Master of Arts Thesis
Euroculture
Home: Uppsala University, Sweden
Host: University of Groningen, Netherlands
06/02/2014
The EU-‐Japan Economic Partnership Agreement
Making Interregional Linkages
Submitted by: Ayaka Kawachi 557124 (Uppsala) / S2450518 (Groningen) Email: ayaka.feb26@gmail.com Supervised by: Dr. Sofia Näsström (Uppsala) / sofia.nasstrom@statsvet.uu.se
Dr. Janny de Jong (Groningen) / janny.de.jong@rug.nl
MA Programme Euroculture Declaration
I, Ayaka Kawachi, hereby declare that this thesis, entitled “The EU-Japan Economic Partnership Agreement: Making Interregional Linkages”, submitted as partial requirement for the MA Programme Euroculture, is my own original work and expressed in my own words. Any use made within it of works of other authors in any form (e.g. ideas, figures, texts, tables, etc.) are properly acknowledged in the text as well as in the List of References.
I hereby also acknowledge that I was informed about the regulations pertaining to the assessment of the MA thesis Euroculture and about the general completion rules for the Master of Arts Programme Euroculture.
Table of Contents
Introduction ………..pp4 Chapter 1: Europe and Japan in a Global Context ………...pp9 Chapter 2: EU-Japan Relations from a Historical Perspective ………...…pp18 Chapter 3: EU-Japan Economic Partnership Agreement ………...pp30 Chapter 4: EU-Japan EPA from a European Perspective ………...pp48 Chapter 5: EU-Japan EPA from a Japanese Perspective ………pp61 Chapter 6: Comparative Analysis on the EU-Japan EPA and Its Implications……...pp78 Conclusion ………..pp88 Bibliography ………...………pp89
Abbreviations
EPA: Economic Partnership Agreement SPA: Strategic Partnership Agreement CAP: Common Agricultural Policy
MOFA: Ministry of Foreign Affairs of Japan
MAFF: Ministry of Agriculture, Forestry, and Fisheries of Japan TPP: Trans-Pacific Partnership Agreement
TTIP: Transatlantic Trade and Investment Partnership LDP: Liberal Democratic Party of Japan
Introduction
“Japan is the best and most suitable partner the EU can have in Asia.”
– Member of the European Parliament Alojz Peterie
“Europe is a powerful partner as I advance my diplomacy that takes a panoramic perspective of the world map.” – Prime Minister Shinzo Abe in Brussels (May 7, 2014)
Background
The European Union (EU) and Japan officially launched the negotiations on the bilateral Economic Partnership Agreement (EPA) in March 2013. They aim to achieve a progressive and comprehensive free trade agreement through the elimination or reduction of tariffs and non-tariff barriers and closer cooperation on a number of economic issues. In parallel with Free Trade Agreement (FTA) talks, the EU and Japan are also engaged in the negotiations on a Strategic Partnership Agreement (SPA), which covers bilateral cooperation in the political and security areas.
Since the end of the Second World War, the relations between Europe and Japan have steadily developed with a strong focus on trade and investment. After the bilateral relations suffered from trade conflicts in the 1970s, Brussels and Tokyo have sought to establish political and security ties from the 1980s onward with a series of initiatives, such as the Hague Declaration in 1991 and the Action Plan (2001-2011). Upon the completion of the Action Plan in 2011, the EU and Japan agreed to further deepen the bilateral relations through the institutionalization of economic and political commitments.
third of world Gross Domestic Product (GDP), and many observers predict that a bilateral free trade agreement, if successfully concluded, will make a significant impact on global economy. Both the EU and Japan have been pushing EPA negotiations by emphasizing mutual benefits to be gained as a consequence of such a deal, for instance, economic growth, the creation of jobs, and the improvement of social welfare. However, Brussels and Tokyo will have to overcome a number of difficult challenges before reaching an agreement. They could not reconcile conflicting interests during the fifth round of negotiation held in March 2014.
Research Question and Methodology
The central question to be answered in this paper is “What are the underlying challenges for the EU and Japan to conclude the bilateral EPA?” This question is useful in analyzing not only whether the EU and Japan can successfully conclude the bilateral EPA but also whether they can further strengthen their political and economic relations for years to come. For a long time, Brussels and Tokyo have repeatedly expressed their desire to facilitate bilateral cooperation, and, indeed, they have launched a number of political initiatives to achieve the goal. However, there is a shared perception that a potential of the EU-Japan relationship has yet to be fully exploited. Both sides agree that the bilateral EPA, together with a SPA, will positively define the future direction of the EU-Japan relations. The overall effort to reinforce bilateral cooperation largely hinges on the nature and depth of challenges in EPA negotiations.
agricultural sectors, and how they influence the negotiation process. Instead of focusing on either the EU or Japanese perspective, this paper aims to depict a comprehensive picture of the proposed FTA through a comparative method.
This research is based on a variety of sources, which include academic publications, official statements and reports (e.g. the EU institutions and the Japanese government), relevant documents issued by major business organizations concerned (BUSINESSEUROPE and the Japan Business Federation), and statistics and economic data (the World Bank and the International Monetary Fund). As this paper deals with an ongoing development, other materials such as newspaper and magazine articles will be also consulted to acquire the latest information possible.
Theoretical Framework and Academic Contribution
The main goal of this thesis is to conduct a comparative analysis of the EU and Japanese perspectives on the bilateral FTA and provide a political dimension to the discussion. Based on the analysis, I argue that, despite conflicting interests between the EU and Japan, they are likely to conclude the proposed economic and political agreements.
“normative partnership” and serve as a solid foundation for future political and security cooperation.
Furthermore, an analysis on developing strategic linkages between Europe and Japan suggests the changing nature of Japanese foreign policy in recent years. Traditionally, Japan has been characterized as a “reactive” state due to a perception that Japan fails to develop a proactive external policy independently even though possessing the power and resources to do so. Kent Calder is the most prominent scholar who formulated the concept in his influential work Japanese Foreign Economic Formation:
Explaining the Reactive State (1988). While recognizing the reactive nature of Japanese
foreign policy, Julie Gilson expanded the discussion by indicating a proactive side of its policy-making process. Based on the previous research, I argue that Japan is transforming itself into a “proactive” state to cope with a number of serious challenges and this new development will have significant implications for not only the EU-Japan relations but also political landscape in the Asia Pacific and beyond.
Breakdown of Chapters
Chapter 1: The EU-Japan EPA in a Global Context
To put the EU-Japan EPA into perspective, this chapter investigates the EU and Japanese foreign economic policies in a global context. It starts with an analysis on the rise of economic regionalism in East Asia, which has had a significant impact on other regions including Europe. After examining how Brussels and Tokyo have responded to new developments in East Asia, it discusses some of underlying factors that brought the EU and Japan together to launch trade negotiations and also the emergence of interregional linkages between Europe, North America, and East Asia.
Burgeoning Bilateral and Regional FTAs in East Asia and Bridging the Pacific Ocean
In recent years, the proliferation of bilateral and regional FTAs seems to be an irreversible trend in the Asia Pacific. In the Americas, the North American Free Trade Agreement (NAFTA) was established in 1994 among the United States (US), Canada, and Mexico, and the Mercosur was formed in 1991 among five South American countries. The trend of market liberalization through FTAs is even more evident in East Asia. Since the formation of the ASEAN Free Trade Area (AFTA) in 1992, 45 FTAs were concluded by 2010, and the number is expected to rise for years to come.1
There are some factors behind a rapid increase in bilateral and regional FTAs in East Asia. Firstly, international trade negotiations through the World Trade Organization (WTO) Doha Round and the Asia-Pacific Economic Cooperation (APEC)
have been stagnant, and it has prompted East Asian countries to cope with trade-related issues regionally.2 Secondly, the Asian financial crisis in 1997-1998 led to the recognition among East Asian nations that regional economic cooperation was needed for the stability of the regional economic dynamism, independent of multilateral trade frameworks dominated by Western countries such as the World Bank and the International Monetary Fund (IMF).3 In the third place, the ASEAN has been actively engaged in bilateral and regional FTAs as a hub of East Asian regionalism.4 Finally, the rise of regionalism in Europe and North America motivated political leaders in East Asia to create its own regional framework.5 Nowadays, the movement of regional FTAs is further expanding to include non-East Asian countries. For instance, the RCEP is a free trade agreement under negotiation among 10 ASEAN members, Japan, China, South Korea, India, Australia, and New Zealand.
In 2011, the Obama Administration issued a series of announcements indicating that the United States would be intensifying its role in the Asia Pacific due to a growing political and economic importance of the region, which is also known as the “pivot” or “rebalancing” to Asia.6 In this context, the US entered the TPP negotiations for strategic as well as economic reasons in 2009. If successful, the US would be able to not only gain access to rapidly growing markets of Asia but also institutionalize its
2 Innwon Park, Regional Trade Agreements in East Asia, NUPI Working Paper (Oslo: Norwegian Institute of International Affairs, November 2013): 15.
3 Ibid: 14. 4 Ibid.
5 Kawai and Wignaraja, Free Trade Agreements in East Asia: A Way toward Trade Liberalization?. 6 Hillary Clinton, “America’s Pacific Century,” Foreign Policy, October 11, 2011,
engagement and commitment in the region.7 The TPP started as a small-scale regional FTA among Brunei, Chile, New Zealand, and Singapore in 2005, and since then 8 countries in the Asia Pacific have joined the negotiations, including the US, Australia, Canada, and Japan. The TPP 11, excluding Japan, has a combined GDP of approximately $21 trillion and $4.4 trillion in exports of goods and services respectively, and if both Japan and South Korea were added, aggregate GDP would account for 40% of world GDP, or $28 trillion.8 Furthermore, the participating countries aim to achieve a highly progressive FTA through substantially reducing trade barriers and establishing new principles and policies.9 If concluded, the TPP will be the largest free trade market in the world in terms of trade and population and it will greatly affect global trade patterns.
Japanese Foreign Economic Policy
The Ministry of Foreign Affairs of Japan (MOFA) explains the significance of the EU-Japan EPA in Japan’s overall foreign economic policy. The government strives to create “mutually reinforcing dynamism” among the Asia Pacific, East Asia, and Europe.10 In other words, it aims to link three regions through a network of free trade agreements; East Asia and the Asia Pacific should be connected through the TPP and the RCEP, East Asia and Europe connected through the Japan-EU EPA, and Europe and the Asia Pacific connected through the Transatlantic Trade and Investment Partnership
7 Manyin and Daggett, Pivot to the Pacific? The Obama Administration’s “Rebalancing” Toward Asia: 22.
8 Jeffrey J. Schott, Barbara Kotschwar, and Julia Muir, Understanding the Trans-Pacific Partnership (Peterson Institute, 2013): 1.
9 Ibid: 3.
(TTIP).11
Japan has been an enthusiastic proponent of constructing “East Asia” as a region. Despite the fact that it is the US-Japan alliance that has been the cornerstone of a post-war regional security framework, Japan has historically placed a great emphasis on building relations with East Asian countries. For the past 30 years, the Japanese government has provided over $200 billion as part of the Official Development Assistance (ODA) program, and almost half of it has been directed to countries in East Asia.12 Japan has been actively engaged in realizing the concept of an East Asian community. In August 1977, Prime Minister Takeo Fukuda delivered a speech in Manila and pledged Japan’s commitment to building a constructive relationship with ASEAN countries.13 His speech, which later became known as the Fukuda Doctrine, was a turning point for Japan’s diplomacy toward Asia.14 Particularly after the financial crisis in 1997-1998, Tokyo has attempted to fully utilize the ASEAN +3 framework as an opportunity for political dialogue and taken a lead in expanding the concept to include non-Asian countries such as Australia and New Zealand into the regional framework.15 In terms of trade, Japan has concluded an EPA with ASEAN in November 2007, and it is currently negotiating FTAs with China and South Korea.
11 Ibid.
12 Japan’s ODA White Paper 2012: Assistance for Each Region East Asia (Tokyo: The Ministry of Foreign Affairs of Japan, 2012), http://www.mofa.go.jp/policy/oda/white/2012/pdfs/030203_1.pdf; Development Assistance from Japan (World Bank Tokyo Office), accessed April 29, 2014,
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/JAPANEXT N/0,,contentMDK:20647244~menuPK:1685924~pagePK:1497618~piPK:217854~theSitePK:273812,00. html.
13 Takeo Fukuda, Speech by Prime Minister Takeo Fukuda (Manila: University of Tokyo, August 18, 1977),
http://citrus.c.u-tokyo.ac.jp/projects/ASEAN/J-ASEAN/JAS19770807E%20Speech%20Fukuda.htm. 14 William Haddad, “Japan, the Fukuda Doctrine, and ASEAN,” Contemporary Southeast Asia 2, no. 1 (June 1980): 10-12.
Japan is now seeking to make an interregional network among East Asia, the Asia Pacific, and Europe by undertaking the negotiations on the TPP and the EU-Japan EPA. There are some possible explanations for Japan’s strong interest in linking the regions through the institutionalization of economic commitments. First of all, the Japanese government has expressed strong concern over the emergence of closed regionalism in Europe and North America. In collaboration with Australia, Japan took an initiative in building a multilateral economic organization in the Asia Pacific, which led to the establishment of the Pacific Economic Cooperation Council (founded in 1980) and APEC (in 1989), and it was a reflection of Tokyo’s anxiety over exclusive regionalism in other regions.16
Secondly, it is argued that Japan is trying to soft-balance China. In 2002, Japanese Prime Minister Koizumi Junichiro called for the redefinition of an East Asian community to include Australia and New Zealand as core members, which were excluded from the initial concept of East Asia.17 The introduction of this “expanded” East Asia seems to be Japan’s response to China’s growing influence and its consequences. To address a relative decline of Japan vis-à-vis China, the Japanese government has sought to utilize wider regional arrangements and form strategic partnerships with like-minded countries such as Australia, New Zealand, and India to counter the rise of China.18 Koizumi’s successor, Shinzo Abe, during his first term proposed the construction of an East Asian community based on universal values, such
16 Takashi Terada, “Constructing an ‘East Asian’ Concept and Growing Regional Identity: From EAEC to ASEAN+3,” The Pacific Review 16, no. 2 (2003): 258.
17 Junichiro Koizumi, “Japan and ASEAN in East Asia: A Sincere and Open Partnership” (Ministry of Foreign Affairs of Japan, January 14, 2002),
http://www.mofa.go.jp/region/asia-paci/pmv0201/speech.html.
as respect for human rights, democracy, and military transparency, which are politically sensitive issues for China, so that Japan would gain greater political leverage and legitimacy in the region.19
In recent years, the Japanese government is developing a soft-balancing policy on a global scale. In March 2007, Japan signed the Joint Declaration on Security Cooperation with Australia, and they also started bilateral FTA negotiations around the same time. Although the declaration was not a formal security pact, it had a significant meaning in Japan’s post-war foreign policy in that it was the first time for Tokyo to sign such an agreement since the conclusion of the Security Treaty between the United States and Japan in 1951.20 In October 2008, the government signed a similar security declaration with India, and at the time, they had already started negotiations on the Japan-India EPA, which was officially concluded in February 2011. As is the case with the EU-Japan EPA and SPA, the Japanese government has been enthusiastic about elevating the position of Japan in the world by forging strategic partnerships with global key players. Tokyo’s basic strategy is to combine economic commitment with political and security cooperation and emphasize the importance of sharing the same democratic values and principles. Additionally, economic interests also play a crucial role in entering FTA negotiations. In sum, the EU-Japan EPA and SPA should to be investigated in relation to Tokyo’s overall foreign economic policy.
The EU’s Foreign Economic Policy
19 Ibid: 77-78.; Tsutomu Kikuchi, “Japan in an Insecure East Asia: Redefining Its Role in East Asian Community-Building,” Southeast Asian Affairs 10 (2006): 44.
A report titled Asia-Europe: The Third Link published by the European Commission in 2008 argues that, despite growing economic interdependence between Europe and Asia, the interregional ties have been largely underestimated compared to the linkages between the two regions and North America.21 It reevaluates the significance of “the third link”, that is, the linkages between Europe and Asia, based on economic data and statistics. One of the reasons why “the third link” has been neglected is that the EU has traditionally placed a greater emphasis on its relations with neighboring countries such as Russia, the Middle East, and North Africa.22 Unlike the relations between the US and Asia, the EU has been mainly interested in establishing economic and trade relations with Asia, not political or military, due to geographical remoteness and a lack of shared political and security perceptions.23
However, as global power shifts from the West to the East, the EU begins to pursue closer political and economic cooperation with Asia. Europe and Asia have established various platforms for political dialogue, such as the Asia-Europe Meeting (AEM), the Asia-Europe Foundation (ASEF), the ASEAN Post-Ministerial Conference (PMC), and the ASEAN Regional Forum (ARF), in addition to individual summit and ministerial meetings.
Since the EU agreed to commence FTA negotiations with South Korea in May 2007, it has launched a series of free trade talks with Asian countries. The EU is currently engaged in FTA negotiations with such partners as ASEAN, India, Malaysia,
21 Jeremie Cohen-Setton and Jean Pisani-Ferry, Asia-Europe: The Third Link, Economic Papers 352 (Brussels: The European Commission, December 2008): 2.
22 Takako Ueta, EU Policy toward Asia and the Pacific: A View from Japan, EUI Working Papers (Robert Schuman Centre for Advanced Studies, European University Institute, 2013): 1.
Singapore, Vietnam, Thailand, and Japan.24 Of course, behind the EU’s policy shift toward Asia, there is a growing political and economic presence of the region, but burgeoning economic regionalism in East Asia and the Asia Pacific has also influenced the thinking of European leaders.25 As explained in the first section of this chapter, a number of regional FTA frameworks have come into existence in the Asia Pacific, including the US proposal of the APEC-wide Free Trade Area of Asia-Pacific (FTAAP), the proposal of Japan on ASEAN +6, the proposal of China on ASEAN +3, and the latest US-led TPP.26 Excluded from these regional arrangements, the EU endeavors to secure its economic interests in the region through political dialogues and FTAs.
Nevertheless, the linkages between the EU and the US remain strong. Brussels and Washington are currently committed to the negotiations on the TTIP, which was launched in July 2013, and they aim to substantially reduce tariffs and non-tariff barriers to boost their trade relations. According to an independent research conducted by the Centre for Economic Policy Research based in London, an ambitious and comprehensive agreement between the two global powers could produce significant economic gains for both the EU (119 billion Euro a year) and the US (95 billion a year) and positively contribute to worldwide trade liberalization.27
The Emergence of Interregional Linkages?
24 Enterprise and Industry: Free Trade Agreements (Brussels: The European Commission), accessed May 1, 2014,
http://ec.europa.eu/enterprise/policies/international/facilitating-trade/free-trade/index_en.htm#h2-1. 25 Ueta, EU Policy toward Asia and the Pacific: A View from Japan: 3.
26 Ibid.
There are three conclusions that can be drawn in this chapter. Frist of all, FTAs are often used as a political tool to solidify commitment and engagement, and the EU-Japan EPA is no exception. The leaders in Brussels and Tokyo are pursuing a trade agreement not for purely economic reasons, but they both understand the strategic importance of the institutionalization of economic commitment to achieve political goals.
Second, the development of regionalism in Europe, North America, and Asia influences one another. Initially, exclusive regional frameworks such as the EU and NAFTA were a catalyst for the birth of East Asian regionalism, but in recent years Europe and North America have been influenced by East Asia.
Chapter 2: The EU-Japan Politico-Economic Relations from a Historical Perspective
This chapter provides a historical overview of the EU-Japan relations after the Second World War with a particular attention to the period from the 1970s to the present. As it will be clear in the following sections, the bilateral relations have undergone a dramatic transition from intense trade conflicts in the 1970s to global partners today.
1970s: Intensifying Tensions and Confrontation
In the 19th century, Europe served as a primary source of modern technology and export destination for Japan and realized its “first economic miracle”.28 Although the United States replaced Europe as the biggest trading partner for Japan after the Second World War, the economic relations between Europe and Japan remained highly active. The Korean War in 1950 triggered the revival of the Japanese economy. Between 1950 and 1973, Japan enjoyed a continuous rate of high economic growth at an annual average of 10%.29 By the 1960s and 1970s, per capita income in Japan significantly increased with a steady population growth. Japan established its position as a global economic player and became an attractive market for the US and the EU.30
Trade relations between Europe and Japan began to attract much attention in the 1970s when Japanese products, mainly automobiles, electronics, and computers,
28 Chūhei Sugiyama, Origins of Economic Thought in Modern Japan (London; New York: Routledge, 1994).
29 S Tsuru, Japan’s Capitalism: Creative Defeat and Beyond (Cambridge: Cambridge University Press, 1993).
overflowed into the European market.31 Although the European Community (EC) and Japan made some progress in their political relations through establishing permanent missions in Brussels and Tokyo, regular High-Level Consultations, and ministerial visits, they encountered a number of difficulties in settling different economic interests during this period.32 The main issue for the EC was Japan’s structural trade barriers. European exporters were convinced that Japan’s non-tariff barriers were the culprits for chronic trade imbalance. This issue has not been solved to this day, and it is one of the main areas being discussed in the negotiations on the EU-Japan EPA. While the EC persistently demanded the improvement of Japan’s structural trade barriers, it continued to suffer from a widening trade deficit, further aggravated by the 1973 and 1979 oil crises.33 Thus, the economic relations between Europe and Japan in the 1970s can be characterized by trade friction and growing intension.
1980s: Positive Changes in the Bilateral Economic Relations
In response to intensifying trade conflicts with the United States, the Japanese government announced in May 1981 that it would voluntarily restrict the number of its automobiles exported to the American market.34 In 1982, the EC called upon Article ⅩⅩⅢ of the General Agreement of Tariffs and Trade (GATT) on the grounds of
31 Dimitri Vanoverbeke, Chapter 16 ’The Dynamics in the EU-Japan Relationship" in EU-Japan Relations, 1970-2012: From Confrontation to Global Partnership by Jorn Keck, Dimitri Vanoverbeke and Franz Waldenberger (New York: Routledge, 2013): 330.
32 Ibid.; “Chronology of EU-Japan Relations,” EU – Delegation of the European Union to Japan, accessed April 14, 2014, http://www.euinjapan.jp/en/relation/chronology/.
33 Vanoverbeke, Chapter 16 ’The Dynamics in the EU-Japan Relationship" in EU-Japan Relations, 1970-2012: From Confrontation to Global Partnership by Jorn Keck, Dimitri Vanoverbeke and Franz Waldenberger: 330, 331.
34 Michael William Lochmann, “Japanese Voluntary Restraint on Automobile Exports: An
Japan’s nullification of the benefits discussed in GATT Rounds.35 This dispute launched by the EC was practically settled in 1983 when Japan adopted a Voluntary Restraint Agreement, similar in nature to the agreement between the US and Japan, that controlled Japan’s exports of sensitive products to Europe.36 Additionally, persistent external pressure from the US and the EC led to some policy changes and legal reforms in Japan, for instance, a reform of the Liquor Tax Law in 1989.37 With these new developments, the economic relations between Europe and Japan made small progress in the 1980s even though a wide trade gap did not disappear.
Interestingly, however, Europe opted for a different approach from the US, which was also suffering from chronic trade deficits with Japan, and this difference between Europe and the US would become more evident in the 1990s. Washington attempted to deal with massive trade deficits with foreign trade partners and other fiscal problems by resorting to a rather aggressive and coercive approach, represented by Reganomics and the Super 301 clause.38 The “Super 301” provision of the Omnibus Trade and Competitiveness Act of 1988 is a highly controversial initiative of the United States Trade Representative (USTR). If this provision is provoked, foreign counterparts concerned must address requests in the form of compensation or elimination of trade barriers under the threat of US retaliation.39 The Plaza Accord in 1985 is another
35 Chad P. Bown, “The Economics of Trade Disputes, the GATT’s Article XXIII, and the WTO’s Dispute Settlement Understanding,” Economics and Politics 14, no. 3 (2002): 283–323.
36 Vanoverbeke, Chapter 16 ’The Dynamics in the EU-Japan Relationship" in EU-Japan Relations, 1970-2012: From Confrontation to Global Partnership by Jorn Keck, Dimitri Vanoverbeke and Franz Waldenberger: 331.
37 Ibid: 332. 38 Ibid.
manifestation of Washington’s forceful approach, where the G5 nations (the US, Japan, Germany, the United Kingdom and France) agreed to manipulate currency exchange rates and substantially depreciate the US Dollar relative to the Japanese Yen and the German Deutsche Mark in an attempt to correct trade imbalances in favor of the US. Contrarily, the EC’s approach toward Japan was more benign. Some of the EC Member States, particularly Britain, found it more attractive to entice Japanese investment in European industries than to take retaliatory measures.40 In the 1970s, therefore, although fundamental problems like Japan’s structural trade barriers were not solved, the bilateral economic relations experienced some positive changes that would gain momentum in the 1990s.
1990s: The Hague Declaration and Seeking Closer Political Cooperation
1990s marked the end of prolonged trade conflicts and the beginning of closer political cooperation between the EC – from November 1993 onwards the EU- and Japan. In July 1991, the EC and Japan issued a joint statement in the Hague, or also known as the Hague Declaration. This joint declaration stipulated that the EC and Japan would endeavor to deepen their political and economic relations and strengthen bilateral cooperation on major international issues through regular consultations and dialogue.41 The 1991 Hague Declaration has a great significance in that it was an attempt for the
40 Vanoverbeke, Chapter 16 ’The Dynamics in the EU-Japan Relationship" in EU-Japan Relations, 1970-2012: From Confrontation to Global Partnership by Jorn Keck, Dimitri Vanoverbeke and Franz Waldenberger: 332.
41 The Joint Declaration on Relations between the European Community and Its Member States and Japan in the Hague (The Hague: July 18, 1991),
EC and Japan to explore new areas of cooperation and construct a more comprehensive and balanced partnership by adding a political dimension to the bilateral relations. Placed in the wider context, the timing of this political initiative by the EC and Japan coincides with the dissolution of the Soviet Union in 1991. Although the US came out of the Cold War as a winner, it was burdened with a massive military expenditure and serious fiscal troubles. The weakened political and economic dominance of the US pushed Europe and Japan to diversify their partnerships.42 The Hague Declaration is considered to be a “watershed” in the Europe-Japan relations, and it, indeed, led to the initiation of a number of political and security dialogues.43
While the US had continuously taken an approach to trade conflicts with Japan in a threatening and aggressive manner, Europe managed to contain economic problems through seeking closer cooperation with Japan. For instance, Washington repeatedly utilized antidumping as a policy tool to prevent Japanese products from further entering the US market, and, in fact, it launched a series of legal actions against Japanese firms on ground of its closed market access between 1977 and 1994. On the other hand, Europe sought to consolidate positive developments with Japan and deliberately chose to take a different approach from the US due to Japan’s dominant economic influence in the 1990s, as highlighted by the Commission’s 1995
Communication: Europe and Japan: the Next Steps.44 The Resolution “Europe and
42 Atsuko Abe, Japan and the European Union: Domestic Politics and Transnational Relations (London: Athlone Press, 1999): 122,123; Marie Söderberg, “Introduction: Where Is the EU–Japan Relationship Heading?,” Japan Forum 24, no. 3 (2012): 254.
43 Söderberg, “Introduction: Where Is the EU–Japan Relationship Heading?”: 255.
Japan: The Next Steps” was issued by the EU in March 1995 with an intention to reinforce the bilateral ties in both political and economic fields.45 Following the collapse of bubble economy in Japan (1991-1992) and the subsequent Lost Decade, trade frictions between the EU and Japan naturally subsided, and, around this time, they began to recognize each other as like-minded partners that could tackle new global challenges, such as climate change and terrorism.
As a whole, however, the Hague Declaration and other political initiatives did not result in a full-fledged political and security partnership between Europe and Japan.46 Despite Japan’s involvement in assisting Eastern European countries in the post-Cold War years, the US remained by far the most important ally for Japan.47 While Japanese foreign policy emphasized its relations with East Asian countries, a political relationship with Japan was not of immediate importance for Europe.48 This embryonic political cooperation between Europe and Japan would further grow at the turn of the 21st century through a number of initiatives and shared experiences of working together on global issues.
2000s: The Action Plan and Strengthened Political Cooperation
In January 2000, Japanese Foreign Minister Yohei Kono made a speech in Paris, titled “Seeking a Millennium Partnership: New Dimensions in Japan-EU Cooperation”. Kono
45 “Resolution on the Communication from the Commission to the Council on Europe and Japan: The Next Steps,” Official Journal C304, October 6, 1997,
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:51997IP0259:EN:HTML. 46 Söderberg, “Introduction: Where Is the EU–Japan Relationship Heading?”: 255. 47 Ibid.
outlined his vision on the EU-Japan partnership in the 21st century and called for further political cooperation and the realization of common goals including the prevention of global conflicts, non-proliferation of nuclear weapons, and the reform of the United Nations (UN).49 His proposal resulted in the establishment of a Joint Action Plan for a “Decade of Cooperation” (2001-2011), in which the EU and Japan identified security, economic, and social challenges and elaborately envisaged how to jointly address these problems.50 This decade-long Action Plan served as a main pillar of political cooperation between the EU and Japan until it expired in 2011. The outcome of the Action Plan, however, is considered disappointing because only a handful of objectives were actually materialized. Indeed, the bilateral cooperation in reconstruction assistance in Afghanistan, other parts of Central Asia, and Africa produced some results, but the Action Plan suffered from a lack of focus as it listed more than 100 areas for bilateral cooperation.51 Nevertheless, the overall bilateral relationship was positive and stable throughout this period, and both the EU and Japan made a continuous effort to maintain the momentum.
2006-2007: Japan’s Policy Change and Its Newly Discovered Interest in a FTA with the EU
Japan had traditionally placed an absolute focus on multilateral economic frameworks
49 Yohei Kono, Seeking a Millennium Partnership: New Dimensions in Japan-Europe Cooperation, Policy Speech (Paris: Ministry of Foreign Affairs of Japan, January 13, 2000),
http://www.mofa.go.jp/region/europe/fmv0001/speech0113.html.
50 Shaping Our Common Future: An Action Plan for EU-Japan Cooperation (Brussels: The European Commission, 2001), http://eeas.europa.eu/japan/docs/actionplan2001_en.pdf.
to attain the goal of trade liberalization, primarily through the WTO system, and until recently it had been a bitter critic of exclusive FTAs and regionalism.52 In fact, the
survey on the relevant proceedings of the Japanese National Diet proves that the government was not particularly enthusiastic about the prospect of FTAs with major economies like the US and the EU until 2005.53 In the Diet proceeding of February 15th 2005, Foreign Minister Nobutaka Machimura stated that bilateral FTAs should play a complementary role to the existing multilateral economic framework and therefore the government did not have any intentions of commencing FTA talks with the US or the EU so as not to negatively affect the process of the WTO negotiations.54
Around 2006, however, the debate on the possibility of FTAs with developed countries started to take place in the National Diet, and the following year the government shifted its foreign economic policy and expressed its willingness to embark on individual FTAs with the US and the EU.55 While the Ministry of Agriculture, Forestry, and Fisheries (MAFF) showed its reluctance to push FTAs with major agricultural producers, the Ministry of Economy, Trade, and Industry (METI) spearheaded a campaign to initiate free trade talks with the US and the EU.56 The
52 Mireya Solis and Shujiro Urata, “Japan’s New Foreign Economic Policy: A Shift Toward a Strategic and Activist Model?,” Asian Economic Policy Review 2 (2007): 227.
53 Ayaka Kawachi, “The Shift in Japanese Foreign Economic Policy and the EU-Japan Economic Partnership Agreement (EPA),” The Centre for Japanese Studies, University of Groningen, February 10, 2014: 8.
54 The Diet proceeding on February 18th, 2005. The remark was made by Nobutaka Machimura, Foreign Minister of Japan in the budget committee, the House of Representatives.
http://kokkai.ndl.go.jp/cgi-bin/KENSAKU/swk_dispdoc.cgi?SESSION=6201&SAVED_RID=2&PAGE= 0&POS=0&TOTAL=0&SRV_ID=9&DOC_ID=478&DPAGE=1&DTOTAL=1&DPOS=1&SORT_DIR =1&SORT_TYPE=0&MODE=1&DMY=6730
55 Kawachi, “The Shift in Japanese Foreign Economic Policy and the EU-Japan Economic Partnership Agreement (EPA)”: 9.
56 The Diet proceeding on June 12th, 2007. The remark was made by Norihiko Akagi, the Minister of MAFF in the committee on agriculture, the House of Councillors.
Minister of METI, Akira Amari, who is the Minister of State for Economic Revitalization and a delegate to the TPP negotiations under the Abe administration as of writing, was one of key proponents and made a statement in the National Diet on October 18th 2007.
“My understanding on the phase of international economic cooperation is that the world is now entering a new stage where each country is pursuing economic partnerships with major economies” and “our agriculture also has to be stronger and we cannot be satisfied with the status quo and say that our agriculture is not a competitive industry in the first place and there is nothing we can do about it.”57
2007 was a clear turning point for the EU-Japan economic relations. The immediate trigger for Japan’s sudden policy change was the EU-South Korea FTA, but a dormant WTO Doha Round also plays a role as a background factor. Japan abandoned its previous devotion to a multilateral economic framework and started to take a two-track approach, which is to build an extensive network of individual FTAs while staying engaged in the WTO system. Various factors interplayed and set up a foundation for the EU and Japan to take their economic relations up to the next level.
From 2010 onward: A New Stage for the EU-Japan Relationship
After the EU-Japan Summit in April 2010, the Joint High-Level Group (HLG) was launched to discuss the outline of a new bilateral framework as the Action Plan was to
R=1&SORT_TYPE=0&MODE=1&DMY=29381
57 The Diet proceeding on October 18th, 2007. The remark was made by Akira Amari, the Minister of METI in the committee on economy, the House of Councillors.
be expired the following year. The HLG was given a task to jointly examine the ways to strengthen all the aspects of the EU-Japan relations and further integrate their economies through addressing such issues as tariffs, non-tariff measures, services, investment in services and non-services sectors, intellectual property rights, and government procurement.58 In a series of negotiations in the HLG leading up to the pivotal 20th EU-Japan Summit in March 2011, it had become clear that a successful institutionalization of the bilateral cooperation in politics, security, and trade hinges on their ability and readiness to settle long-standing trade issues between the EU and Japan.59 That is because Tokyo has shifted its foreign economic policy toward the EU since 2007, triggered by the EU-South Korea FTA, and insisted that the economic and trade agenda should be a part of a new framework for the bilateral relations.
In this context, the leaders of both sides agreed to start preparatory negotiations on the EU-Japan EPA and SPA at the summit of March 2011. As seen above, the post-war EU-Japan relations have transformed dramatically over the years. Since the 1990s, they have stressed the importance of the comprehensiveness of the bilateral relations, and the Hague Declaration in 1991 and the Joint Action Plan (2001-2011) played a significant role in strengthening their political and security cooperation. Despite a symbolic meaning and good intentions behind these two political initiatives, neither of them reached up to the expectations or resulted in great achievements. Based on the mutual recognition that a potential of the bilateral relations is not fully exploited, Brussels and Tokyo decided to institutionalize their economic and
58 The 19th EU-Japan Summit: Joint Press Statement (Brussels: The Council of the European Union, April 28, 2010), http://www.consilium.europa.eu/uedocs/cmsUpload/114063.pdf.
political commitments through ambitious economic and security agreements.
A number of factors are intertwined in determining the timing and nature of the bilateral EPA and SPA, which will be fully explored in the next chapter, but it can be said here that the international environment surrounding the EU and Japan has drastically changed for the last few decades. Since the 1997 Asian financial crisis, multiple regional frameworks have been constructed in East Asia, for instance, ASEAN +3 and 6, and, furthermore, new political and economic structures are emerging in the wider context, such as the Regional Comprehensive Economic Partnership (RCEP) and the TPP. East Asia or the Asia Pacific region was not historically a priority area for the EU, but with the advent of exclusive regional frameworks and an increasingly powerful and assertive China, the EU began to seek closer political and economic connections with the region.60 Japan itself is going through a major transformation. Internationally, Tokyo has embarked on a more activist foreign policy through diversifying its alliances and partners on a global scale while maintaining the traditional ties with the United States. Domesticallym it is in the midst of a radical overhaul of the political, economic, and security system as seen in the discussion on the revision of the Japanese Constitution, after the 2011 Great East Japan Earthquake.*
The EU started as a loose community of a small number of Western European countries, yet it has now 28 Member States with the latest accession of Croatia in July 2013. Since the Lisbon Treaty was signed in 2007, the European Parliament has become a central actor in developing a concerted foreign policy at the EU level. Despite the
60 Takako Ueta, EU Policy toward Asia and the Pacific: A View from Japan, EUI Working Papers (Robert Schuman Centre for Advanced Studies, European University Institute, 2013): 1.
ongoing fiscal struggles in some of Member States, the EU remains one of the major players in international politics. One factor behind Japan’s attempt to expand a network of partnership beyond the traditional US-Japan alliance is Tokyo’s intention to counterbalance an increasingly assertive China.61 Therefore, a closer cooperation on not only economic but also political and security issues with an enlarging Europe is in line with Japan’s overall foreign policy.
The purpose of this chapter was to provide a historical overview on the post-war relations between Europe and Japan, leading up to the ongoing negotiations on the bilateral EPA and SPA. Europe and Japan have incrementally strengthened their partnership over the years, and the proposed EPA can be understood as a continuation of both sides’ efforts to further expand the scope of cooperation. In Chapter 3, the EU-Japan EPA will be fully explored through an analysis of the significance, incentives and deterrents for both the EU and Japan in promoting FTA negotiations.
Chapter 3: The EU-Japan Economic Partnership Agreement
This chapter goes into the main theme of the paper, the EU-Japan EPA, and introduces key concepts to understand the ongoing negotiation process. The aim of this chapter is to depict a comprehensive overview of the proposed FTA through analyzing both incentives and deterrents for the EU and Japan in promoting the negotiations.
The EU-Japan Economic Partnership Agreement
The EU and Japan took the first step toward the realization of the bilateral EPA at the 20th EU-Japan summit in May 2011 when the leaders of both parties agreed to commence the scoping exercise to define the outline of the negotiations. Upon the completion of a series of discussions and the scoping exercise, the EU and Japan officially launched the bilateral EPA negotiations on March 25th 2013, mandated by the President of the European Commission Jose Manuel Barroso, the President of the European Council Herman Van Rompuy, and the Japanese Prime Minister Shinzo Abe. The leaders of both parties issued the joint statement and expressed their view that the EU and Japan as global partners that uphold common values and principles should further strengthen the bilateral relations. The EU and the Japanese government, it states, aim for the earliest possible conclusion of the bilateral EPA, which ought to be “deep and comprehensive, addressing all issues of shared interest in order to stimulate economic growth both in Japan and the EU and contribute thereby to the development of the world economy.”62 They agreed that the EU-Japan EPA would be a legal
foundation for their political, security as well as economic cooperation in the future.63 Economic Partnership Agreements are essentially more extensive and comprehensive than conventional Free Trade Agreements. While FTAs generally concern regulations on trade in goods and services, EPAs cover a wider range of economic issues, which include investment, movement of people, government procurement, standardization of regulations and competition policy, and other bilateral cooperation.64 In other words, FTAs are a parcel of broader EPAs. As it will be explained in one of the following section, the Japanese government has shown a clear preference for EPAs over conventional FTAs in recent years, and Japan’s EPAs tend to be more comprehensive than FTAs of other countries.65 It is said to be the economic pact the EU and Japan strive to achieve is ambitious and challenging but, at the same time, significant and far-reaching. In addition, in parallel with the bilateral EPA, the EU and Japan have been also undertaking the negotiations of a Strategic Partnership Agreement.* If successfully, the EU-Japan SPA is expected to facilitate their political and security cooperation and joint action in areas like crisis management, development assistance, energy, environment, research and innovation.66 Intertwined with political and security commitment grounded in the shared values and principles, the EU-Japan the European Council, Herman Van Rompuy, and the Prime Minister of Japan, Shinzo Abe (Brussels: The European Commission, March 25, 2013), http://europa.eu/rapid/press-release_IP-13-276_en.htm.
63 Ibid.
64 Japan’s Economic Partnership Agreement (EPA) (Customs and Tariff Bureau, Ministry of Foreign Affairs of Japan, May 30, 2008), http://www.customs.go.jp/english/epa/files/japans_epa.pdf.
65 Mireya Solis and Shujiro Urata, “Japan’s New Foreign Economic Policy: A Shift Toward a Strategic and Activist Model?,” Asian Economic Policy Review 2 (2007): 234.
* “Strategic Partnership Agreement (SPA)” was adopted as a provisional title of the agreement from the second round of the negotiations in June 2013. In the first round, the agreement was called “Political Agreement” by Japan and “Framework Agreement” by the EU. (The Ministry of Foreign Affairs of Japan: http://www.mofa.go.jp/press/release/press6e_000117.html)
EPA is anticipated to lead the bilateral relations to a higher level with a strategic dimension.
The first round of the negotiations was held in Brussels, Belgium, in April 2013. At the meeting, the two sides covered a number of areas including trade in goods and services, investment, intellectual property rights, non-tariff measures, and government procurement.67 The negotiations continued in the second round from June 24th to July 3rd 2013 in Tokyo, Japan, and the third round, which took place in October of the same year in Brussels, focused on the proposals for the text of the future EPA.68 The fourth and fifth rounds of negotiations were held in January 2014 in Brussels and in March-April of the same year in Tokyo respectively, and the frequency and intensity of the negotiations indicate the commitment of both the EU and Japan to deliver on their pledge to reach a deal as early as possible.
Significance of the EU-Japan EPA and Prospective Impact on Respective Economies
The EU and Japan are global political and economic powers that share fundamental values and principles such as democracy, the rule of law, and respect for human rights. The EU has a population of 500 million (7.2% of the world population in 2012) and accounts for approximately 23% of the world GDP (in 2012).69 The EU is Japan’s major trading and investment partner, which contributes to about 10% of Japan’s total
67 First Round of Negotiations on a Japan EU Economic Partnership Agreement (EPA) (The Ministry of Foreign Affairs of Japan, April 19, 2013), http://www.mofa.go.jp/press/release/press6e_000043.html. 68 Progress Reached at the 3rd Round of EU-Japan Trade Talks (Brussels: The European Commission, October 25, 2013), http://trade.ec.europa.eu/doclib/press/index.cfm?id=979.
69 World Development Indicators (The World Bank, October 2013),
http://data.worldbank.org/sites/default/files/wdi-2012-ebook.pdf; World Economic Outlook Database (International Monetary Fund, October 2013),
trade volumes.70 Similarly, Japan is one of the most important trade partners and a major source of investment for the EU. As a highly industrialized country, Japan is the world’s third largest national economy with a population of over 125 million (1.8% of the world population in 2012), and it accounts for 8.3% of the world GDP (in 2012).71 In 2011, the EU was Japan’s third largest trade partner and Japan was the EU’s 7th largest.72 While EU exports to Japan mainly consist of machinery and transport equipment, chemical products, and agricultural products, imports from Japan to the EU comprise machinery and transport equipment and chemical products.73Combined economies of the EU and Japan exceed a third of the world GDP, and as shown in the data above, the bilateral trade relationship between the EU and Japan is quite significant for their respective economies.
Since the leaders of both parties officially agreed to launch negotiations of the EU-Japan EPA in March 2011, the EU and Japan have sought to conclude a progressive and comprehensive economic agreement through eliminating tariffs and non-tariff barriers and improving trade and investment rules.74 The EU and the Japanese government recognize great potential benefits that can be obtained from signing the agreement. The European Commission issued a report titled Impact Assessment Report
on EU-Japan Trade Relations in July 2012, and it provides a careful assessment from
the EU’s viewpoint of the prospective outcome and impact of the EU-Japan EPA. The report points to some existing problems in the EU-Japan economic
70 Japan-EU EPA.
71 World Development Indicators; World Economic Outlook Database.
72 Impact Assessment Report on EU-Japan Trade Relations, Commission Staff Working Document (Brussels: The European Commission, July 18, 2012): 9.
relations and highlights “considerable unrealised economic potential” and “the need to revitalise bilateral trade”.75 If the ongoing negotiations on the bilateral EPA should be completed, the EU’s GDP is expected to grow by up to 0.8% by 2020 (0.34% in the case of a conservative FTA*), accompanied by a number of other desirable outcomes such as increased employment and competitiveness and improvement in wages and welfare.76 Under the conservative scenario, EU exports to Japan would increase by 22.6%, or its global exports by 1.2%, and, based on the ambitious calculations, EU exports to Japan would rise by as much as 32.7%, or its global exports by 2.8%.77
Similarly, the Japanese government holds high expectations for the economic potential of the EU-Japan EPA. The Ministry of Foreign Affairs of Japan stresses mutual benefits, including further economic growth, job creation, and strengthened competitiveness, as well as a better business environment for Japanese companies in the European market.78 Under the conservative scenario, Japan’s GDP would grow by 0.27% by 2020 and its exports to the EU would increase by 17.1%, or its global exports by 1.2%.79 Based on the ambitious scenario, GDP increases for Japan amount to 0.7% and Japan’s exports to the EU would rise by 23.5%, or its global exports by 7.3%.80
Incentives for the EU
Although Europe has chronically suffered from trade deficits vis-à-vis Japan for
75 Impact Assessment Report on EU-Japan Trade Relations, 11. 76 Ibid, 13, 34-48.
* A conservative FTA refers to the case where no more than a quarter of non-tariff measures (NTM) is reduced while an ambitious FTA is the case where around half of NTM is tackled.
77 Ibid, 36-38. 78 Japan-EU EPA.
decades, the bilateral trade imbalance has been gradually corrected in recent years, noticeably since 2008, with the increase in its exports to Japan.81 Consequently, seen from the EU’s perspective, the bilateral EPA is a natural step to consolidate the momentum and further expand its business activities in Japan. Also, the report issued by the European Commission points out that bilateral trade between the EU and Japan has been declining in both absolute and relative terms.82
Among many factors attributing to this trend, the emergence of newly industrializing economies in East Asia and other parts of the world makes a great impact on the trade relations between the EU and Japan. Firstly, emerging market economies such as China and India have altered the configuration of trade flows with the increased competitiveness and outputs and, accordingly, it has reduced the share of global trade held by traditional developed countries like the EU and Japan83. Secondly, as these developing countries have become vital for the EU and Japan to maintain their economic growth, the bilateral economic relations have been gradually neglected or overlooked.84
Another relevant factor is regional integration in Europe and East Asia. With the enlargement and deepening of the EU, intra-European economic activities have become more active and prominent than its external trade. For Japan, as a number of regional frameworks have been constructed in East Asia and the Asia Pacific, the Japanese government started to place more emphasis on its relations with neighboring
81 Trade in Goods by Main World Traders (Eurostat), accessed February 7, 2014,
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tet00018&plugin= 1.
82 Impact Assessment Report on EU-Japan Trade Relations: 9. 83 Ibid, 10.
countries.85
Despite dramatic changes in world trade pattern and deepening regional integration in Europe and East Asia, the governments and business communities in the EU and Japan believe that the current bilateral trade relationship is not fulfilling its potential to the fullest. Thus, the proposed EPA with Japan is a great opportunity for the EU to rekindle rather stagnant trade interactions with the old trading partner.
There are some main areas in which the EU would like to bring changes to its economic activities with Japan. The most and foremost crucial issue for the EU is Japanese non-tariff barriers on automobiles, chemicals, electronic devices, food safety, processed food, medical devices, pharmaceuticals, and others.86 Since the 1970s, the EU, or the European Community (EC) at that time, has reiterated its request for the Japanese government to reform non-tariff measures (NTMs) as European negotiators have been convinced that the intricate nature of Japanese industry and governmental NTMs are the culprit for the trade imbalance.87
There are a number of peculiar obstacles for European enterprises to penetrate the Japanese market. Some of them are cultural, which are much more challenging to address, for instance, the differences in consumer preferences and tastes, distinctive business culture and practices, and language barriers, and others are more structural, which the EU is determined to tackle, concerning technical standards and regulatory issues.88 A survey was conducted to measure how Japanese NTMs affect the bilateral
85 Ibid.
86 Japan-EU EPA.
87 Dimitri Vanoverbeke, Chapter 16 ’The Dynamics in the EU-Japan Relationship" in EU-Japan Relations, 1970-2012: From Confrontation to Global Partnership by Jorn Keck, Dimitri Vanoverbeke and Franz Waldenberger (New York: Routledge, 2013): 330.
trade relations by consulting with about 120 European companies that operate their business in Japan. Three quarters of these firms answered that it is substantially more difficult for them to conduct business in Japan than in other markets due to cultural and structural barriers.89 In fact, Japanese NTMs increase the cost of EU exports by 10 to 30%, and it makes it considerably harder for European firms to enter and succeed in the Japanese market.90 In concrete terms, NTMs imposed by Japanese government include the following: 1) standards, technical regulations, and conformity assessment, 2) border and customs procedures, 3) distribution restrictions, 4) pricing and reimbursement rules, 5) public procurement issues, 6) intellectual property rights, and 7) other non-tariff measures, and the first one is the most critical issue in the EU-Japan trade relations.91 Supposing that some of Japanese NTMs would be reduced or alleviated, it would give European companies more open access to the Japanese market with reduced transaction costs and less complex procedures. Therefore, It is quite obvious why the EU has been pushing Japan on this matter.
Another major area of interest for the EU is Japanese tariffs on agricultural products. In general, both the EU and Japan set low tariffs on imported goods, and this is particularly true for Japan. While the trade-weighted tariff protection in the EU for Japan’s exports is 3.4% on average, the trade-weighted tariff protection in Japan for EU exports is 1.7%, or a half of the rate the EU imposes on Japanese products.92 For this between the EU and Japan, Final Report, Copenhagen Economics (Copenhagen, November 30, 2009): 7; Keith Maguire, “Penetrating the Japanese Market: The Challenge of Non-Tariff Barriers,” European Business Review 13, no. 4 (August 1, 2001): 246,247.
89 Sunesen, Francois, and Thelle, Assessment of Barriers to Trade and Investment between the EU and Japan: 7.
90 Ibid. 91 Ibid: 15.
reason, Japanese tariffs, unlike its NTMs, do not usually pose any serious problems for European companies. However, Japanese tariffs on certain goods, specifically agricultural products, processed food, and beverages, are exceptionally high. Japan’s tariff on European agricultural produce and beverages is 34.7% on average, and the rate for some products exceeds as much as 500%.93 Although food-related imports from the EU constituted a relatively small share (11.7%) of Japan’s overall imports from the EU as of 2012, it is estimated that European agricultural industries will be a primary beneficiaries if Japan’s tariffs on those products are alleviated.94 As a matter of fact, the EU is one of the major agricultural producers in the world after China and the United States while Japan’s agricultural sector contributes to merely 1% of its GDP (value added, in 2012) and composes 1.4% of its total industries.95
The EU is especially interested in the five key agricultural categories that the Japanese government currently protects through tariffs, including wine, dairy products, and pork.96 Regarding wine imports, there is a curious precedent for European wine makers. Since Japan and Chile signed an EPA in 2007, Japan has incrementally reduced its tariff on their wine imports and the share of Chilean wine in the Japanese market has jumped from 7% in 2006 to 17% in 2012.97 European agricultural industries have voiced their support for the EPA negotiations with Japan, and such major Brussels-based organizations as FoodDrinkEurope, European Farmers and European
93 Ibid.
94 Trade Statistics of Japan (Ministry of Finance, Japan, 2012), http://www.customs.go.jp/toukei/info/index_e.htm.
95 Data: Agriculture, Value Added (% of GDP) (The World Bank, 2013), http://data.worldbank.org/indicator/NV.AGR.TOTL.ZS.
96 Tadashi Isozumi, “Japan in Depth / EU Pushes for EPA,” The Japan News/ The Yomiuri Shimbun, April 6, 2014, http://the-japan-news.com/news/article/0001189705.
Agri-Cooperatives (COPA-COGECA), and European Liaison Committee for the Agricultural and Agri-Food Trade (CELCAA) are some of the proponents. In sum, Japanese non-tariff barriers especially for automobiles, electronics, and other manufactured goods and tariffs on agricultural products are the two crucial factors that prompt the EU to embark on a comprehensive free trade agreement with Japan.
Deterrents for the EU
Strong concerns over the possible conclusion of the EU-Japan EPA are evident in the European automobile industry, and Germany, France, and Italy have been skeptical about the benefit of a free trade deal with Japan. The automobile industry is a key driver of the EU trade, creating a surplus of 114.1 billion Euro and supporting 11.6 million jobs.98 Germany, a leader of car production in Europe, is a home to a number of well-known companies including BMW, Volkswagen, and Mercedes-Benz, and its automotive sector accounts for about 20% of the total German industrial revenue.99 In contrast to German manufacturers’ relatively stable performance, the French auto industry, led by such companies as Renault and Peugeot, has been stagnant for over a decade. In 2013, French vehicle sales hit the lowest in 15 years, a decline of 5.7% compared to the previous year of 2012.100 The French automobile industry has been
98 Japan/EU Free Trade Agreement: A “One-Way Street” for EU Automobile Industry (Brussels: European Automobile Manufacturers Association, November 29, 2012), -,
http://www.acea.be/press-releases/article/press_release_japan_eu_free_trade_agreement_a_one-way_stre et_for_eu_automob.
99 The Automotive Industry in Germany, Industry Overview (Berlin: Germany Trade and Invest, 2013 2012): 3.
100 David Jolly, “French Automakers’ Biggest Problem? French Consumers,” The New York Times, January 29, 2013, International edition,
suffering from the aftereffects of the Eurozone crisis, and although the CCFA, the French Carmakers’ Association, predicted the profit would increase in 2014 with a sign of slight improvement in sales performance in December 2013, the business outlook is still precarious for the French auto industry.101 Also, Italy, another major car producer in Europe, is facing a series of challenges that include a weakened economy and tight credit conditions.102
The European Automobile Manufacturers Association, or ACEA, is a major lobbying group in the EU, representing 15 leading automakers that include BMW Group, PSA Peugeot Citroen, Volkswagen Group, and Volvo Group. The ACEA has continuously voiced their doubts about potential benefits of the bilateral EPA for the European automobile industry. On July 19th, 2012, the ACEA issued a press release, saying that the EU-Japan EPA would disproportionally favor the Japanese automobile industry and it would not be mutually beneficial.103 Through the elimination of existing 10% tariffs on Japanese cars, they estimated that the bilateral EPA would save Japanese manufacturers approximately 1.2 billion Euro a year, or 1,500 Euro for every Japanese imported car.104 European automakers fear that Japanese cars would flow into the European market, as was the case with South Korea after the EU-South Korea FTA was concluded in 2009, and it negatively affect the auto industry in Europe. Secretary General of the ACEA Ivan Hodac said, “Car production (in Europe) could go down by
101 “French Car Market Showing Signs of Life after Dismal 2013.”
102 “Italian Government Meets with Car Industry to Tackle Sales Crisis,” Reuters, October 24, 2013, http://www.reuters.com/article/2013/10/24/italy-autos-idUSL5N0IE3UM20131024.
103 Auto Industry Skeptical about Benefits of EU/Japan Free Trade Agreement (Brussels: European Automobile Manufacturers Association, July 19, 2012),
