Report of Keidanren Business Partnerships Mission to Canada welcomed

Prime Minister Jean Chrétien today welcomed a report presented by members of the Keidanren Business Partnerships Mission which visited Canada in September 1996 to assess the prospects for expanding and diversifying trade and investment.

"This report sends a strong message that Canada is an excellent partner and is open for business," said the Prime Minister. "The strength of the Canadian economy and our expertise in many high-growth sectors, such as information technology and agri-food, will provide the basis to expand trade and investment, and thus help to create jobs and growth in Canada and Japan."

The report notes that the Canadian economy has benefited from fiscal reform both at the national and provincial levels, and the pursuit of freer trade and a favourable investment climate, which have led to, among other things, technological innovation and increased efficiency and competitiveness in Canadian industry.

The Keidanren Business Partnerships Mission was organized in cooperation with other levels of government and business across Canada and was led by Mr. Koichiro Ejiri, Chairman of the Japan-Canada Economic Committee of the Keidanren and former Chairman of Mitsui & Co. Ltd. It was made up of three groups: a policy dialogue mission; an information technology mission; and a processed food sector mission. Fifty representatives of 25 Japanese corporations and business associations participated.

The Keidanren represents nearly one thousand of the largest companies in Japan, representing virtually all major sectors of the economy. Its chair is Shoichiro Toyoda, Chair of the Board of the Toyota Motor Corporation.

PMO Press Office: (613) 957-5555

Introduction

During the period 18-27 September 1996, Keidanren (Japan Federation of Economic Organizations) sent a mission to Canada to learn more about Canada's political and economic situation and to explore the possibilities of expanding and diversifying trade and investment. The mission, known collectively as the Keidanren Business Partnerships Mission to Canada, was made up of three groups: (1) the Policy Dialogue Mission; (2) the Infotech Sector Mission; and (3) the Processed Food Sector Mission. The first group's visit lasted from 18 to 20 September, while the latter two groups' visit lasted from 20 to 27 September.

The Mission was sent in response to a request from the Government of Canada. It was the first Keidanren mission to Canada in seven years, the previous one having been sent to Canada in 1989. Fifty representatives of 25 Japanese corporations and business associations participated, and were accompanied throughout the entire itinerary by officials from the Canadian Government and respective provincial governments. In addition, officials from the Embassy of Canada in Japan and the Embassy of Japan in Canada participated in the two sector-specific missions, adding grandeur to it.

Policy Dialogue Mission members, who were joined by representatives of the two sector missions, met with a number of Canadian Government leaders in Ottawa to discuss Canada's political and economic situation. These leaders included Prime Minister Jean Chrétien, Minister of Finance Paul Martin, Minister of International Trade Arthur Eggleton, Minister of Agriculture and Agrifood Ralph Goodale, Secretary of State (Asia-Pacific) Raymond Chan, and Governor of the Bank of Canada Gordon Thiessen. Members of the Mission also met with executives of Canadian corporations in Montreal and Toronto, where they had candid discussions on bilateral trade and investment relations.

One thing that became obvious to us by the end of our itinerary was that Canada is undergoing tremendous reform. Canada is an extremely large country, second only to Russia in land area and about 26 times the size of Japan. Yet, the image the Japanese people have of Canada is basically that of a country blessed with vast forests, lakes, a beautiful environment and rich natural resources. This picture is by no means complete, of course. We saw that Canada's economy has grown stronger after inauguration of the Free Trade Agreement (FTA) in 1989 and the North American Free Trade Agreement (NAFTA) in 1994. We returned home with the realization that Canada's industries are undergoing a dynamic transformation. Japan has much to learn from the administrative reform efforts undertaken by the Government of Prime Minister Chrétien, epitomized best by its strenuous cutting of the fiscal deficit. We, Policy Discussion Mission members went to Canada assuming we knew much about the country, but came back aware that we had learned a great deal indeed during our visit.

Prime Minister Chrétien and the Federal and Provincial Governments most considerately provided us with an opportunity to conduct the Mission, and welcomed us most warmly. I would here like to express our deep gratitude to them, and to thank all officers at the Embassy of Canada in Japan, members of the Government of Japan, and others who provided invaluable support for our Mission.

Canada's Steady Progress in Administrative Reform and
Economic Structural Adjustments

Canada is undergoing dramatic change. This is seen most clearly in its steady reduction of the fiscal deficit, one of the main goals of Prime Minister Chrétien's Government which took power in 1993. The Government has greatly cut its expenditures through a number of initiatives. These include: retrenchment in the number of federal civil servants; decreasing government budgets by an average of 20%; and reducing subsidies to corporations and farmers. As a result, the annual deficit-to-GDP ratio, which had stood at 5.9% in 1993, dropped in each of the two following years, reaching 4.2% in 1995. Finance Minister Martin told us that the annual fiscal deficit would be further reduced, to only 2.0% of GDP in 1997.

These deficit reductions are being carried out at both the federal and provincial levels. We learned that seven of the ten provinces intend to achieve balanced fiscal positions by the end of FY 1996. Premier Michael D. Harris of Ontario, a province which accounts for 40% of the country's GDP, indicated his Government's resolve to improve Ontario's fiscal position by cutting its budget by 27%.

One organization we visited, the Canadian International Development Agency (CIDA), has greatly reduced its expenditures. We heard from Vice President Jean-Marc Metivier that the restructuring of public institutions has invigorated them and eliminated much of the former rigid bureaucratic mind set.

Under Prime Minister Chrétien's leadership, the federal and provincial governments have, while pursuing their plan to introduce balanced budgets by the year 2000, spread the pain of deficit cutting among the populace as a whole. I was deeply impressed by the steps they are taking to drastically cut expenditures.

Here I must also mention the energy exhibited by the domestic economy. In the latter half of the 1980s and the beginning of the 1990s, the Canadian economy went through a period of speculative investment against a backdrop of high inflation, but anti-inflation measures taken by the Government and the Bank of Canada have proved effective, with increases in the consumer price index being maintained in the 0% to 2% range between 1992 and 1995. This favorable situation has prompted private enterprises to push forward with large-scale restructuring and to make unprecedented capital investments and technological innovations, thereby boosting production and greatly improving their international competitiveness.

Bank of Canada Governor Thiessen described the present changes in Canada as a full-scale transformation moving ahead firmly but so quietly that Canadians are hardly aware of it. This was exactly the impression I received.

A Market Open to the World

Through their grouping under NAFTA, Canada, the United States and Mexico together constitute a huge market of 378 million people and a total GDP of US$8.50 trillion dollars. When NAFTA was launched in 1994, I was somewhat concerned that the new agreement would negatively affect the Canadian economy. However, during my recent visit I saw with my own eyes that NAFTA is bringing many positive benefits to Canada; it is opening Canada even more to the global market, increasing the competitiveness of Canadian industries, and encouraging industrial innovation.

For example, foreign direct investment to Canada has steadily increased over the last ten years. Direct investment flow from all countries to Canada in FY1994 was about US$6.0 billion, but this sum had almost doubled to US$11.2 billion in 1995. Bank of Canada Governor Thiessen told us this jump can be explained by the fact that Canada has established an extremely favorable investment climate, having continually kept in mind the huge U.S. market that lies south along a 3,000 mile border. In this regard, it is worth noting that Canada's corporate tax rate and personal income tax rates are the lowest among the G-7 member countries, when compared against GDP. In addition, Canada offers tax incentives for research and development; 20% to 35% of R&D expenses are tax deductible.

Prime Minister Chrétien and other government leaders stressed that investment opportunities in Canada are better than those in the United States and other industrialized countries. They described Canada as a country with a lower cost of living, lower wages, higher quality of labor, and better medical and welfare systems, and emphasized that Japanese investment in Canada is therefore advantageous for Japan as well as for Canada. They also mentioned that federal-provincial relations are no cause for investment concern, since the Federal Government places high priority on national unity and is continually conducting dialogues with each provincial government.

Possibilities of Japan-Canada Cooperation in Value-Added Industries

Over the years, trade between Japan and Canada followed a complementary pattern, with Japan importing natural resources and agricultural products from Canada, and Canada importing manufactured products and capital goods from Japan. However, advances in Canada's industries have gradually changed this picture, with rising Japanese imports of Canadian value-added products such as helicopters and business jets. The Canadian Government has announced an action plan to promote exports to Japan and is encouraging trade, investment and technical cooperation with Japan. For its part, Japanese business has provided indirect support for Canadian industry through, for example, sector-specific sub-committees established within the Keidanren Japan-Canada Economic Committee.

At the core of the Keidanren Business Partnerships Mission to Canada were the two sector-specific groups which investigated the infotech and processed food sectors. These two sectors, which were selected in accordance with requests from Canada, have experienced remarkable development in the value-added fields, yet have received little attention from Japan. The Japanese members of the Mission were chosen from among people having expertise and responsibilities in these fields, and so were well qualified to conduct specific business discussions. Here I would like to suggest that the reader refer to the summaries of the reports issued by these two sector-specific groups, to obtain more information on their findings.

I believe that the Mission has sown the seeds for a fruitful partnership among Japanese companies and Canadian corporations active in these new fields. It must be pointed out, though, that the final decision as to whether to choose a Canadian company as a partner rests with the individual companies themselves, and that these Japanese companies must struggle for their very survival in an international market which is becoming ever more competitive as Asian economies grow increasingly vigorous. I sincerely hope that the Canadian federal and provincial governments are well aware of these realities.

The Future of Japan-Canada Relations

The knowledge we gained during our Mission made it clear to us that Japan and Canada have established a meaningful partnership in which both sides pursue goals on the same international stage, and that Japanese and Canadian business people both need to remain fully aware of the changes occurring in each country and to use this awareness to build a new relationship.

Unfortunately, Japan has remained inordinately unaware of the full-scale transformation Canada is going through. This lack of awareness is primarily due to the fact that ties between our two countries have evolved favorably, with no serious problem arising to disturb the calm development of relations. There can also be no denying the fact that, because of the huge market offered by the United States, both Canada and Japan have tended to exhibit slight interest in each other.

Throughout the duration of our Mission, we heard from many sources that Canada is an excellent place to do business. We heard this not only from the Canadian Government and private companies but also from members of the Japanese Chamber of Commerce in Toronto, who are directly involved in the business community there. I came back with the strong feeling that Japanese and Canadian business people must both remain aware of the changes the other country undergoes during this period of economic globalization, and that each side must make every effort to understand the other's position and problems. The media can undoubtedly play an extremely important role in this regard. For its part, Keidanren intends to use its Japan-Canada Economic Committee and other bodies to convey to many members of the Japanese business community its impressions of the new Canada.

The Japan-Canada Business Conference was inaugurated for the purpose of furthering understanding and friendship among Japanese and Canadian business people. It will hold its 20th meeting in Toronto in May 1997, the very year Canada has declared as its Year of Asia Pacific. Because Canada is in the process of strengthening its relations with Asian countries, we can presume its interest in the Conference is high. Within the Conference, I will continue to call on both sides (which enjoy a meaningful partnership in the international arena) to remain fully aware of the changes occurring in each country and to use this awareness to build a new relationship. In closing, I would like to respectfully request that the Canadian Government continue to support the activities of our Japan-Canada Economic Committee, Keidanren.