[ Table 4 ]
Japan-Canada Trade and Investment Issues by Industrial Sector

Food Products

1. (Concerning pork) In contrast to the approximately ¥1.2 billion expended by the US Export Federation to subsidize sales, Canada Pork International only spends about ¥20 million. The Canadian government needs to strengthen its support for sales through such means as raising it budget framework and establishing a strong organization for sales promotion. [Pork]
2. One concern regarding the importation of wheat is the fact that the WTO has indicated its opposition to state trading enterprises. It is possible that future WTO discussions will result in the designation of Japan's Food Agency and Canadian Wheat Board (CWB) as state trading enterprises. (Wheat)
3. (Concerning rapeseed imports) As with other grains, most of Canada's Japan-bound rapeseed is loaded on ships in Vancouver, with transport within Canada dependent on railway freight cars. On occasion, haphazard export programs that ignore Canada's domestic transport capabilities have been pursued. (Rapeseed)

Paper Pulp

1. Exchange rate risks: An exchange rate risk exists with respect to the US dollar (production costs are denominated in Canadian dollars, but sales are generally denominated in US dollars).
2. Special tax breaks are gradually being phased out.
3. Many paper pulp plants are located in Quebec, a situation that might generate problems if Quebec became independent. Also, the French language is inconvenient.
4. The competitive pricing of pulp materials is a problem (Canadian pulp material is of high quality, but conifers take a long time to grow, so that other materials can be substituted depending on the application).

Imported Housing

1. The tariff rates on housing-related items (extremely fine distinctions made depending on application, making it difficult to understand the many tariff rates within the vast HS code).
2. Lack of JIS and ISO compatibility (Canadian standard values for such characteristics as heat insulation and air-tightness cannot be used as is in specifications).
3. Issues associated with JAS certification, designated inspection organizations, and mutually recognized certification (procedural complications encountered in attempts to unify measurement standards).
4. Problem points associated with the import of materials:
   • Problems with delivered materials (broken, scratched or damaged, dirty, parts missing, etc.)
   • Materials do not match orders (different size, product number, quantity, color, etc.)
   • Late or uncertain delivery
   • Problems with supplier response (slow response when problems arise, intentions are not relayed to the manufacturer, no advance notice given when a product is discontinued, etc.)
   • Other (Items are different from what appears in catalog, no place to put the materials when they are delivered, no smooth process in place for insurance claims when materials are damaged, etc.)

Forest Products

1. Destabilizing factors in the trade environment
   Each of the US states has its own import quotas for Canadian forest products. Changes in those quotas result in changes in the amount and price of Canadian forest products exported to Japan.
2. British Columbia (BC) has a logging surtax, logging standards, and other regulations that result in high costs and inflexible prices. Also, because it has no recycling system in place for artificial forests (planting and harvesting), the lumber supply is unstable.
3. Environmental groups obstruct logging operations and exert strong pressure on lumber companies.
4. Insufficient response to "the Law for Ensuring the Quality of Houses".
   European companies have responded better than Canadian companies (for example, they have already built artificial drying facilities, while Canadian facilities are still inadequate).

Automobiles

1. The WTO litigation concerning import tariffs for automobiles
   On the basis of the Auto Pact (1965), members are exempt from tariffs on cars exported to Canada as long as the following conditions are met: 1) the Canadian value-added rate is 60% or more; and 2) production in Canada is equal to or more than the amount sold (regardless of the exporting country). Meanwhile the automobile tariff on cars that Canada imports from countries with MFN status is 6.1% (1999), which means that Auto Pact members are favored and MFN-status countries are discriminated against. In July 1998, the Japanese government demanded that the WTO discuss this matter. A panel was accordingly established in February 1999, with an interim report issued in October and a final report issued on December 22. The report ruled completely in favor of the Japanese government.
   The Canadian government has appealed the decision, and further deliberations are scheduled by a higher WTO panel committee.

Automobile Parts

1. Canadian Standards Association (CSA) have raised costs and Canadian Motor Vehicle Safety Standards (CMVSS) has imposed restrictions.

Information and Communications

1. There are efforts to promote domestic production (province-level "buy Canadian" laws) and preferential incentives to companies that manufacture domestically.
2. Discrimination against countries outside of NAFTA: tariff exemptions and special treatment for imports from other NAFTA countries impose an unfair disadvantage on some products imported from Japan. (For example, there's a 5% tariff on televisions imported from Japan and a 6% tariff on video monitors, as compared with 0% for comparable products imported from NAFTA countries).

Natural Resources

1. Harsh natural environment and difficult mining conditions as well as long railway transport distances (about 1,000km)
2. High harbor usage fee, heavy tax, loyalty burden on mine operators (Income Tax is collected by the province as well as the federation)
3. Strict environmental regulations (restrictions on developing new coal mines)
4. To maintain and expand the Canadian export shares to Japan, further efforts are required in rationalizing the cost, increasing competitive strengths, and pushing the shift to coals which are expected to enjoy higher demand in future, such as steaming coal and semi-soft coking coal are needed.

Banks

1. Issue of the current regulations for the foreign bank subsidiary

   1. Related Party Transactions (Banks) Regulations
      Among other restrictions in the Related Party Transaction (Banks) Regulations, a term of a deposit by a foreign bank subsidiary with the foreign bank must not be longer than 30 days. In addition, the amount added to the aggregate of the amounts of all other deposits of the foreign bank subsidiary with its related parties must not exceed 50 per cent of the regulatory capital of the foreign bank subsidiary.
   2. Liquidity Adequacy Guideline
      Certain foreign bank subsidiaries must maintain liquidity assets equal to 10 per cent or more of their total assets based on instructions by OSFI.
   3. Thin Capitalization Rule
      Currently, the interest deduction is restricted to interest on debt equal to three times the amount of equity contributed by a specific non-resident. According to the 2000 federal budget, the debt-equity ratio will be reduced to 2:1 and the rules will be extended to loans to a Canadian corporation from a third party that are guaranteed or secured by a specified non-resident. The rules will apply not only to financial institutions but also to other industries.

2. Issue of the new regulations for the foreign bank branching.

   1. Regulation of "retail" deposits
      A foreign bank branch will generally not be permitted to accept "retail" deposits defined as amounts less than C$150,000.
   2. Deadline to be provided with the special transitional tax measures for the foreign bank branching
      In spite of the delay of implementing the legislation, a foreign bank must submit a draft of application to OSFI on or before December 31, 2000 in order to get the relief.
   3. Capital Equivalency Deposit
      A full-service branch is generally required to maintain assets on deposit equal to at least five per cent of branch liabilities or C$10 million, which is greater. In addition, the superintendent may consider it necessary to impose more stringent asset maintenance requirements on the foreign bank branch. This might be an additional burden to the foreign bank to operate in Canada.

Nonlife Insurance

1. Separate licensing systems by different provinces
   Insurance companies operating in Canada must obtain separate licenses from each province which, with the exception of Saskatchewan, must be renewed annually.
2. Restrictions on stock acquisition
   Some provincial laws restrict the amount of insurance company stock holdings that nonresidents in Canada can possess. Nonresidents in Quebec, for example, must obtain official permission to acquire more than 30% of an insurance company's voting stock.
3. Legal deposit money
   Foreign insurance companies are required by law to have deposit money equivalent to 110% or more of the deposit money that domestic insurance companies are required to have. Furthermore, foreign insurance companies must undergo inspection every quarter.
4. Restrictions on reinsurance
   The total amount of reinsurance ceded for any given insurance company cannot exceed 75% of its total account value, or the account value reinsured for nonresident insurance companies cannot exceed 25%.
5. Monopolies by insurance companies run by provincial governments
   Workmen's compensation insurance in Canada is monopolized by insurance companies that are run by the provincial governments. In some provinces, such as British Columbia, compulsory car insurance is monopolized by the provincial insurance company, making it impossible for private companies to land such accounts.