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Canada and Japan - renewing our partnership
at a time of economic and financial crisis

Speech by Ambassador Jonathan T. Fried
to the Japan National Press Club

December 8, 2008

It is an honour to address the Japan National Press Club - an important and historic Japanese institution. And an even greater honour to have assumed the responsibilities of Canada's Ambassador to Japan. I say this not because of the privilege of living amidst such richness of history, culture, commerce, and cuisine - although all of this is true. The honour derives from the fact that, after more than two decades of engagement with, and visits to your country, a career representing the country of Canada, and after three months as resident Ambassador, I have gained a deeper appreciation of both Japan's and Canada's assets, and of the remarkable opportunity presented to me to contribute to strengthening our cooperation.

So permit me to begin with a brief overview of our assets, before turning to the challenge of the current global financial crisis and my views on the road ahead.

What are those assets and commonalities? Canada and Japan share a number of common interests and characteristics:

In sum, Japan's high-tech, capital-rich economy partners well with Canada's smaller, but agile and innovative, not to mention resource-rich, economy. Together, we are stronger, richer and more secure.

So it is natural to think of Canada and Japan as enjoying a robust trade and economic, political and security partnership. And indeed, our bilateral relations are warm. And this warmth is needed to face the chill winds of the current financial and economic crisis, where I believe that Canada and Japan are both in a better position than many, and have much to offer the world, even though we are both feeling the effect of what has become a global slowdown in the real economy.

In many ways, we are in a similar situation in this conjuncture: in recent decades, both our governments took important steps to strengthen our economies and our financial sectors against the kinds of problems we are seeing today.

And I think also that in many ways we share a common vision as to what needs to be done. We both recognize that getting regulation and policy right begins at home, with sound prudential regulation that ensures a resilient and robust financial sector in each country.

This is not to deny that there is much scope for improved international cooperation in promoting economic and financial stability. Newly-emerging powers have an important role to play on global economic developments and must be engaged. But no one should think that global economic diplomacy can replace the hard work of putting in place appropriate financial sector regulation and supervision at the national level.

The current crisis did not originate in Canada, or in Japan. The outlines of what went wrong are clear enough, even if the details will be the subject of debate for many years to come.

Globally, there was an under-appreciation, and an under-pricing, of risk. Aggravated by global imbalances caused in good measure by misaligned exchange rates, investment incentives also became misaligned, leading to inappropriate risk-taking. This was accompanied by unsustainable growth in asset prices, mainly housing but also equities, in the U.S., U.K. and elsewhere.

All of this was enabled by gaps in national regulation and supervision, allowing too many risks to be placed goff balance sheeth, outside the scope of regulators' review.

Fortunately for both of our countries, we have separately put in place, a number of structural reforms that have helped to protect ourselves from the current crisis.

In Japan, the bursting of a property and equity bubble in the 1990s provided clear lessons. As a result, going into this crisis, Japan's banks were very well capitalized and well regulated. And in the real economy, the experience of the 1990s gave firms a strong incentive to become more efficient. They have also avoided excessive debts. These steps have made firms much more able to withstand the current unfavourable business environment.

Canada too, has made enormous strides in promoting a more robust economy. We put in place domestic taxation, expenditure and public pensions reform that put Canada on a long-term sustainable fiscal track. Canada eliminated its deficit a decade ago and has run a surplus each year since, making it possible for the government to take action to counter this cyclical downturn. Our total government net debt, as a percentage of GDP, has declined steadily from a peak of nearly 71 per cent in 1995 to about 23 per cent in 2007. Since 2006, the Government has reduced the federal debt by more than $37 billion. We also undertook difficult but important reforms to create more open and flexible labour and product markets, to boost our productivity and competitiveness.

However, the sheer scope of the current crisis means that no country will be immune to its effects.

When the crisis first started last summer, centred on U.S. sub-prime mortgage debts, Canada and Japan were relatively unaffected. Our financial institutions were not major players in the sub-prime mortgage market, nor the complex structured financial products based on them.

However, the crisis has spread, both globally from the U.S. and Europe and from the financial sector to the real economy. Both Canada and Japan are experiencing a slowdown in exports and are now facing a significant economic recession.

Currency and financial markets have experienced extreme volatility as investors scramble to find secure havens for their savings. Even in countries such as Canada and Japan where credit markets continue to function, loans are becoming harder to obtain, putting pressure on domestic firms and on individuals.

Consumer and business confidence, not surprisingly, has plummeted. Firms are more reluctant to invest, and consumers are more reluctant to spend.

And quite frankly, it is difficult to see how this could all be reversed quickly. The gglobal de-leveragingh has many more months yet to run, and the full effects on the real economy will not become fully evident for some time yet. We must be prepared for an extended period where the economic environment will remain very challenging.

Thus, despite the many reforms taken in both Canada and Japan to strengthen our economies, more specific action has been required. And I think that in both Japan and Canada, our governments have responded in ways appropriate to our circumstances.

The Government of Canada has taken a number of steps to respond to the current crisis. Personal income taxes were reduced by more than $10 billion this fiscal year and federal business tax was reduced from 22% in 2006, to 19.5% this year, and to 15 per cent in 2012. I would add that this measure enjoys cross-party support. Measures announced in advance of the economic downturn were providing $21 billion, or 1.4% of GDP, in incremental tax relief.

The Bank of Canada has participated with other central banks, including the Bank of Japan, to provide liquidity to markets and ensure that monetary policy is supportive, and has been given additional powers to ensure that credit markets continue to function.

In Japan, too, the government has responded to the crisis through action to restore market stability and enhance prospects for an early resumption of growth. I would note that in contrast to previous crises, there has been an admirable openness by the government, the FSA and the Bank of Japan in sharing information and making clear the policy steps being taken.

The current crisis has exposed flaws in the economic and regulatory models that have been followed in some countries in recent years. Clearly, reforms are needed. But these must be carefully thought out, to ensure that they do not simply lay the foundations for the next crisis.

Canada's Finance Minister Jim Flaherty, in a recent article in the Financial Times, laid out Canada's views on the appropriate response to the crisis, emphasizing the fact that governments must take the lead in ensuring robust legal, institutional and regulatory regimes. There are four key elements:

So with a warm relationship, and in facing the cold reality of the current crisis, Canada and Japan are indeed working together to add new energy to the global economy. Our Prime Ministers spoke on the telephone ahead of the recent G-20 Summit in Washington and cooperated closely at that meeting. We are continuing at the officials' level to explore ways to take that cooperation forward with a view to providing a stable base in the global financial system for restoring growth.

But there is more we can do together to take advantage of the opportunity for growth. At a government-to-government level, the Canada-Japan Economic Framework signed by our Prime Ministers in 2005 provides the basis for regular bilateral discussions among senior officials on economic issues. I have in fact just returned from Vancouver, where I participated at talks under the Economic Framework, in what is known as the gJoint Economic Committeeh, between Canada's incoming Deputy Minister for Trade, Louis Lévesque, and Vice Minister of Foreign Affairs Masaharu Kohno.

This follows the first meeting in November of the new Canada-Japan Trade and Investment Dialogue, which provides a forum for discussion between our two countries of issues related to trade, regulatory cooperation and enabling a supportive industrial innovation environment.

But it is the private sector that creates jobs and increases national wealth to improve the standard of living of our populations. And innovation improves productivity to create that wealth. For this reason, Canada and Japan each put priority on innovation, science and technology. In my view, Japan and Canada need to strengthen and diversify our cooperative links through an enhanced innovation partnership.

We in Canada recognize that Japan is the world's most innovative country. It is a global leader in advanced materials and manufacturing, robotics, digital technologies and environmental breakthroughs such as hybrid engines and solar cells.

We also think we can add value to Japan's cutting-edge efforts, in ways that benefit us both. We have complementary strengths in technology and innovation, hardware and software, resources and manufacturing.

Canadian fuel cell technology is being tested and employed today in Japan. I mentioned earlier that Canada is Japan's number-one supplier of uranium, required to operate many of its 55 nuclear reactors. Canadian oil from our huge oil sands reserves could play a significant role in meeting Japan's energy needs without safety concerns or geopolitical risks. There is also potential for research collaboration in carbon capture and storage technology and in work on gas hydrates, an genergy of the futureh for Japan.

Speaking of energy, let me give you a concrete example of how Canadian technologies can benefit Japan. This autumn the first energy-self-sufficient gSuper E Net Zeroh house built outside Canada was opened in Sapporo.

This environmentally-friendly residence brings together responsibly-harvested wood, advanced insulation, special windows, solar and geothermal power and other technologies in a house that produces more clean energy than it uses. Hence, the term gnet zeroh. This collaborative project shows that Canadian-designed wood buildings can be both energy-efficient and protective of the environment. And, we now know that the building is also earthquake resistant. A three-story Canadian wood building was subjected to a simulated earthquake stronger than the Kobe earthquake, and emerged standing.

To exploit these opportunities, Canada is seeking to reinvigorate our bilateral S&T relationship with Japan. A key focus is on transferring ideas from university and government labs into the marketplace. We want to foster collaborative work between Japanese and Canadian researchers, and business people, on important global challenges, such as new forms of sustainable energy, and new types of advanced materials to make transport, for example, more fuel-efficient.

As Ambassador, I hope that our Embassy team can serve to catalyze these opportunities. It is my good fortune that there are other reasons to draw attention to building our partnership.

Over 2009, the Embassy of Canada will commemorate the 80th anniversary of the opening of our first diplomatic mission in Japan. Our celebrations will focus on a theme of gYouth and Innovation.h We believe that a focus on youth is timely. In 2008 we raised Japan's quota for the popular Working Holiday Program from 5,000 to 10,000 visas annually, and we expect to be oversubscribed for the 2009 program.

Canada appreciates the importance of the people-to-people ties that are a fundamental foundation of the bilateral relationship. To further facilitate the continued exchanges of people between our two countries, we will be introducing a number of special initiatives through our 80th anniversary program.

Other initiatives targeted at the youth include gguided toursh of the Embassy for 80 schools as part of their annual excursions {Shugaku ryoko} as well as special outreach visits to 80 schools throughout Japan by Embassy staff to deliver lectures on Canada {demae jyugo}.

Details of the various programs will soon be posted on the Embassy of Canada website.

The 80th anniversary in 2009 will also be marked by their Majesties, the Emperor and Empress of Japan, visiting Canada.

The Embassy of Canada, in partnership with the private and public sectors in both countries, will use this occasion to present an updated image of Canada in Japan. I hope this visit will demonstrate that Canada - rich in natural beauty and resources - is also an innovative and advanced knowledge-based economy.

In 2010, Canada will play host to the Winter Olympic and Paralympic Games in Vancouver and Whistler, British Columbia, and will host the summit of G8 leaders in Huntsville, Ontario. That same year, Japan will host the summit of APEC leaders. So we can anticipate visits by both of our Prime Ministers to each other's country, not to mention many visits by Ministers and other senior officials, in 2010.

All these occasions will provide an opportunity to raise the profile of Canada in Japan, and of Japan in Canada. The ultimate goal, of course, is to identify ways that we can work together to our mutual benefit.

In conclusion, I look forward to continuing to work with my many old friends, and many new friends, on fostering the Canada-Japan relationship. During these times of international financial and economic challenge, we have much to offer each other. In many ways, Canada and Japan are naturally complementary economies, and with shared values and common interests across a range of sectors, we are natural partners for the 21st Century.

Thank you and good afternoon. Domo arigato gozaimashita!

2009-12-08 XV

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