The European Union and Japan made commitments on Saturday (28 May) to launch "pre-negotiations" in view of signing a free trade agreement (FTA). But they failed to set a precise timeline and maintained opposing views on the automotive sector and other sensitive areas.
Meeting in Brussels for their 20th bilateral summit after the G8 meeting in Deauville, European Union and Japanese leaders agreed to intensify meetings at technical level to define the scope of negotiations on a possible FTA.
The so-called 'scoping' exercise will start "as soon as possible," both sides agreed.
EU experts said the scoping exercise represented a pre-condition of negotiating a comprehensive free trade agreement, although such a condition was not deemed necessary when the EU signed an FTA with South Korea last year.
Formal negotiations will only start at the end of the exercise, which is expected to last for 6-9 months. In the meantime, the European Commission committed to seeking a mandate from EU member states to formally start the talks.
However, no date is mentioned in the joint text issued at the summit's conclusion.
A long history of trade friction
The Japanese agreed to negotiate all the issues which have poisoned bilateral trade relations for a long time, including non-tariff barriers, foreign investment and public procurement.
In fact, although Japan imposes low duties on imported goods, it still has a very closed market due to a number of legal barriers. "You export a car to Japan and later you discover that the authority in charge of road security blocks its sale because it does not respect complex safety standards, like the shape of a side-window," explained an EU official.
Foreign investment is also strongly limited. "Japan is the OECD member [which is] by far [the] less open to foreign investment – less than 3% of GDP – while we are the most open at 30% of GDP," said an EU diplomat.
EU foreign direct investment (FDI) in Japan has sharply decreased in recent years from €5.5 billion in 2007 to a net disinvestment of €4 billion in 2010, according to Eurostat.
But Japanese officials beg to differ. "The European market is much more protected than the Japanese," claimed Japan's foreign ministry spokesperson Satoru Satoh, speaking to EURACTIV.
"Japan and Europe have a long history of unsolved trade frictions," said a top European Commission official, intimating that the launch of a lengthy and open-ended process should in itself be seen as a significant step forward.
But those who were expecting more significant progress from the summit in the wake of Japan's earthquake and tsunami in March will remain disappointed.
Japan under pressure to conclude talks
Japan is under pressure to strike a free trade deal with Europe following the conclusion of an EU-South Korea agreement in December. South Korea's lead is putting pressure on the Japanese authorities to close the gap with their increasingly challenging competitors from Seoul.
Naoto Kan, the country's prime minister, is under fire at home following the nuclear disaster in Fukushima, triggered by the devastating earthquake and tsunami in March.
In charge since June 2010, Kan is at risk of joining growing ranks of short-lived Japanese leaders and faces a possible no-confidence motion in parliament. Announcing easier access to Europe's huge internal market would earn him some political credit.
The deal would have even more relevance now, given the economic crisis engulfing Japan amid huge reconstruction bills following the earthquake.
For European industry, the Japanese market is a coveted target and opening it up would obviously be a major success for EU firms. European companies have long complained of the difficulty of breaking into the Japanese market (see 'Background') and stand to gain from easier access.
Nevertheless, protectionist attitudes are growing in many member states, as shown by the dispute which preceded the FTA with South Korea.
Indeed, the Commission is likely to struggle to obtain a mandate to negotiate a free trade deal with Japan.
The European Parliament has also voiced its concerns about a trade deal with Japan. The EU car industry, which was among the fiercest opponents of the FTA with South Korea, praised the EU's tough stance in the negotiations, saying it had "not given unconditional green light for a free-trade agreement with Japan".
European Council President Herman Van Rompuy said at the end of the summit: "We have taken an important step in our trade relationship. By launching a 'scoping exercise' we have set the course towards a Free Trade Agreement between the Union and Japan. We still have a long way to go, but the objective is now clear."
European Commission President José Manuel Barroso said: "I am convinced that an ambitious, comprehensive agreement that tackles all the barriers – ranging from procurement and investment barriers to tariffs and non-tariff measures – would give opportunities for trade and business on both sides, and release untapped potential in our economic relationship."
"We reached an agreement to start the process of negotiations. Japan has come up with a decision to address the main European concerns – especially procurement and non-tariff barriers," said Japanese Prime Minister Naoto Kan at a press conference after the summit.
German MEP Daniel Caspary (European People's Party), trade policy coordinator in the European Parliament, warned against rushing negotiations over a free-trade agreement with Japan. "There are still too many barriers for European companies in Japan such as arbitrary non-tariff trade barriers and almost no access to public contracts," he said ahead of the EU-Japan summit.
"Instead of rushing headlong into new negotiations over a free-trade agreement, EU countries should insist on tangible results during the ongoing trade talks with Japan," he added.
Ivan Hodac, secretary-general of ACEA, the European carmakers' association, said: "Importantly, there cannot be an automatic opening of FTA negotiations, regardless of the outcome of the scoping exercise. Its findings must be thoroughly analysed."
EU-Japan trade relations are characterised by a structural deficit for the EU, with European countries importing much more than they export.
During the global economic crisis, EU imports declined significantly, from €76 billion in 2008 to less than €57 billion in 2009. They rebounded in 2010, reaching almost €65 billion but remained much lower than in 2000.
EU exports to Japan have remained stable over the decade at around €45 billion. As a consequence, the bloc's trade deficit with Japan has shrunk from almost €50 billion in 2000 to €21 billion in 2010, according to Eurostat, the EU's statistical office.
The idea of negotiating a free-trade deal with Japan follows decreasing trade exchanges between the two parties. It is also part of a wider EU strategy of sealing bilateral deals after the repeated failures of multilateral trade negotiations.
In line with this new approach, in October 2010 the EU signed a key free-trade agreement with South Korea, the first such deal with an Asian country, and the most far-reaching trade deal the EU has ever signed.
This has increased pressure on the Japanese to negotiate a similar agreement, given that Korea is a direct competitor of Japan in many areas.
- The scoping exercise will be launched "as soon as possible" to assess how far trade negotiations can go.
- Beginning of 2012: Possible conclusion of scoping exercise.
- European Council:Conclusions of EU-Japan Summit(28 May 2011)
- European Council:Van Rompuy’s speech(28 May 2011)
- European Commission:Barroso’s speech(28 May 2011)
- Eurostat:EU-Japan trade 2000/2010(26 May 2011)
Business & Industry
- European Automobile Manufacturers' Association (ACEA):'Scoping exercise' for assessing trade negotiations EU-Japan must cover all relevant fields(28 May 2011)
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