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Research Papers N 28

European Post Graduate School of International & Development Studies





EU-Japan Free Trade


Agreement: Factors Influencing
the Future of the Agreement

Sofia Olsson de Koning


2012

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

Table of Content
Abstract ............................................................................................................................................... 3
1.

Introduction................................................................................................................................. 4
1.1 Background ................................................................................................................................ 4
1.2 Research Question..................................................................................................................... 5
1.3 Limitations ................................................................................................................................. 5
1.4 Methodology ............................................................................................................................. 5

2.

Analysis ........................................................................................................................................ 7
2.1 EU-Japan Trade Relations .......................................................................................................... 7
2.2 EU Political & Industry Influences ........................................................................................... 14
2.3 Japan Domestic Factors ........................................................................................................... 19

3.

Conclusion ................................................................................................................................. 25

4.

References ................................................................................................................................. 27
4.1 Written sources ....................................................................................................................... 27
4.2 Presentations........................................................................................................................... 27
4.3 Official documents................................................................................................................... 28
4.4 Websources ............................................................................................................................. 29
4.5 Interviews ................................................................................................................................ 30

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

Abstract
The objective of this paper is to look at the factors influencing the EU-Japan Free Trade
Agreement and which of these factors have real influence on the future of the agreement.
The EU and Japan are two major economies, together making up 44 % of the world GDP1. A
trade agreement between the two parties would boost both economies, create economic
growth and job opportunities and increase export not only between the two parties, but also
globally. As a first step, following the process of establishing a free trade agreement
between the EU and an external partner, a scoping exercise was carried out. The purpose of
this was to list all non-tariff measures and issues to be discussed and tackled during the
negotiations and this exercise was completed in May this year. In July the Commission asked
the Council for mandate to proceed to the negotiations of the agreement.
This paper looks at the three main factors influencing the agreement. Firstly the trade
relations themselves are analyzed, including the non-tariff measures and the distrust on the
European side that the Japanese will actually dismantle these. Secondly the role of the
European institutions is considered, where the Lisbon Treaty has given the European
Parliament enhanced power to ratify any agreement and how this threat of veto gives the EP
power to influence the discussions already from the start. It also looks at the influence of the
European automotive industry and its disproportionate impact on the discussions, especially
through vocal lobbying in the EU. Thirdly the aspect of Japanese domestic politics is studied
and how the politics and business sector in Japan influence the agreement. So far, Japan has
been the demanding party, but with their unstable government and divided bureaucracy,
they could shift their attention to other FTAs that may be of greater importance to them
(TPP and ASEAN). With a strong yen and considerable FDI on the European market the tariff
reduction may have limited impact in reality and although the free trade agreement would
be beneficial for both Europe and Japan, maybe the European economy is in greater need of
the FTA than the Japanese?

E Sunesen J Francois and M Thelle, Assessment of Barriers to Trade and Investment between the EU and
Japan, Copenhagen Economics, Copenhagen, 2009

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

1. Introduction
1.1 Background

The EU and Japan are the largest and the third largest economies in the world. They account
for 33 percent and 11 percent respectively of world GDP, and 17 percent and 6 percent of
world trade2. Japan is EUs 7th most important trading partner and the EU is the third most
important trading partner for Japan after China and the US. Traditionally the trade
relationship has been dominated by strong surpluses on the Japanese side, but it has
recently become more balanced.
In July 1991 a "Joint Declaration on Relations between the European Community and its
Member States and Japan" was signed. Yearly EU-Japan summits were established and at
the 10th EU-Japan Summit held in Brussels in December 2001, a ten-year Action Plan to
reinforce EU-Japan partnership and move it from consultation to joint action, was adopted.
This was an ambitious set of actions covering most economic and political fields. Its objective
was to bring the two parties closer to each other and to work together. Four areas were
identified and actions were listed within each of these four areas: promoting peace and
security, strengthening the economic and trade partnership utilizing the dynamism of
globalization for the benefit of all, coping with global and societal changes and bringing
together people and cultures3.
In reality however, very few of the stipulated actions took place. It can be argued that the
action plan was too ambitious, too widespread and unfocused, but it is also inevitable not to
mention the economic crisis, the collapse of Lehman brothers and the economic bubble
which completely changed the political and economic agenda in both EU and Japan during
the same period, as reasons for the less successful outcome of the 2001 Action Plan.
In May 2011, at the 20th EU-Japan summit in Brussels, the 2001 Action Plan had expired and
both parties agreed to start the negotiations for:

a deep and comprehensive Free Trade Agreement (FTA)/Economic Partnership


Agreement (EPA), addressing all issues of shared interest to both sides including
tariffs, non-tariff measures, services, investment, Intellectual Property Rights,
competition and public procurement; and
a binding agreement, covering political, global and other sectorial cooperation in a
comprehensive manner, and underpinned by their shared commitment to
fundamental values and principles.4

The first step following the process for establishing any EU Free Trade Agreement is a
scoping exercise which sets out to list all issues that need to be tackled during the
negotiations. The scoping exercise prepared for the EU-Japan FTA is the most ambitious ever
2

Sunesen et al, Assessment of Barriers to Trade and Investment between the EU and Japan
European Union Japan Summit Brussels 2001 Shaping our Common Future, An Action Plan for EU-Japan
Cooperation
4
20th EU-Japan Summit, Joint Press Statement 20th EU-Japan Summit Brussels, 28 May 2011 Press
3

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

carried out in EU and together EU and Japan created and agreed roadmaps for how to tackle
identified issues and dismantle listed barriers in the various sectors.
The scoping exercise was finalized in May 2012. In June the same year, the European
Parliament, having recently been given additional power through the Lisbon treaty to ratify
any EU FTAs, passed a resolution asking the Council to delay the negotiations. On the 18th
July 2012 the Commission put forward mandate to the Council asking to start the FTA
negotiations with Japan. They considered the preparations completed and successful, that
there were substantial opportunities linked with a FTA and that EU and Japan were ready to
proceed to the next step.
Before the negotiations of the EU-Japan FTA can officially start, the 27 EU members have to
give their consensus and the Council has to approve the mandate. Currently we are in the
middle of this process.
1.2 Research Question

The objective of this study is to clarify the factors that influence the future of the free trade
agreement between EU and Japan and which of these in reality can impact the outcome.

What are the obstacles to the negotiations and the agreement at this very moment?
Which of these obstacles can be considered most influential and have real impact?

1.3 Limitations

The EU-Japan Free Trade Agreement will contain a free trade agreement and a political
agreement. The aim of the political agreement is to reinforce the values common to the two
major economies, such as democracy, human rights, rule of law, market-based economy and
sustainable development. As mentioned above, at the 20th EU-Japan summit in May 2011
the summit leaders agreed to start the process for the negotiations for a binding agreement,
covering political, global and other sectorial cooperation. They also agreed to enhance
cooperation on issues such as support for Afghanistan, assistance to the Palestinians, nuclear
safety and disaster management5.
Although there may be discussions concerning details in this agreement it is the common
understanding amongst scholars and diplomats on both sides that this agreement will not be
the blocking factor in going forward to sign a comprehensive agreement. Some say that
Japan is only interested in the FTA, but that the political agreement is the price they have to
pay for the free trade agreement and that they will not make a big issue out of this. In order
to focus my study I have therefore decided to look only at the economical part of the
agreement, the free trade agreement, as this is the part where most issues and questions
are raised.
1.4 Methodology

This research is a Master thesis in International Politics and looks at the bilateral relations
between the supranational organization EU and the nation Japan.
5

Ministry of Foreign Affairs Japan: Japan-EU Relations 2011

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

The direction of the study can be considered partially descriptive as the aim is to describe
the current situation of the EU-Japan FTA and the factors likely to influence the outcome,
and partially explaining as I also intend to explain the connection between different factors.
As usually the case in an explaining study I have a few pre-defined, identified factors which
are of central interest for the study. In this case they are the EU political scene, Japanese
domestic politics and the trade relation between the two parties. As a benchmark I will look
at the EU-Korea FTA which was approved in 2009 and effective in 2011 and which is
comparative in the sense that Japan and Korea have similar trade structure with EU,
although the size of the markets is different.
Data gathering has been obtained through written sources, official documents and
interviews with EU and Japanese diplomats and with Japan-EU academic scholars.
After having introduced the background and the subject in the introduction, my analysis
consists of three parts. The first part sets out to describe the trade relations between the EU
and Japan, the result of the scoping exercise, the identified barriers to trade and the
opportunities related with a FTA. The purpose of this section is to establish the context, the
current status and to understand the discussions and the issues at stake.
The second chapter analyzes EUs view on the FTA and the main threats coming from EU
side. The recently adopted Lisbon Treaty has changed the political power between the EU
institutions and given the Parliament stronger influence on the FTA. The biggest opposition
against the FTA in Europe, the European automotive industry, will also be considered and
the relationship and effectiveness of these two influencing factors.
The third chapter looks at Japan as the demanding party of the EPA / FTA and the threats
linked to the Japanese domestic politics and regional market strategies.
Finally in the conclusion I will answer the research question what are the main factors
influencing the EU-Japan FTA and the realistic importance of these.

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

2. Analysis
2.1 EU-Japan Trade Relations

Trade relations between EU and Japan have been characterized by a trade deficit on the
European side and have only become more balanced in recent years. Over the period
2006/2010, EU exports to Japan fell by 0.6% per annum, compared with a rise in global EU
exports of 3.8%. Over the same period Japanese exports to the EU fell by 3.2% per annum,
while global exports from Japan rose by 3.1%.6 This is largely due to macro-economic
developments such as emerging market growth in Asia and Europe, where the markets have
grown faster than the EU and Japans economies. Rapid regional trade integration has also
played a role. Russia and Turkey have become major trading partners of the EU and in Asia,
China and Korea have become Japans most important partners.
Trade and foreign investment

Japan is EUs 7th most important trading partner. Trade in goods with Japan in 2010
accounted for 3.2% of European exports and 4% of imports. These statistics provide an
incomplete picture however as they do not reflect the increased outsourcing of industrial
production to China and other Asian countries.7
Automotive products and chemicals account for nearly a third of EU exports to Japan. Food,
machinery, pharmaceutical, medical devices and textiles account for approximately ten
percent each. The principal EU exports to Japan is medicine, motor cars and pork meat, but
as seen in the picture below EU export spreads across several sectors.

Figure 1: EU exports to Japan are more broadly distributed across sectors

European Commission Staff Working Document Executive Summary of the Impact Assessment Report on EUJapan Trade Relations' Brussels 18.07.2012 {COM(2012) 390} {SWD(2012)209}, page 2
7
Directorate-General for External Policies Policy Department Policy Briefing Trade and economic relations with
Japan: assessing the hurdles to the FTA, DG EXPO/B/PolDep/Note/2012_243
8
Sunesen et al, page 26

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

When looking at the EU imports, automotive and electronic products make up half of the
import from Japan. If including machinery the three sectors account for two thirds of total
export to the EU, with the main products being printers and parts, motor cars and digital
cameras. As can be observed in the figure below, the Japanese export is much more
concentrated to certain sectors than the European export to Japan.

Figure 2: EU imports from Japan are concentrated in a few sectors

Trade in services has expanded in recent years with the balance in favor of the EU. The EU
exports around 20 billion of services to Japan per year, and Japan exports about 14 billion
to the EU. Japans import of services is much below its potential compared to other
countries. Japans import penetration is particularly low in business services and
communications (telecommunication and post) services, where it is the lowest among the
largest economies in the world.10
As a result of the economic crisis, Japanese investment in the EU decreased between 2007
and 2009. Nevertheless, Japan is a major investor in the EU with 5% of the EUs inward FDI
stock originating from Japan. Investment in Europe represents around 22% of Japans total
outward investment.11
About 3370 Japanese companies operate in the EU Member States, of which 705 are
manufacturing companies that generate roughly 400 000 jobs in Europe12. Japanese
multinationals have become an integral part to the EUs manufacturing landscape.
Nevertheless, according to the Commission, in 2010 the EU imported about four times as
many cars as it exported to Japan, making Japan the EUs trade partner with which it has the
largest car trade deficit13. In contrast to the South Korean vehicles, which tend towards the
9

Sunesen et al, page 25


Sunesen et al
11
Directorate-General for External Policies Policy Department, page 12
12
Directorate-General for External Policies Policy Department, page 12
13
P Nelson, The Lisbon Treaty effect: toward a new EJ-Japan economic and trade partnership?, Japan Forum
24:3, 2012, page 345
10

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

low-cost end of the market, the Japanese vehicles are high value added, making them direct
competitors with the EU automotive manufacturers, particularly the German, Italian and
French vehicles. These are fiercely protected by domestic interests and industrial
associations and the European automotive industry is clearly the strongest opponent to the
EU-Japan FTA.
Over the past 20 years, the EU has also invested in Japan, especially in telecommunications,
car manufacturing, retail and insurance. Investment has declined in recent years, and
although the EU remains the second largest investor in Japan after China, foreign direct
investment in Japan is the lowest of all OECD countries and there is a huge potential for
improvement.14
Tariffs and Non-Tariff Measures

Preceding the Scoping Exercise the European Commission ordered a study on the potential
of the EU-Japan FTA and an assessment of the barriers from the consultancy firm
Copenhagen Economics. This report clearly argues that although bilateral trade has a relative
decline, this should not be equated with low economic potential in the trade relationship.
The study shows that there are still significant gains from eliminating tariffs on both sides,
but that most of the potential economic gains reside in the reduction of trade costs
associated with nontariff measures (NTMs). Nontariff measures are not necessarily barriers
to trade. They include all non-tariff and non-quota measures that affect the cost of trade,
such as the regulatory environment, technical regulations and standards and differences in
procedures for conformity assessment. Many of these measures were never intended to be
barriers for international trade, but were simply set up as part of the procedure to regulate
the industry on the domestic market. In Japan, the language is often seen as a barrier for
foreign actors, which is of course not a barrier that can, or should, be eliminated.
In general, both the EU and Japan have low tariffs on goods with an average rate of 3.8% for
both partners. Japan however has more duty-free tariff lines (47.4 % of tariff lines in Japan
compared to 25.8 % in the EU). The weighted tariff protection in Japan for EU exports is
lower than the weighted tariff protection in the EU for Japan exports (1.7 % vs. 3.4%). This is
because EU has tariffs on products with high volumes (such as vehicles), whereas Japans
tariffs are normally in sectors where EU does not export high volumes (i.e. agricultural dairy
products).15
The trade cost of NTMs is not easy to estimate and varies between measurement methods
and data used. The Copenhagen Economics report based its result on survey data from EU
firms operating in Japan and from companies exporting to EU. They conducted the survey in
seven key sectors (automotive, pharmaceuticals, medical devices, processed foods,
transport equipment, telecoms and financial services) to analyze the impact of NTMs and to
estimate the impact of their costs.

14
15

Sunesen et al
Sunesen et al

10

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

The Copenhagen Economic found a total of 99 NTMs and categorized them per sector, see
figure below. The most important impact of NTMs can be seen in the pharmaceutical
industry, followed by processed food, office and IT equipment and automotive. The
discriminatory NTMs are measures that apply only to foreign firms and these would be
discussed in a FTA and can be solved with trade policy instruments. As seen below these are
not the predominant issues in case of Japan. Most barriers apply to domestic firms as well
and are only solvable with domestic reform, or in combination with domestic reform. They
are non-discriminatory as they apply to Japanese and foreign firms alike, but considering the
nature of the Japanese market and the Japanese customers they do de facto create barriers
to trade on the Japanese market.

Figure 3: Total number of NTM issues grouped by solvability

16

If categorizing the barriers further, it could be seen that out of the 99 barriers, 67 were listed
as Technical Barriers to Trade (TBT). In Automotive, which is the most resistant industry in
the FTA discussions, the TBTs accounted for 8 out of 10 barriers17. Interestingly the most
barriers can be seen in the pharmaceutical industry. Nevertheless the European Federation
of Pharmaceutical Industries and Associations (efpia) is one of the advocators of the FTA as
they see large potential for their stakeholders with the elimination of these barriers18.
Public Procurement

Public procurement is an area which is mentioned as a difficult market to enter for foreign
companies and which will be subject to negotiation under the comprehensive FTA. The
Japanese culture of public procurement is different and the process less transparent than
16

Sunesen et al, page 38


Sunesen et al, page 39
18
European Federation of Pharmaceutical Industries and Associations (efpia) Position Paper The EU-Japan FTA
A key opportunity for the competitiveness of Europes Innovative Pharmaceutical Industry and enhanced
cooperation with Japan
17

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EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

the European. There is however significant potential in opening up the procurement market,
especially in railroad as this is a sector where European companies are market leaders.
During the scoping exercise, barriers were listed and roadmaps were established on how to
dismantle the remaining barriers should the negotiations start.
The Japanese External Trade Organization (JETRO) has already started posting some of the
public procurements in English on their webpage, but one Japanese diplomat pointed out
the fact that although the European bureaucracy has been pushing Japan to open up this
part to the international market, there has been very limited interest from the European
companies. There have been publications issued in English targeting EU companies, but only
Chinese and Korean firms have shown interest so far in the Japanese tendering process19. It
could be argued that there is a discrepancy between what the political side asks for and
what the business side wants in the EU.
Opportunities

The Copenhagen economics report concluded that EU-Japan trade liberalization would
create more trade in total for the two partners. Europes total export to all partners
(globally) would go up by 0.7% in the maximum scenario (0.3% coming from tariff removal
and 0.4% from NTM reductions). Its total import would increase by 0.6%. For Japan, trade
liberalizations would lead to much larger percentage increase due to the sheer size of the
European market. Japans total export would increase by 6.4% (2.5% from tariff removal and
3.9% from NTMs) while its total import would increase with 7.9%. The figure below shows
the total impact the FTA would have on global import and export in EU and Japan
respectively.

Figure 4: Global trade impact for EU and Japan in combined tariff and NTM scenarios

20

Another study conducted by RIETI in 2010 calculated the FTAs impact on EUs real GDP to
0.12%, to be compared to Korea and India for example where the impact would be only
0.07% and 0.09% respectively. The same study shows that the nominal GDP impact would be
5.5 (US$ trillion) compared to 1.0 with Korea and 1.7 with India.21 This study only took into
account tariff reductions and not NTMs.
These studies show that there is a clear underperformance in the bilateral trade and
investment relationship between the two economies which leads to losses in
competitiveness, productivity and welfare.

19

Interview Japanese diplomat, 17/9


Sunesen et al, page 78
21
M Nakatomi, Japans EPA policy and Japan-EU economic partnership Ministry of Economy, Trade and
Industry, March 2012
20

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EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

The European Business council (EBC), representing the interests of 3000 European
companies in Japan spreading over all sectors further stresses the untapped opportunities
on the Japanese markets, for example in medical devices, food and procurement. They point
to the market potential of 127 million homogeneous consumers, the high standard of living
and purchase power, loyal customers, accessibility to the media and well-developed
business support services.22
Different viewpoints

Trade liberalization remains the cheapest way we have to stimulate our economy said
Trade Commissioner Karel De Gucht when presenting the European Commissions proposal
for negotiations with Japan in July. The ball is now in the member states court. I would ask
them to seize this opportunity and give the commission a mandate to start negotiations
soon23. He added that battling the third year of the euro-area dept crisis, Europe cannot
afford to forego the chance for a trade pact with Japan and that a deal could create 400000
extra jobs in Europe. We need these jobs, De Gucht said. Overlooking Japan would be a
serious mistake in our trade strategy24. The Commissions view is that the automotive
industry may not gain from an agreement, but they will also not lose, and that many other
industries have a lot to gain. When looking at the big picture there is a positive outlook for
the European economy and job creation linked with the FTA.
In discussions with both EU and Japanese diplomats both sides agreed that many of the
issues and barriers listed in the Copenhagen economics report and in succeeding scoping
exercise have already been tackled by Japan and a roadmap has been created in each sector
to dismantle the remaining ones. A special task force, the revitalization unit was initiated
by the Japanese government for this purpose25. As mentioned previously in this chapter,
many of the NTMs were never intended as barriers for foreign companies, but are merely a
result of domestic trade and require change in regulations, procedure and sometimes even
culture. The EU has been pressing Japan to give up all of the NTMs first, before discussing
the tariffs, but the Japanese side argues that they cannot remove more NTMs at this point in
time, before the negotiations have even started. This would mean to give up their
negotiation power without knowing if they will get anything in return.26
There are voices of distrust on the European side to whether the Japanese are serious in
their intentions and if they will deliver. This distrust may be rooted in a history of discussions
which have not led to anything substantial. Officials and bureaucrats on EU side who have
been involved in these talks over the years remain skeptical to why Japan would be willing to
change this time when so little has happened until now. Some say that the Japanese
government submission for the scoping exercise was surprisingly poor and one
representative of an EU-Japan industrial organization expressed that the British
government was shocked by the substance in the Japanese part and then the British
government is still positive to the EU-Japan FTA27. To enforce sincerity on EU side and to
calm the worried opposition Trade Commissioner Karel de Gucht issued a statement saying
22

A Murray, Seizing the Opportunity in Japan Why the EU Needs a Trade Agreement with Japan European
Business Council in Japan, 22 September, 2011
23
Bloomberg Businessweek (18/07/2012): EU Regulators Seek Green Light for Japan Free Trade Talks
24
Bloomberg Businessweek (18/07/2012): EU Regulators Seek Green Light for Japan Free Trade Talks
25
Interview Japanese diplomat 17/9/2012
26
Interview Japanese diplomat 17/9/2012
27
Interview 18/9 2012

13

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

that the European Commissions proposal for the negotiating directives includes a provision
clearly stating that if Japan has not delivered on its non-tariff barrier roadmaps within a year
from the start of the negotiations, the negotiations will be stopped28.
The question why it would be different this time is interesting. Japan and EU have been
discussing for decades, there have been white papers issued by industrial associations and
governments, business round-table discussions, regulatory reform dialogue, the Hague
declaration and the EU-Japan Action plan. In summary, there have been endless meetings
between all levels of EU and Japanese players with no major change in the game plan. The
difference this time, argues EBC, is that all these discussions have depended on dialogue and
not negotiation.29 And this is what is imperative in the current discussions. This time it is
about a legally binding, comprehensive agreement which will force all parties to negotiate
with a clear goal, knowing that whatever the outcome is, they will have to stick to it. With
the one condition that the negotiations must be allowed to start, first.

28
29

Tax News (14/06/2012) MEPs Voice Concerns on Possible EU-Japan FTA


A Murray, Seizing the Opportunity in Japan Why the EU Needs a Trade Agreement with Japan

14

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

2.2 EU Political & Industry Influences

Within EU, the severe economic crisis of countries such as Ireland, Portugal and Greece are
affecting other countries as well. The euro crisis of 2011-2012 has meant that EU has
become more pre-occupied with its own affairs and the political agenda has shifted to
domestic issues rather than external affairs. This poses a threat to the FTA discussions with
3rd party in general and to the ongoing EU-Japan discussions in particular.
Another issue affecting European politics is the power shift between the institutions,
following the Lisbon Treaty of 2009. Prior to the entry into force of Lisbon, EU trade policy
was limited to two actors: the European Commission and the Council of Ministers. The
Treaty of Lisbon elevates the powers of the European Parliament (EP) which has been
granted a power of consent in the negotiation process of international trade agreements.
The Commission is now under a legal obligation to report regularly on the progress of
negotiations to the International Trade Committee of the EP (INTA Committee) and must
ensure that the European Parliament shall be immediately and fully informed at all stages
of the procedure.30 The EP now has the hard power of consent in the ratification phase of
the Free Trade Agreements, which in itself is a sufficient threat to give them soft power to
influence the negotiations.
EP as a new influencer in the FTAs with 3rd party has opened up a new point of access for
trade policy lobbyists. The EP represents the interests of the European citizens and
industries and is a force that cannot be neglected.
In the 2006 EU strategy Global Europe Competing in the World; A Contribution to the EUs
Growth and Job Strategy EU states its objective for new generation FTAs which should be
comprehensive and ambitious in coverage31. The FTA between EU and the Republic of Korea
was the first to be concluded between the EU and an Asian strategic partner. Negotiations
were launched in May 2007, installed in October 2009 and closed prior to the entry of force
of the Lisbon Treaty in December 2009. The agreement was signed by the Council in October
2010, when the Lisbon legal framework applied. This meant that the EPs role in the
negotiation phase of the EU-Korea FTA was limited, but the agreement could only be
approved subject to EP ratification. This was the first time the European Parliament
exercised its right to consent a bilateral agreement and the FTA proved to be a test case
where the Parliament wanted to demonstrate its new veto power. The EP influenced by
lobbyist in especially the automotive sector delayed the process significantly and managed
to add safeguard clauses before it gave its final consent to the agreement.32
In the case of the EU-Japan FTA the whole process takes place in a post-Lisbon framework.
The figure below shows the different stages the FTA will go through, starting with a scoping
30

L Richardson, The post-Lisbon Role of the European Parliament in the EUs Common Commercial Policy:
Implications for Bilateral Trade Negotiations, College of Europe Department of EU International Relations and
Diplomacy Studies, EU Diplomacy Paper 05/2012, page 4
31
European Commission External Trade (2006): Global Europe Competing in the World A contribution to the
EUs Growth and Job Strategy
32
L Richardson

15

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

exercise, followed by the mandate which is asked for by the Commission to the Council, and
which is where we currently are in the EU-Japan process. When the mandate has been
approved, the negotiations can start. When the negotiations are completed and a proposal
is drafted, this has to be ratified and finally implemented.

Figure 5: EU FTA process

Whereas the European Parliament legally only has the right to consent or veto the proposal
after the negotiations are completed, the risk of veto remains a threat throughout the
process. With the new directive that the EP should be informed at all stages it further
enforces their power in all steps of the process. Everybody I have spoken to has mentioned
this as a potential delay factor and a risk for the final outcome of the FTA.
The European Parliament is creating its own studies and engaging in meetings and
discussions with its Japanese counterparts. They are continuously asking the Commission for
information sessions and in June this year they passed a resolution asking the Council to
consider their view before accepting to start the negotiations33. It is clear that their strategy
is to become more involved in EU trade policies and to be a major actor within this. This
means that the Commission has lost a degree of autonomy as chief negotiator and must
engage effectively with the EP in order to avoid dissent at the ratification stage. Also the
Council, which has been reluctant to share its powers with the EP, has realized that it cannot
advance without cooperation between both institutions.
The European Parliament is elected by the European people and represents the citizens of
Europe. As such they cannot be neglected. There is criticism within EU however that the
INTA committee still has weak connections with DG Trade and the member states and that
the INTA relays on expertise from DG Trade and concerned industries and industry
representatives instead of their own knowledge34. As such they are vulnerable for lobbying
and not always equipped to make the correct judgments. As elected officials they are further
susceptible to public opinion and to concerns and voices in their member states, especially
when it concerns labor and traditional industries with high emotional effect. There is a risk
that they act in favor of the loudest voices, without considering all interest groups in society
and the best outcome for the European economy.
Automotive

In Europe, the automotive industry with the European Automotive Manufacturers


Association (ACEA) in lead is one of the loudest voices, and the hardest lobbyist against the
FTA. Some member states are also opposing the FTA, and these are in general countries with
considerable automotive production; France, Italy, Spain and Germany. Germany seems to
33
34

Tax News (14/06/2012) MEPs Voice Concerns on Possible EU-Japan FTA


Interview 21/9/2012

16

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

be divided however in the discussions. There is a fear in the automotive industry that
Japanese vehicles would flood the European market steeling market share from European
manufacturers, should the current tariffs of 10% on imported vehicles be removed.
This fear may be exaggerated. Japan has in fact lost a lot its competitive edge because of the
strong yen and the risk of overwhelming import from Japan (with products produced in
Japan) is limited in reality. This issue was raised by both EU and Japanese diplomats during
my interviews. 85% of the cars sold on the EU market are produced in Europe and the single
largest exporter to the EU, Japan, has only 5% of the market35. Japanese auto manufacturers
such as Toyota, Nissan & Honda are already present on the European market and the reason
for this is not purely cost related, there are also benefits in terms of design and products
which are adapted to fit the regional needs. Japanese brands in Europe source 80% of their
parts from local suppliers36 (or Japanese suppliers having localized in Europe) and since
production and local sale in Europe will not be impacted by the free trade agreement the
real impact of the Japanese export would be limited compared to current situation.
If we look at the EU-Korea agreement, where similar fears were raised, it is evident that
Korean import of vehicles has increased, but this increase started already before the FTA
was implemented. The tariff on import from Korea will be reduced over 5-7 years, which
means that the tariff one year after the implementation of the agreement only has been
reduced by maximum 2% and the impact of this is very limited37. The argument of Korean
vehicles flooding the European market is therefore weak, and as in the case of Japan the
main Korean automotive companies, Hyundai and Kia, have their own production sites in
Europe. Two differences can be noted however when comparing with Korea, the first one
being the sheer size of the market and the industry, where Japan has a much bigger impact
than Korea. Secondly Japanese automotive makers have a larger range of products with
more high value models and therefore compete more directly with the European
manufacturers.
Another argument against the FTA raised by the European automotive side is the closeness
and unattractiveness of the Japanese market. Japan has an aging and decreasing population
and according to the Mitsubishi Research Institute, between 2010 and 2020 Japans
domestic market is set to decline by 660,000 units.38 Japanese further tend to buy Japanese,
and although EU car brands are associated with luxury and quality and there is high potential
for future growth, high investments, demanding character of the Japanese customer and
complicated distribution networks make export to the Japanese market challenging.
EU exporters of motor vehicle pay an extra trade cost of 10% according to the Copenhagen
economics survey39, which means that they have a serious disadvantage compared with
Japanese producers. The tariff on Japanese import to EU is 10% and although the relative
gain would be the same on both sides should the tariffs and non-tariffs be eliminated, there
is a distrust on EU side that the non-tariff barriers in Japan will actually disappear.
35

H Makiyama, FTA and the crisis in the European car industry, European Centre for International Political
Economy (ECIPE) Policy Briefs No. 02/2012, page 8
36
H Makiyama, page 8
37
Interview 21/9/2012
38
ACEA (19/07/2012): Auto industry skeptical about benefits of EU/Japan Free Trade Agreement
39
Sunesen et al

17

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

According to the Japanese Automotive Manufacturers Association (JAMA) this issue is top
priority however, and they say they are working in cooperation with ACEA to find potential
solutions for the six auto-related non-tariff issues in Japan identified by ACEA:
1)
2)
3)
4)
5)
6)

Harmonization of standards and certification requirements


Fiscal incentives for eco-friendly vehicles
Kei cars (light vehicles where EU is excluded from the market)
Zoning (procedures for opening service shops)
Pyrotechnic safety devices
High pressure tanks40

JAMA is also working with the government of Japan toward the adoption of the remaining
UN regulations and they maintain that they have already adopted 31 items from the 45
passenger-related items that were listed. In parallel, the government of Japan has submitted
a proposal on the establishment of a common international system for mutual recognition of
whole vehicle type approval (IWVTA)41.
Hosuk Lee Makiyama argues that the crisis in the car industry is not linked to the FTA neither
with Korea nor Japan, but has its root in long-term decline in innovation, competitiveness
and focus on low-profit segments. The crisis was neither caused nor worsened by foreign
imports, whose drop in sales was disproportionate to cars made in the EU writes Makiyama
in a policy brief issued by the European Center for International Political Economy (ECIPE).42
He continues by pointing out that state intervention and subsidies have been
counterproductive and that part of the industry is affected by permanent overcapacities.
Todays crisis in the European automotive industry is not due to a temporary slump in sales
but the result of long-term structural problems. Sales in Europe are still not recovering and
have declined by more than 15% since 2007 and even if consumer demand recovers in the
EU, the income elasticity for the car market is remarkably low (0.4) meaning that car sales
will recover at less than half the rate of the EU economy on average.43 The main problems in
the European car industry argues Makiyama, are lack of demand at home, market
interventions by governments destroying profits, overcapacities in Europe concentrated in
France, Italy and Spain and the variation amongst EU member states in production, valueadded and innovation. Producer subsidies and consumer incentives may artificially uphold
consumer demand for a period of time, and save unemployment from plummeting in
election times, but trying to save all of the jobs in the short term diminishes the chances of
saving them in the long term, as bailouts make them even less efficient. Such efforts steal
resources and market shares from healthy parts of the European industry and spills over into

40

Y Yano, Achieving New Momentum for Enhanced Economic Partnership through and EU-Japan Economic
Integration Agreement Perspective of the Japanese Auto Industry Japan Automobile Manufacturers
th
Association Inc. (JAMA) EU-Japan Seminar in Brussels, 8 March 2012
41
Y Yano
42
H Makiyama, page 1
43
H Makiyama, page 3

18

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

isolationist sentiments in EU trade policy and threatens Europes growth writes


Makiyama.44
Looking at the factors above it is understandable that the European car industry is
concerned and less enthusiastic about a free trade agreement with Japan, but the problems
are not linked to the FTA with Japan and it can be argued that the resistance is
disproportionate to the effects a FTA would have on the European automotive industry. In
view of the whole discussion around the FTA it must also be considered that automotive
export makes out 4% of total export and although it is a sector that employs millions in EU,
the economic relevance in value-added compared with other industries is limited45. In
addition, the European car producers make up over 90% of Japans import and Copenhagen
Economics estimates that European export can increase by 84% with the removal of NTMs
through a FTA. As the EU runs a considerable trade surplus on passenger cars and exports
3.5 times more than it imports46; it should be clear that the only way forward for the
European car market is to open up and tap into overseas markets.

44

H Makiyama, page 7
H Makiyama, page 9
46
H Makiyama, page 10
45

19

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

2.3 Japan Domestic Factors

Japanese trade has always been characterized by strong surplus, and the imbalance in trade
has over the years caused diplomatic issues with trade partners all over the world. With
some crisis-related exceptions, Japan ran trade surpluses for 30 years until 2011, when the
combined deficit of goods and services was -0.8% of GDP (52.3 billion USD).47 This decline
can be attributed to a number of factors, including a sharp appreciation in the yen in 2011
and a disruption in electronics and automobile production as a result of the earthquake in
Japan and floods in Thailand. Exports are expected to recover as a result of slightly weaker
yen and a strong demand from Asia and North America. However, the import bill will also
increase given the considerably increased energy imports, as nuclear power generators
remain halted. The deficit on goods trade balance is expected to diminish in the coming few
years, but the balance in the services sector will remain negative.48
The Japanese industries recovered from the earthquake more quickly than expected. In
2012, industrial output rose, boosted by recovery measures and demand from Asia and
North America. The automotive industry was hit the hardest, but output and new vehicle
sales are rising.
Japanese industries continue to face challenges however, posed by the strong yen,
competition with emerging economies, delays in concluding trade agreements and increased
difficulty in accessing resources, especially rare earths which are of vital importance for its
electronics industry. High corporate taxes, elevated energy prices and the increasing
competitiveness of regional rivals have motivated corporations to move overseas, which
raises concerns about delocalization. There is fear for a massive outflow of key industries
and technologies which normally support growth and employment in the country.
The effort to stem this migration includes improving the business environment, cutting
corporate tax and pushing forward with trade economic partnership agreements, as well as
with public and private initiatives that support innovation and strengthen Japanese
industries.49
Japans FTA Strategy

Pending the conclusion of the multilateral Doha Round, Japan has in the last years engaged
in a number of Economic Partnership Agreements (EPAs) with countries and regions. It has
been a clear strategy of the Japanese government and since the beginning of the previous
decade 13 EPAs have been signed, as can be seen in the figure below. All are secondgeneration free trade agreements (FTAs) that go beyond traditional tariff concessions and
include matters such as trade in services, intellectual property and in certain cases,
investments50. Discussions have been stalled in the case of Australia and Korea and yet a few

47

Directorate-General for External Policies Policy Department, page 6


Directorate-General for External Policies Policy Department page 6
49
Directorate-General for External Policies Policy Department, page 7
50
Directorate-General for External Policies Policy Department, page 9
48

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

are in discussion, among these the most influential once being the Trans Pacific Partnership,
TPP, (including US), ASEAN +3/+6 and the EU-Japan FTA.

Figure 6: Overview of FTAs signed by Japan since 2002 and the content of the agreements

51

The TPP, if achieved, will be a second generation trade agreement also including provisions
on regulatory issues, public procurement, competitiveness and business facilitation,
environment protection and development. It would constitute one of the most advanced
and complete trade agreements ever negotiated.52
Prime Minister Yoshihiko Noda spoke about the FTA strategy in his speech to the Diet in
January 2012 The first and most important strategic activity for this will be our efforts to
take the lead in realizing a free-trade area in the Asia-Pacific region, what is known as the
FTAAP concept, and to create rules for free trade and investment through high-level
economic partnerships. Moving forward with Japan-Republic of Korea (ROK) and JapanAustralia negotiations, and aiming toward the early start of negotiations for wide-area
economic partnerships centering on the Japan-China-ROK relationship or ASEAN, we will
continue to advance consultations with relevant countries toward participating in
negotiations for the Trans-Pacific Partnership agreement, or TPP. At the same time, we will
aim for the early start of negotiations on a Japan-European Union (EU) economic partnership
agreement (EPA) as well53
Japan is engaging in several levels of trade agreement in parallel. There is a risk however that
the negotiations will be challenging. Previously, Japans interest groups (i.e. agricultural and
51

Y Watanabe, Strengthening and Institutionalizing Japan EU Relations: Japans Trade Policy in the Aftermath
of the Disaster Faculty of Policy Management Keio University, Stockholm June 14-15 2012, page 10
52
Directorate-General for External Policies Policy Department page 10
53
M Nakatomi, page 9

21

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

pharmaceutical) have blocked the concessions needed for far reaching trade agreements
and some scholars believe that Japan needs to decide on their strategy, rather than trying to
move forward in all directions at the same time.

Figure 7: Advancing on four levels

54

Domestic Challenges

Japanese domestic politics have been extremely complex over the last two decades. Marie
Sderberg writes in the introduction of the last issue of the Japan Forum that with the
exception of Prime Minister Koizumi Junichiro (2001-2006) there has been a revolving door
for Japans prime ministers: thirteen different people have held the post over the last twenty
years (as of May 2012)55. The Liberal Democratic Party (LDP) which has been in power in
Japan since the mid 1950s with the exception of two non-LDP coalition governments in the
mid 1990s was voted out of power in 2009. The party currently in power, the Democratic
Party of Japan (DPJ), is in the process of learning the difference between being in opposition
and being in government where political promises should be fulfilled. The DPJ does not have
majority in the upper house of the Diet and is therefore further facing difficulties enforcing
its policies.
The difficulty to conclude the negotiations of comprehensive and more strategic agreements
on Japan side lays to a large extent in the fragility of the domestic politics and in the rivalry
and infighting in the bureaucracy. In contrast to the long term planning of the Japanese
corporate world, it can be argued that the Japanese government has a short time view of the
future. Due to the limited term the officials tend to stay in their positions, the government
often acts in order to achieve result on a short term, neglecting the affects the decisions (or
non-decisions) may have in the long run. The short life span of Japanese politicians also gives
more power to the bureaucracy where a constant rivalry between ministries and officials
influence the decision making process.

54
55

Directorate-General for External Policies Policy Department, page 10


M Sderberg, Introduction: where is the EU-Japan relationship heading?, Japan Forum, 24:3 2012, page 251

22

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

The continuous shift in staff and persons in charge further causes problem when discussing
FTAs with 3rd party. The knowledge acquired by one official cannot be 100% passed to the
successor and there is a constant lack of relationship building and continuity between Japan
officials and its counterparts. This was mentioned by both EU and Japan diplomats during my
interviews as a difficulty in the relationship building between EU and Japan56.
The instability of the Japanese government can also be regarded as a difference when
comparing the EU-Japan discussions with the EU-Korea negotiations. The Korean
government was very strongly in favor of an agreement and very unified on all fronts. The
decision making in Korea was clear and straight forward, whereas Japanese politics is
characterized by complex networks involving the government, the bureaucracy and the
industry57. This complexity slows down the decision making process, but it is a process that is
too integrated in the Japanese politics to be likely to change in the near future.
Keidanren & the Japanese Industry

While the political side of Japan is turbulent and changing, the business sector remains more
stable and the two sectors are closely interlinked. The Japanese government has a huge
budget deficit to tackle, but there are many strong businesses and companies in Japan and
through the main network Keidanren they have considerable impact on Japanese politics,
especially in the economic policy making.
Keidanren represents the big industry in Japan, but also SMEs, and it can be considered as
the main voice of Japanese companies. Established in 1946, it is Japans peak employers
association under which industry associations from sector specific (e.g. electronics) to
product specific (e.g. computers) associations are organized. Japans zaikai, or top business
associations, consisting of Keidanren together with three others, represents the interests of
the economy as a whole58. Keidanren has been closely tied to particularly the Liberal
Democratic Party (LDP). Despite appearing to be one party, the LDP was riddled with
factional alliances with the head of each faction striving to become the head of the party and
thus prime minister. The competitiveness within the LDP and the long term in power allowed
for patterns of communication and accepted practices among interest groups to develop.
These networks and ties cut across the bureaucracy and the private/semi-private
organizations, including Keidanren.59
Patricia Nelson highlights the fact that Japan has a tendency to place business policy before
political and social policy, while the EU tends to place political and social policy before
business policy. These different approaches are grounded in the evolution of each system,
including the notion of Japan, Inc. and, in the EU case, the Lisbon Treaty, she writes in the

56

Interview
Interview
58
P Nelson: Anachronistic Icons? Business Institutions in the Japanese Variant of Capitalism,
http://hhs.academia.edu/PatriciaNelson/Papers/1794602/Anachronistic_Icons_Business_Institutions_in_the_J
apanese_Variant_of_Capitalism
59
P Nelson, Anachronistic Icons? Business Institutions in the Japanese Variant of Capitalism, page 6
57

23

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

latest issue of Japan Forum60 and this may explain why the business sector is the loudest
voice in the FTA discussion in Japan.
Keidanren has been the strongest advocator for an EU-Japan FTA as its stakeholders see
substantial benefits with an agreement. With the EU-Korea agreement coming into effect in
July 2011 the pressure from Keidanren increased. The EU-Korea FTA gives the Korean
companies an advantage in tariff reduction. Over 5-7 years the tariffs on personal vehicles
will be reduced from 10% to zero and in the small car segment where Korea and Japan are
direct competitors this gives Korea an important advantage. Also the electronic sector is in a
similar situation.
In April this year, the chairman of Keidanren Hiromasa Yonekura wrote a letter to the
European political and business leaders, calling for negotiations on an EU-Japan FTA/EPA to
start as soon as possible. In the letter he addresses harmonization and mutual recognition of
regulations, standards and conformity assessment procedures that could be applied to third
country markets as the top challenges. As the center of gravity of the global economy shifts
to the east, it is imperative for the EU and Japan, which share such basic values as
democracy, rule of law and a commitment to the market economy to take the lead in making
business rules and setting standards for goods and services, and to join forces to have
emerging economies on board with us61, says Yonekura in the letter, pointing out the
importance of a comprehensive and ambitious EU-Japan FTA. He further emphasizes Japan
as the third largest economy in the world and a strategic partner in Asia for Europe.
The EU market is important to Japan, but with the current crisis and decline of the European
economy, there are other regions which have greater attraction for the Japanese industry.
The graph below shows the increase in trade over 10 years (from 1998-2008) with EU and
Asia respectively and it is clear that Asia has become a more important trade partner. The
risk if the EU-Japan negotiations stall for too long is that Keidanren will lose interest and
focus its effort on TPP and Asian agreements instead, such as ASEAN +3 and ASEAN +6. China
and the US are already the largest trade partners for Japan and their markets have more
potential for future growth than the European market.

Figure 8: Rapid increase in Japans trade with East Asian partners

60

62

P Nelson, The Lisbon Treaty effect: toward a new EU-Japan economic and trade partnership?, page 362
http://www.keidanren.or.jp/en/policy/2012/026.html(2012)
62
Sunesen et al, page 24
61

24

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

There are also divisions in the bureaucracy in Japan and while Keidanren and the ministry of
Trade remain supportive of the FTA, other ministries are more reluctant. The ministry of
agriculture has strongly opposed the TPP and the Australian FTA63. It has been less vocal in
the EU-Japan FTA discussions, but it also has not spoken out in favor of the agreement.
Agricultural issues, especially Japanese rice, remain sensitive in Japan and strongly affects
the public opinion, and in its turn the elected politicians. Also the pharmaceutical industry
has been expressing doubts about the benefits of an EU-Japan agreement for its sector.
Having said this, a Japanese diplomat meant that there is still a strong argument for Japan
and the Japanese industry to support and push for negotiations between EU and Japan and
this is the issue of standards and regulations, which was also raised by Keidanren as a main
incentive for the EU-Japan FTA. EU and Japan have similar outlook on global standards both
in the economic and political field and by creating a strong EU-Japan alliance, with defined
standards and regulations, this would force China and other emerging markets to adopt
these standards, especially if US would also abide to the common practices. China poses a
big threat to Japan and therefore this is an important factor in the discussions.
The gap between seeing the strategic incentive in agreeing and implementing common
standards and regulations and actually practically agree on the detailed issue in each
industry is however large. Each party has its own industry standard and is reluctant to
change. In newer industries this has proven much easier however and Japan and EU have for
example been able to set common standards for ecological food. Going forward with the
agreement would require strong leadership and commitment from Keidanren and the
Japanese External Trade Office (JETRO) to put theory into practice in opening up the market,
dismantling barriers and agree standards and regulations.

63

Interview

25

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

3. Conclusion
EU and Japan are the first and third largest markets in the world and together they make up
44% of the world GDP.64 A trade agreement between these two major economies is likely to
bring substantial economic growth on both sides and be beneficial for both economies. The
EU and Japan are both suffering from challenging economic situations and a trade
agreement that could boost economy and create more jobs should be a welcome message in
times of crisis. Reality is different however, and with different interest groups raising their
voices pro and con the agreement it will be a challenge for the Commission to get the
mandate they have asked the Council to approve, and proceed to negotiations.
Pharmaceutical and public procurement may be sectors with the biggest potential for
European companies on the Japanese market, whereas automotive and electronics remain
the sectors of most interest for the Japanese industry in Europe. Japan is perceived as a very
closed and protected market, but reality shows that most of the so called barriers are
technical barriers or linked to cultural factors and not targeted foreign companies
specifically. EU and Japan have listed all remaining barriers and created roadmaps on how to
tackle and dismantle these once the negotiations have started. There is distrust however,
among EU member states and officials that these barriers will actually be dismantle and this
distrust is rooted in a history of negotiations and discussions which have not led anywhere.
This time though, for the first time, the EU and Japan are going to negotiate a binding
agreement, Japan seems to make a serious effort to dismantle the NTMs listed in the
scoping exercise and the EU has been clear in its message that if the barriers are not tackled,
the negotiations will stop.
I would argue that the perception of Japan as a closed and difficult market, together with the
de facto identified barriers and the distrust in the Japanese government to actually
dismantle these barriers, are factors that risk having a real influence in going forward with
the agreement. The perception may have to do with the limited knowledge of the market as
European companies already present in Japan are clearly in favor of an agreement, but it is
clear that Japan has to show serious commitment and results in order to convince Europe
that they are ready to open up the market.
The power shift between the European Institutions, where the European Parliament through
the Lisbon Treaty has been given the legal right to veto any external trade agreement, is also
changing the political arena in the European Union. The parliament, being elected by the
citizens of Europe, is more sensitive to public opinion and more vulnerable for lobbying;
especially from the automotive industry which has a high emotional impact in Europe, as a
traditional industry with historical roots and as an employer of millions of Europeans.
Following the analysis in previous chapters I would argue that the automotive industry in
Europe has a disproportionate influence in the discussions, compared to the impact it has in
general and compared to the impact a FTA between the EU and Japan would have on the
European automotive industry in particular. The reason for decline in the European
64

Sunesen et al

26

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

automotive industry is rather linked to structural problems within the sector than from
import threats from countries like Korea and Japan. In addition, Japan already has a strong
presence in Europe with high FDI and many production sites here. With the strong yen the
situation is not likely to change and the threat of Japanese vehicles flooding the European
market due to reduction of tariffs is limited in reality. The risk in my view however, is that
the automotive succeeds in convincing member states and MEPs and that the negotiations
will be delayed or stalled, because of this.
Another factor of influence is Japanese domestic politics. Japan has a clear strategy to
engage in FTAs but the willpower to push for an EU-Japan FTA may be challenged by
domestic politics and bureaucratic rivalry. The decision making in Japan is not as straight
forward as in the case of Korea for example, and although the influence of the EU-Korea
agreement remains important in the discussions, especially within automotive and
electronics, with substantial foreign investments already in Europe and the strong yen, the
real impact of the tariff reductions may, as previously argued, be limited. Keidanren is the
strongest advocator of the trade agreement and they will most likely remain in favor as their
stakeholders do not have much to lose, but a lot to gain. In fact, I would argue that Japan
does not have much to lose with an agreement, but for Japan it is more a matter of
prioritization. The delay and distrust on EU side may cause the Japanese to lose interest and
focus on other regions, such as TPP and ASEAN, which could offer more attractive conditions
and growth potential. Japan has until now been the demanding party, but the risk is that the
dynamics will change.
With a Europe in crisis and in need of an economic boost the question is, can Europe afford
to lose this opportunity? And, is it right of the EU, an institution based on the principles of
free market and free trade to let protectionism of certain industries forego the very
principles it is based on, as well as the pursuit of benefits of all?

27

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

4. References
4.1 Written sources
Fredrik Erixon and Hosuk Lee-Makiyama (2010): Stepping into Asias Growth Markets: Dispelling
Myths about the EU-Korea Free Trade Agreement, European Centre for International Political
Economy (ECIPE) Policy Briefs No. 03/2010
Glenn D. Hook, Julie Gilson, Christopher W. Hughes, Hugo Dobson, Japans International Relations,
Politics, economics and security,Routledge, Oxon UK, 2012
Hosuk Lee Makiyama (2012): FTAs and the crisis in the European Car Industry, A free trade position
on the car crisis and the Economic Integration Agreement (EU-Japan FTA), European Centre for
International Political Economy (ECIPE) Policy Briefs No. 02/2012
Olena Mykal, The EU-Japan Security Dialogue, Invisible but Comprehensive, Amsterdam University
Press, Amsterdam 2011
Patricia A. Nelson (2012): The Lisbon Treaty effect: toward a new EU-Japan economic and trade
partnership?, Japan Forum, 24:3, 339-368
Patricia A. Nelson (2012): Anachronistic Icons? Business Institutions in the Japanese Variant of
Capitalismhttp://hhs.academia.edu/PatriciaNelson/Papers/1794602/Anachronistic_Icons_Business_
Institutions_in_the_Japanese_Variant_of_Capitalism
Sofia Olsson (2004), Evaluation of the Japanese market of protective device a case study of three
niche-products Master Thesis Department of Management & Economics Linkping Institute of
Technology LiTH-EKI-EX-2004:68-SE
Laura Richardson (2012): The post-Lisbon Role of the European Parliament in the EUs Common
Commercial Policy: Implications for Bilateral Trade Negotiations, College of Europe Department of
EU International Relations and Diplomacy Studies, EU Diplomacy Paper 05/2012
Eva R. Sunesen, Joseph F. Francois and Martin H. Thelle Assessment of Barriers to Trade and
Investment between the EU and Japan Copenhagen Economics, Copenhagen, 2009
Marie Sderberg (2012): Introduction: where is the EU-Japan relationship heading?, Japan Forum
24:3, 249-263
Alex Warleigh-Lack: European Union the basics, Routledge Oxon, UK, 2009
Stephen Woolcock (2007): European Union Policy towards Free Trade Agreements European
Centre for International Political Economy (ECIPE) Working Paper No 03/2007

4.2 Presentations
Ministry of Foreign Affairs, Japan (2011): Japan-EU Relations
Alison Murray (2011): Seizing the Opportunity in Japan Why the EU Needs a Trade Agreement
with Japan European Business Council in Japan, Alison Murray Executive Director, EBC, 22
September, 2011

28

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

Michitaka Nakatomi (2012): Japans EPA policy and Japan-EU economic partnership Principal Trade
Negotiator Japan Ministry of Economy, Trade and Industry, Senior Fellow research Institute of
Economy, Trade and Industry, March 2012
Patricia A. Nelson (2009): EU-Japan Economic and Trade Relations: What Impact of EU-Korea FTA on
Japan? Faculty of Economics, Seijo University, December 2, 2009
Patricia A. Nelson (2010): Change and EU-Japan Relations: Spotlighting Economic & Business
Organization Prepared for the Keio Jean Monnet COE Research Center for EU Studies 4th
International Symposium Implications of European Integration for the State and Sovereignty in a
Transnational World 26 June 2010
Patricia A. Nelson (2012): The EU-Japan Free Trade Agreement: Will it Ever Happen? 28th Stockholm
Seminar on Japan, 18 January 2012
Yorizumi Watanabe (2012): Strengthening and Institutionalizing Japan EU Relations: Japans Trade
Policy in the Aftermath of the Disaster Faculty of Policy Management Keio University, Stockholm
June 14-15 2012
Yoshihiro Yano (2012): Achieving New Momentum for Enhanced Economic Partnership through and
EU-Japan Economic Integration Agreement Perspective of the Japanese Auto Industry Director
General, International Dept. Japan Automobile Manufacturers Association Inc. (JAMA) EU-Japan
Seminar in Brussels, 8th March 2012

4.3 Official documents


Directorate-General for External Policies Policy Department Policy Briefing Trade and economic
relations with Japan: assessing the hurdles to the FTA, DG EXPO/B/PolDep/Note/2012_243
European Commission Commission Staff Working Document Executive Summary of the Impact
Assessment Report on EU-Japan Trade Relations Brussels 18.07.2012 {COM(2012) 390}
{SWD(2012)209}
European Commission Commission Staff Working Document Impact Assessment Report on EUJapan Trade Relations Brussels 18.07.2012
European Commission External Trade Global Europe Competing in the World A contribution to the
EUs Growth and Job Strategy 2006
European Federation of Pharmaceutical Industries and Associations (efpia) Position Paper The EUJapan FTA A key opportunity for the competitiveness of Europes Innovative Pharmaceutical
Industry and enhanced cooperation with Japan
http://www.efpia.eu:8081/sites/www.efpia.eu/files/EFPIA-PositionPaper-JapanFTA-201208.pdf
20th EU-Japan Summit Brussels, 28 May 2011 Joint Press Statement, Press www.consilium.europa.eu
European Parliament Delegation for relations with Japan Minutes of the preparatory meeting in
view of the 33rd EU-Japan Interparliamentary meeting 26th October 2011, from 15.00-18.30
Strasbourg D-JP_PV(2011)1026

29

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

European Union Japan Summit Brussels 2001 Shaping our Common Future, An Action Plan for
EU-Japan Cooperation www.euinjapan.jp
Foreign Trade Association (FTA) Position Paper FTA Position Paper on EU-Japan Trade Relations EUJapan Trade Relations 31 July 2012 www.fta-intl.org

4.4 Websources
Bloomberg Businessweek
EU Regulators Seek Green Light for Japan Free Trade Talks 18 July 2012
http://www.businessweek.com/news/2012-07-18/eu-regulators-seek-green-light-for-free-tradetalks-with-japan
Delegation of the European Union to Japan
The 1991 the Hague Joint Declaration
http://www.euinjapan.jp/en/relation/agreement/hague/
EU-Japan impact on the World 14 Feb 2011
http://www.euinjapan.jp/en/relation/impact/
Digital Headlines
EU-Japan Free Trade Agreement Can we see any progress?
http://www.digitaleurope.org/headlines/story.aspx?ID=74
EU-Asiacentre
European Parliament cautions on Japan FTA 14 June 2012
http://www.eu-asiacentre.eu/news_details.php?news_id=38
The European Automotive Manufacturers Association (ACEA)
Auto industry skeptical about benefits of EU/Japan Free Trade Agreement 19 July 2012
http://www.acea.be//news/news_detail/auto_industry_sceptical_about_benefits_of_eu_japan_free
_trade_agreement
EU-Japan FTA/EPA: Tentative beginnings, uncertain gains 19 July 2012
http://www.acea.be//news/news_detail/eu_japan_fta
European Commission Directorate General for Trade
Commission proposes to open negotiations for a Free Trade deal with Japan 18 July 2012
http://trade.ec.europa.eu/doclib/press/index.cfm?id=823
Japan 19 July 2012
http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/japan/
Ford
EU-Japan Free Trade Agreement18 July 2012
http://corporate.ford.com/news-center/press-releases-detail/pr-eujapan-free-trade-agreement36815
JETRO
White Paper Japans Market is Open to the World, April 2012
http://www.jetro.go.jp/en/eu-japan/pdf/EN120713.pdf
Keidanren
Policy Proposals Trade, Investment EPA/FTA, Chairman Calls on European Leaders to Start
Negotiations on an EU-Japan FTA/EPA, 26 April 2012

30

EU-Japan Free Trade Agreement - Factors influencing the Future of the Agreement

http://www.keidanren.or.jp/en/policy/2012/026.html
Ministry of Foreign Affairs of Japan
Japan-EU Summit Meeting (overview), 18 May 2012
http://www.mofa.go.jp/policy/economy/summit/2012/j_eu_sm.html
Reuters
EU Parliament flexes new muscle on Japan free trade deal 13 June 2012
http://www.reuters.com/assets/print?aid=USL5E8HDG3B20120613
Tax News
MEPs Voice Concerns on Possible EU-Japan FTA 14 June 2012
http://www.tax-news.com/news/MEPs_Voice_Concerns_On_Possible_EUJapan_FTA____55900.html

4.5 Interviews
Telephone interview with Marie Sderberg, Professor European Institute of Japanese Studies at
Stockholm School of Economics, 11th September 2012
Interview with Japanese Diplomat, Brussels, 17th September 2012
Telephone interview with EU-Japan association representative, 18th September 2012
Telephone interview with Patricia A. Nelson, Senior Research Fellow European Institute of Japanese
Studies at Stockholm School of Economics, 20th September 2012
Telephone interview with Bruno Julien-Malvy, First Secretary EU delegation to Japan, 21st September
2012
Telephone interview with Dimitri Vanoverbeke, Professor Japanese Studies Katholieke Universiteit
Leuven, 21st September 2012