Time to gear up EU-Japan relations (Originally published 20/03/13)

The launch on March 25 of negotiations on a first-ever EU-Japan political accord and a parallel trade-expanding comprehensive Economic Partnership Agreement aims to open a new era of closer and stronger relations between Japan and the European Union.

The two agreements can certainly inject fresh life into the EU-Japan partnership. “They are about making the EU-Japan relationship closer and more substantial,” says Kojiro Shiojiri, Japan’s Ambassador to the EU.

To get good results, however, both sides will have to commit time, energy and effort to the exercise. Most importantly, European and Japanese policymakers will have to find the right balance between their high political ambitions and hard-nosed bargaining on key trade questions, including agriculture and automobiles.

Both sets of negotiations were launched at a “telephone summit” between EU Council and Commission heads Herman Van Rompuy and Jose Manuel Barroso, and Japan’s Prime Minister Shinzo Abe. The telephone talks replaced a face-to-face summit scheduled to be held in Tokyo after EU leaders said they were grappling with debt problems in Cyprus.

The move to strengthen EU-Japan ties comes as Japan also prepares to join discussions on a Trans-Pacific Partnership, a free trade deal including the United States and several leading Asia Pacific economies. A triangular trade deal is also being explored with China and South Korea…(the rest remains unchanged)

The EU is a crucial partner for Japan

“For Japan, the EU is a crucial partner, not just a strategic partner,” says Ambassador Shiojiri. “Both the economic and political agreements between the EU and Japan are very relevant. The political agreement is about peace, security and responsibilities. The economic one is about revitalising our economies and societies.”

“The world is changing. The political agreement will allow the EU and Japan to work together to respond more effectively and take on bigger responsibilities to tackle global challenges,” Shiojiri told Friends of Europe ahead of the Tokyo summit.

“We have political declarations but Japan and the EU do not have a joint enterprise or project. This time we should be ambitious and produce added value for our relationship,” he said. “We should be closer. The width and depth of our relations are not commensurate with the importance of our partnership. We should shift gears and transform our relations.”

Japan saw the EU as a “super soft power” and believed there was room for enhanced EU-Japan cooperation in areas like disaster and crisis management, cyber security, counter-terrorism, combating pandemics and other global challenges. The EU with its commitment to democracy, human rights, the rule of law and the market economy was a “value promoter” and an important global player and partner for Japan.

Economic Partnership Agreement

Japan is interested in negotiating an ambitious Economic Partnership Agreement, not just a free trade deal, because the focus must be on growth and jobs in both Europe and Japan, the Ambassador underlined, adding: “this is not only about markets but about reinvigorating our economies and societies.”

While it was important to reduce tariffs to boost EU-Japan trade, Shiojiri said he believed that regulatory reform and harmonisation were even more essential to reduce costs and step up competitiveness. “Regulatory change is the bigger prize with a bigger impact on economies and societies. We are more interested in reform to build a more resilient economy and society.”

Both the EU and Japan were becoming less competitive in their performance on East Asia’s dynamic markets, he added. “This means we are losing competitiveness…this is a big concern.” The Economic Partnership Agreement would help both Japan and the EU to upgrade their performance in a very competitive globalised world.

To tap the full potential of their relations, the EU-Japan partnership must also encourage closer contacts between civil society actors, business leaders, academics and politicians. “The agreements will be a tool to make our relations stronger,” the Ambassador said.

We should not miss this chance,” he underlined. “Time is of the essence. We should conclude the agreements in the shortest possible time. If it takes too long, we will be in a very different world. It is our responsibility not to take too long.”

The EU view: Japan is serious about market opening

The EU mandate for the Economic Partnership Agreement with Japan was agreed at the end of November last year. According to EU Trade Commissioner Karel De Gucht, the mandate sets out a strict and clear parallelism between the elimination of EU duties and non-tariff barriers in Japan. There’s a safeguard clause to protect sensitive European sectors and the EU will “explicitly reserve the right ‘to pull the plug’ on the negotiations after one year if Japan does not live up to its commitments on removing non-tariff barriers.”

Japan is serious about opening up its market and had already started to remove a number of key non-tariff barriers up front – such as granting liquor licenses to European operators, the Commissioner said, adding: “Such moves have given us all the reassurance we could reasonably expect before a formal negotiation is opened. And no other partner has ever gone as far as Japan before we sat down at the negotiation table together.”

Potential benefits of an EU-Japan EPA:

The European Commission foresees:

A boost to Europe’s economy by 0.8% of GDP

EU exports to Japan could increase by 32.7%, while Japanese exports to the EU would increase by 23.5%

420,000 additional jobs in the EU are expected as a result of this agreement

The negotiating directives:

Japanese non-tariff barriers will have to be eliminated in parallel to any tariff reductions on the EU side.

The European Commission should suspend negotiations if progress as specified in the non-tariff barriers and railways and urban transport roadmaps does not materialise within one year from the start of the negotiations.

There is a safeguard clause to protect sensitive European sectors.

Japan is the EU’s second biggest trading partner in Asia, after China. In 2011 EU exports had reached a value of €49 billion, mainly in the sectors of machinery and transport equipment, chemical products and agricultural products. In 2011 EU imports from Japan accounted for €67.5 billion. In 2010, EU imports and exports of commercial services from and to Japan were €12.7 and €17.2 billion.

A remedy for declining EU-Japan trade

In its July 2012 assessment[1] of an EU-Japan FTA, the Commission noted that trade between the two had been declining for several years, worsened by a combination of tariffs and non-tariff measures that negatively affected both sides.

Both the EU and Japan have low tariffs on goods, the report said. However, Japan’s tariffs remain high in the agricultural and processed food sectors and for beverages, in all of which sectors the EU is a major global exporter. Average Japanese tariffs applied to other important EU exports are generally low.

EU tariffs on the main Japanese exports are higher. Japanese exports to the EU largely fall in a small number of manufacturing sectors, e.g. motor vehicles, electronics and machinery.

Public consultation and studies stress that non-tariff measures are major barriers to EU exports to Japan. Parts of the Japanese market, e.g. some agricultural products and some transport equipment and aeronautical products, are almost totally closed to EU exports. Seven business sectors that cover the bulk of EU exports to Japan are those most affected by existing NTMs: chemicals (including pharmaceuticals), automotive, medical devices, processed foods, transport equipment, telecommunication and financial services.

The lack of transparency in public procurement, and problems relating to IPR, have also been identified as important non-tariff barriers that make the Japanese market effectively inaccessible for EU companies.