EU threatens Japan to suspend FTA negotiations if…

Kojiro Shiojiri, Head of the Mission of Japan to the EU, Yoshio Nakamura, Director General of the Keidanren, Nobuo Katsumata, Vice-Chairman of the Keidanren, José Manuel Barroso, President of the EC, Hiromasa Yonekura, Chairman of the Keidanren, and Katsuaki Watanabe, Vice-Chairman of the Keidanren (from left to right). Keidanren is the powerful Japanese Business Federation. (EC Audiovisual library).

The two Presidents of the EU, José Manuel Barroso of the Commission and Herman Van Rompuy of the Council couldn’t fly yesterday to Tokyo for the EU-Japan Summit, due to the ongoing developments around the Cyprus issue. This was not enough however to impede the beginning of negotiations for the conclusion of a Free Trade Agreement (FTA) and an Economic Partnership Agreement (EPA) between those two major economic partners. The Tokyo government was pressing hard to start this, because the Japanese officials wanted their trade negotiations with the EU to evolve in parallel with the EU-US talks, also for the conclusion of an FTA.

EU, Japan, US

The reasons are obvious. Unquestionably the signing of a trade agreement between the EU and the US before the end of 2014, is set to harm the trade of all the other major economies of the world with those two economic super-powers. In view of that and despite the fact that the two European presidents could not attend the EU-Japan Summit in Tokyo, the country’s Prime Minister Shinzō Abe, insisted on signing with the two European dignitaries a common communique, after a telephone conversation with them. This is a clear indication that Japan needs to watch very closely the EU-US trade negotiations. Along with other major Asian trading nations like China and Korea, Japan fears an EU-US trade agreement will come at a great cost to her.

In a joint statement the two EU presidents and the Prime Minister of Japan ‘happily’ acknowledged that, “The agreement covering political, global and sectoral cooperation would provide a legal foundation for promoting a stronger partnership in addressing a wide range of bilateral and global issues as part of a shared contribution to global stability, security and sustainable growth”.

It’s noticeable how many times this joint communique refers to the global repercussions the EU-Japan trade agreement will have on the world politico-economic developments. Reading between the lines of this text one can easily detect the Japanese fears.

It’s not only trade with Japan

In the modern global economy though, a trade agreement between two major economic powers like the EU and Japan cannot be restricted to trade. The complexity of the economies in question obliges the two sides to extend their agreement to cover also investments, internal legislation, even the political aspects in the two sides.

To this effect the EU and Japan negotiations which were launched yesterday are of a multi field character. The two sides conceded to aim for a comprehensive agreement in goods, services and investment eliminating tariffs, non-tariff barriers and covering other trade-related issues, such as public procurement, regulatory issues, competition, and sustainable development. The first round of negotiations will be held in Brussels from 15 to 19 April 2013.

Japan is the EU’s 7th largest trading partner globally and the EU’s 2nd biggest trading partner in Asia after China. Conversely, the European Union is Japan’s 3rd largest trading partner, after China and the United States. Together the European Union and Japan account for more than one-third of world GDP.

An agreement between the two economic giants is expected to boost Europe’s economy by 0.6 to 0.8 % of its GDP and will result in growth and the creation of 400.000 jobs. It is expected that EU exports to Japan could increase by 32.7%, while Japanese exports to the EU would increase by 23.5%.

Breaking point

Given that today the trade between the two sides is ‘almost’ free, negotiations are expected to concentrate on certain sensitive areas. Towards this end the Commission agreed with Japan on specific ‘roadmaps’ for the removal, in the context of the negotiations, of non-tariff barriers as well as on the opening up of public procurement for Japan’s railways and urban transport market.

Given the importance that the elimination of non-tariff barriers has for achieving a level playing field for European businesses on the Japanese market, the negotiating directives adopted by the Council foresee a parallelism between the elimination of EU duties and of non-tariff barriers in Japan. They also authorise the suspension of the negotiations after one year, if Japan does not live up to its commitments on removing non-tariff barriers. However to protect sensitive European sectors, there is a safeguard clause.

Automotive barrier

Last but not the EU started the trade negotiations with Japan, despite strong objections from the powerful European automotive sector. In reality this is a test of how deep the two sides want to proceed with the mutual liberalisations of their internal markets, in the pursuit of growth. Both however have a weak point for cars…