’ says Emerson.