EU eyes closer trade ties with Japan

The Covid-19 pandemic has stalled economies and revealed vulnerabilities and shortcomings in global value chains. We need a resilient and sustainable European recovery by fostering sustainable and digital industrial ecosystems that can diversify trade, stimulate sustainable growth and create jobs, write Reyes Maroto and Simon Kollerup.

The European Commission is looking at removing trade barriers with Japan after signing a milestone free trade agreement with South Korea earlier this month, according to a draft EU trade strategy seen by EURACTIV, scheduled to be published next week..

"Japan is no longer perceived in Europe as an economic threat, but as an opportunity," reads the document, which Trade Commissioner Karel De Gucht will present next week when he outlines the EU's trade priorities for the years to come.

This represents a drastic about-turn from the long-standing approach held by the EU, dominated by many trade disputes with Tokyo.

"Japan continues to be a country where, for specific structural features of the Japanese society and economy, doing business or investing is often particularly difficult. Like with the USA, a potential for trade disputes has existed in the past," underlines the Commission's official webpage dedicated to relations with Tokyo.

The new trade strategy takes the opposite view. The document does not go as far as mentioning the idea of negotiating a free trade deal with Japan, which many EU countries would oppose, but clearly states that the Commission "will seek to deepen our trade and investment relations with the Far East".

To many observers, this seems a logical consequence of the free trade deal (FTA) signed with South Korea, which is a direct competitor of Japan in exporting to the EU. Such a deal with Seoul is clearly damaging Tokyo, and Europe cannot afford to worsen relations with its Asian partner on a number of crucial global issues.

Although clearly opening to Japan, the Commission paper recalls that "regulatory obstacles to trade in goods, services and investment remain high and are perceived as being as insurmountable as ever". Therefore, it links further steps to "Japan's capacity to demonstrate that these barriers can be removed".

A wide range of EU goods are not in line with Japanese rules and standards, which often genuinely diverge from the EU's, but in many cases are used as non-tariff barriers to protect local industries.

A liberal approach?

De Gucht's strategy is also characterised by a distinct liberalist approach, where trade is considered unilaterally beneficial to economic growth, consumer benefits and labour. Further opening up the EU market is therefore the logical consequence of such an approach.

The text underlines trade-related gains for EU consumers, ranging from "a wide variety of goods and services" to "lower prices", but falls short of highlighting that unfair competition from third countries has damaged some top quality EU products, resulting in a loss of quality for EU consumers.

As for the labour impact, the document stresses that "more than 36 million jobs in Europe depend, directly or indirectly, on our ability to trade with the rest of the world".

It goes on to say that "trade openness continues to enhance welfare levels and boosts employment and wages in developed economies, including in the EU," in spite of the serious decline in jobs and working conditions experienced in Europe in recent years, also as a consequence of higher competition with countries with much lower social standards.

Indeed, the Commission itself had to set up the so-called European Globalisation Adjustment Fund (EGF) to help retrain those who are losing their jobs in Europe as a consequence of increased trade with countries with low social standards, critics argue.

De Gucht's document recognises the need to strengthen the EGF but does not propose any other relevant measure to support the victims of deepening globalisation.

Contradicting proposals

De Gucht's trade strategy is one of the items on the Commission agenda for next Wednesday (27 October). The same day, the EU executive is also set to adopt Industry Commissioner Antonio Tajani's plan for the future of the EU industrial policy.

While De Gucht's paper is all centred on the importance of services for the EU economy, Tajani's document will instead focus on the key role played by the EU manufacturing industry for European development.

The word 'manufacturing' does not even appear in De Gucht's strategy except when it says that "an effective global manufacturing supply chain cannot exist without the vital support of transport, telecoms, financial, business and professional services".

Pakistan case as a rule-setter?

In recent weeks, De Gucht has come under fire for a controversial proposal to transform aid policy to flood-hit Pakistan into a trade opportunity. He was forced to review the proposal on several occasions due to tough opposition, even within the Commission itself.

His strategy seems to suggest that the Pakistan proposal could become normal business.

"In 2011, the Commission intends to adopt a Communication on trade and development. This will reflect in a broad sense on how our trade policy can best serve developing countries," reads the draft document.

"One example concerns how trade can help respond in a timely but temporary manner to the humanitarian impact of natural disasters, such as the earthquake in Haiti or the recent floods in Pakistan," the paper makes clear.

According to the latest estimates provided by EU statistical office Eurostat, in August the extra-EU trade balance among the EU-27 registered a 17.3 billion euro deficit, compared with -12.4 billion euro in August 2009.

The deficit is built up mainly due to imbalances with China, Russia, Norway and Japan, while the EU has its most relevant trade advantages with the US, Turkey and Switzerland.

After repetitive failures to bring ahead World Trade Organisation (WTO) negotiations over a new global trade deal, the EU has increasingly engaged in improving its bilateral relations with key partners.

Earlier this month a key free trade agreement with South Korea was signed. It was the first deal with an Asian country. The EU is already applying free trade agreements with South Africa, Chile, Mexico, members of the European Economic Area, almost all Mediterranean and Balkan partners and Caribbean partners.

  • 2011: Brussels aims to make significant progress with ongoing bilateral trade negotiations, launch new trade negotiations with ASEAN countries and set up self-standing investment negotiations with key partners.
  • 2011: The Commission intends to propose a market access instrument to help secure and increase symmetry in access to public procurement markets in developed countries and large emerging market economies.
  • 2011: Brussels plans to conclude debate with member states and the European Parliament on a new investment policy for the EU.
    2011: Commission will launch a Green Paper on how to develop the mutual supportiveness of internal and external market opening, in particular in goods and services regulations.
  • 2011: Foreseen adoption of a Commission Communication on the relationship between trade and development and a legislative proposal to reform the Generalised System of Preferences for developing countries.
    2011: Green Paper seeking to improve EU export control system.
  • 2011: Commission intends to present a Communication on possible support measures to help SMEs that want to develop their international activities.
  • From 2011 onwards: Commission plans to publish an annual trade and investment barriers report for the Spring European Council. 

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