Canada and Japan have agreed to enter free-trade talks. Prime Minister Stephen Harper and his Japanese counterpart made the announcement following a bilateral meeting in Tokyo on Sunday.
The news follows a recently released joint study estimating that such an agreement could mean gains of up to $3.8 billion a year in Canadian gross domestic product, with Canadian exports to Japan increasing by as much as 67 per cent.
"These are important steps forward; historic steps forward," Harper said heading into the meeting.
With the world's third largest economy, Japan already does big business with Canada. Canada exported nearly $11 billion worth of goods to Japan last year, while Canadians purchased $13 billion worth of items made in Japan.
Japan is Canada's fifth largest trading partner and trade between the two countries was worth about $23 billion in 2010,
The Canadian-Japanese report on economic co-operation concluded that a free-trade deal could net billions more for Canada's economy in areas such as aerospace, energy and agriculture.
"But Canada's auto sector is not exactly happy about this," said CBC's Laurie Graham, reporting from Tokyo.
"Japanese cars being imported into Canada pay a tariff of about six per cent, and there's concern that if there's a free-trade deal that tariff will be lifted, which would mean, conceivably, that Japanese cars would be cheaper in Canada and competition would be a lot tougher.
"The prime minister says his government will do what it can for Canadian interests, but ultimately he says he has to negotiate a deal that is good for Canada's economy," Graham reported.
Prime Minister Yoshihiko Noda also announced the two countries will pursue enhanced defence and security co-operation, including the establishment of a supply base the Canadian military could use in emergencies.
Noda made a point of framing defence co-operation in the context of renewed concerns about North Korea.
The isolated Communist nation plans to a launch a satellite next month, which the U.S. has described an attempt to test ballistic missile technology — something that sets off alarm bells in Japan.
Harper, who will visit the earthquake and tsunami-ravaged region of Sendai on Monday, made a point of praising Noda for "the true and clear leadership" the Japanese prime minister showed through the crisis, and how quickly the country has rebuilt.
"I have quite great admiration for what you are doing here," he said.
The Japanese people were "deeply touched" by the expressions of support and assistance from Canada, Noda said.
Gordon Houlden, a trade expert and former government official, says negotiations will require patience because Asian states are sophisticated traders, and often have strong domestic lobbies.
One potential rough patch will be negotiating access to this country's agriculture sector.
"Agriculture in Japan is super-protected and has an almost mystical status," Houlden said.