The European Union and Japan agreed on Monday (25 March) to launch talks on one of the world's most ambitious trade deals despite opposition from European carmakers, a test of how far both sides are willing to go in their hunt for economic growth.
Japanese Prime Minister Shinzo Abe, European Commission President José Manuel Barroso and European Council President Herman Van Rompuy discussed the plan by phone after Brussels postponed an EU-Japan summit scheduled in Tokyo for Monday to hammer out a last-minute deal to resolve the Cyprus financial crisis.
"The leaders decided to launch negotiations for an agreement covering political, global and sectoral cooperation," Abe, Van Rompuy and Barroso said in a joint statement.
"The leaders welcomed the start of the negotiations in April and expressed their commitment to the earliest possible conclusion of these agreements."
Brussels and Tokyo want to deepen a relationship that encompasses one-third of global economic output but is hampered by regulations closing industries to outsiders.
The first round of formal talks expected as soon as next month would mark about three years of difficult negotiations in which Japan will try to win greater access to the EU market of 500 million consumers for its cars, electronics and investment. The Europeans will push for business in lucrative Japanese markets such as processed food and railways.
Japan already has low or zero import tariffs on many EU goods, so the real prize for Europe is removing special regulations on everything from music to imported cars.
Reform-minded Abe, who was elected in December, has so far given positive signals his government is ready to move, allowing two European companies to join bidding for Tokyo railway contracts.
Automotive industry unmoved
European carmakers, however, doubt Tokyo's commitment to open up its market.
"We're more than deeply sceptical. There's not a single foreign [car] manufacturer in Japan, so there's really no possibility to enter the market," Stephen Biegun, Ford vice president of international governmental affairs, told Reuters.
At first sight, the EU market is more protected than Japan's, with a 10% tariff on imported Japanese cars and 22% on trucks.
But EU carmakers say numerous barriers hinder exports. One is Japan's use of its own safety and environmental standards rather than international ones adopted by the EU, which makes approvals costly and time consuming.
Another contentious issue is Japan's category of "light" cars. These benefit from tax breaks, but most small European cars do not fit the category's criteria on size and power.
Such rules particularly annoy France and Italy, whose automakers specialise in smaller cars and struggle with foreign competition and a shrinking market at home. Car sales in Europe fell to their lowest level in at least 23 years in February.
EU trade negotiators have been told to pull the plug on talks after a year if Japan does not show sufficient willingness to bring down its "non-tariff barriers".
Lord Green, the British minister for Trade and Investment, said in a statement: "I warmly welcome today's launch of negotiations between the EU and Japan for a comprehensive free trade agreement. This is an important step towards liberalising trade between two of the world’s largest economies. An EU-Japan deal could increase EU GDP by €42 billion a year, with a significant portion of the prize coming to the UK.
"Trade is a key part of the Government's plan to rebalance the economy and support stronger growth which is why the prime minister [David Cameron] has made it a cornerstone of our G8 presidency this year. This free trade agreement will not only strengthen our relationship with a key ally in Asia but help boost our economic links with the wider region."
The world's third-largest economy, Japan is the EU's seventh largest export market buying €69 billion worth of European goods in 2011.
For Japan, the EU ranks as its third-biggest market with shipments of 6.5 trillion yen (€52.95 billion) in 2012. The European Commission believes a free-trade deal could lift the economic output of both sides by almost 1% each.