[ Nippon Keidanren ] [ Policy ]
(tentative translation)

Call for the Start of Joint Study
for a Japan-EU Economic Partnership Agreement

June 12, 2007

Nippon Keidanren
(Japan Business Federation)

Call for the Start of Joint Study
for a Japan-EU Economic Partnership Agreement

(Chart) <PDF>

1. Building new Japan-EU relations and an Economic Partnership Agreement (EPA)

  1. (1) Nippon Keidanren issued "Toward a Closer and Stronger Economic Partnership between Japan and Europe -- Nippon Keidanren's Observations and Views on European Integration and the Japan-Europe Business Relations" #1 in April 2006. In this proposal, we emphasized the necessity of advancing Japan-Europe economic relations to a new stage through expanding trade as well as promoting partnership and cooperation for resolving global issues, so that current favorable economic relations do not lead to a state of mutual indifference. Based on this recognition, Nippon Keidanren Chairman Mitarai led a mission to Europe last autumn to exchange views with government and business leaders of major member countries of the EU and the European Commission.

  2. (2) Nippon Keidanren also issued a proposal titled "Towards Broader and Deeper Economic Partnership Agreements" #2 in October 2006, urging the Japanese government, ruling parties, and other concerned organizations to simultaneously and expeditiously promote multilateral EPAs, such as one with ASEAN as a whole, as well as bilateral EPAs with strategically important countries, focusing on East Asia. In the last six months, the government has been strenuously moving forward on negotiations, so that it is likely to reach agreements soon on bilateral EPAs with almost all of the major ASEAN countries.
    However, trade with the countries with which Japan has concluded or has in principle agreed to conclude EPAs, including non-ASEAN nations, accounts for only 14% of total volume. Even including the countries with which Japan has started negotiations, it covers only one-third of the total. In light of what other countries are doing, it continues to be necessary for Japan to move forward energetically to conclude more EPAs.
    While Nippon Keidanren has maintained that the Japan's East Asian neighbors and those countries which supply natural resources, energy, and food to Japan should be given priority as prospective EPA partners, the countries and regions meeting the following criteria should be also taken into consideration.
    First, priority should be placed upon countries and regions with which EPAs would certainly expand or facilitate trade and investment, for example, those which are major destinations of Japan's exports and direct investment, or those which currently have high barriers against Japan's exports and direct investment.
    Second, countries and regions with which other countries competing with Japan in many industrial sectors have signed FTAs (Free Trade Agreements) or are currently negotiating to sign FTAs. In order to avoid economic disadvantages, Japan must start negotiating with these countries and regions as soon as possible.
    Third, countries and regions with which Japan should maintain and reinforce relations from political or security points of view, for example, those having common values with Japan or those which play an essential part in fostering Japan's comprehensive security.

  3. (3) The EU has integrated and enlarged to some 500 million in population and 13.6 trillion dollars in GDP, enhancing its international presence and forming the world largest single market. For Japan, the EU is not only the second largest export and direct investment partner #3 after the US, but it also shares with us such basic values as democracy, the rule of law, and the market economy. On the other hand, the EU still sets high tariff barriers, rarely seen in the other developed countries, on home electronic appliances, passenger cars, and other products.
    In this context, South Korea, which competes with Japan in many industrial sectors, has started negotiations on an FTA with the EU in May, after reaching a conclusion on an FTA with the US in early April this year. Therefore, the EU meets all the above-mentioned three criteria for new EPA partners, and must be seen as a high priority partner with which to conclude an EPA.
    "FTA/EPA competition," previously seen in East Asia, has expanded to Europe and America. In order not to be left behind in this competition, Japan should not delay in commencing jointly with the EU an industry-academia-government study geared toward producing an EPA. In this regard, the outcome of the existing frameworks, including the Japan-EU Regulatory Reform Dialogue, should be utilized to reach a conclusion as soon as possible.

2. Benefits expected from an EPA with the EU

An EPA concluded between Japan and the EU, both of which are major players in the world economy, must be comprehensive and of high quality, so it may serve as a model for other FTAs. The following are items which the Japanese business community are eager to have reflected in an EPA as the result of negotiations with the EU. In addition, it is imperative for both Japan and the EU to develop and improve their respective rules and systems for economic activity, and to promote their harmonization. This would be conducive to improving business predictability, leveling the playing field, and enhancing economic relations #4.

(1) Tariffs and tariff classification

The EU keeps much higher tariffs on passenger cars (10%), electronic appliances (14% maximum), and other products than other developed countries. Moreover, as recent progress in technology led to development of multifunction products and the Harmonized System was amended, there have been cases in which the European Commission altered tariff classifications or is about to do so to impose duties on products that should be exempted from tariffs pursuant to the Information Technology Agreement (ITA). Such products include digital multifunction machines (categorized as copy machines, for which a tariff of 6% has been imposed), liquid-crystal display monitors for PCs (subject to a tariff of 14 % for video monitors, though provisionally zero for those of 19 inches or smaller until the end of 2008), digital cameras equipped with a video recording function (the EU is reviewing the criteria classifying these products into roughly two categories; one to be subject to the 4.9% tariff for camcorders, and the other to be free of tariff under the ITA as digital cameras) #5.
If the conclusion of an EPA leads to removal of such tariffs and improvements concerning tariff classification, it can help increase exports from Japan. On the other hand, if South Korea, which is competing with Japan in automobiles, electronic appliances, and other industrial sectors, signs a FTA with the EU, leaving Japan lagging behind, it will cause huge damage.

(2) Business and investment environment

In many of the EU member countries, Japanese companies have difficulties in employing or relocating their staff smoothly and systematically, as it takes many days to obtain or renew visas, work permits, and residence permits. It is hoped that the procedures for relocating staff within a company will be simplified and speeded up.
In addition, it will be beneficial to establish a framework for governments and private sectors in Japan and the EU to jointly review various systems. Through such a framework, it is hoped that opinions from private sectors will be heard even after the conclusion of an EPA, and that governments and private sectors will continue to work together to improve the business environment and the agreement itself.

(3) Intellectual property rights

It is hoped that an EPA will include high-quality provisions for protecting intellectual property rights, to be effectively enforced in regulating counterfeits and pirated products, imposing stricter penalties and enhancing cooperation on countermeasures in third countries against such counterfeiting and piracy. #6

(4) Electronic commerce

The EPAs Japan has concluded to date have only very limited provisions on electronic commerce. On the other hand, FTAs that the US and Australia have concluded include chapters on electronic commerce. Japan also needs to conclude EPAs to promote both the liberalization of trans-border electronic commerce and formulation of necessary rules on it in order to foster electronic content and other businesses. An EPA with the EU, for instance, should include a specific chapter on electronic commerce in which digital content (software, audio, video, etc) is exempted from custom duties. #7 Provisions in the chapter on services should be also applied to electronic transactions involving them.

(5) Mechanism for settling disputes related to EU directives

When EU directives are not adequately transposed into laws of member countries, or where the relations between the two are ambiguous, business operations can be subjected to additional costs that could hamper business transactions between Japan and the EU. Therefore, it is hoped that a specific mechanism can be created for settling disputes caused by the fact that EU directives are not adequately reflected in laws of member countries #8.

3. Matters to be considered when concluding an EPA with the EU

(1) Maintaining and strengthening the multilateral free trade system under the WTO

The multilateral free trade system under the WTO is designed to promote trade liberalization while making and improving the global rules governing trade. In order to maintain and strengthen the system, it is essential to reach an agreement on the Doha Round by the end of this year. Japan should take the initiative in bringing this about.
EPAs are meant to pursue more liberalized trade and stricter discipline between particular nations and regions than that achieved through negotiations within the WTO framework, and to complement the multilateral free trade system, not to weaken it. Since concern has been expressed about the conclusion of an EPA between Japan and the EU, which together account for some 40% of the global economy, it is important for Japan to reach a comprehensive and high-quality EPA with the EU commensurate with one between highly developed countries. An EPA of this nature will certainly also help accelerate global trade liberalization and strengthen the world's multilateral free trade system. #9

(2) Establishment of healthy domestic agriculture, with due consideration for agricultural products

In promoting the conclusion of EPAs, the utmost challenge for Japan is to construct a competitive and healthy domestic agriculture. In this context, structural reform in the agricultural sector must be steadily advanced and even accelerated. At the same time, in negotiations for an EPA, it will be necessary to ask the EU for special consideration regarding Japan's domestic agricultural sector so that the structural reform that has just started can be conducted effectively. In particular, while the EU might be interested in expanding its processed food exports to Japan, it is a prerequisite for further reduction of tariffs that market conditions be developed in which the domestic food processing industry can compete fairly with imported products in terms of procurement of materials. At present, Japan's food processing industry has difficulty in procuring low-priced materials from abroad, and is obliged to purchase relatively expensive domestic raw materials.
When conducting an industry-academia-government joint study, it is important to estimate and clarify the costs to the consumer currently imposed by border measures on products of agriculture, forestry, and fisheries imported from the EU #10 and the potential industrial adjustment costs incurred when these border measures are abolished. By doing so, the joint study is expected to contribute to building a national consensus.

  1. See http://www.keidanren.or.jp/english/policy/2006/017.html

  2. See http://www.keidanren.or.jp/english/policy/2006/072/index.html

  3. Japan's exports to the EU (25 nations) were 10,911.7 billion yen (14.5 % of total exports) in 2006, while exports to the U.S. amounted to 16,933.6 billion yen (22.5 % of the total). Source: "Trade Statistics," Ministry of Finance
    Japan's direct investment (cumulative stock) to the EU was 10,824.7 billion yen(23.7 % of the total) at the end of 2005, with that to the U.S. standing at 17,639.9 billion yen(38.7 % of the total) Source: "Balance of Payments Statistics," Ministry of Finance

  4. The EU-Japan Business Dialogue Round Table (BDRT) presented recommendations proposing that Japan and the EU authorities establish a task force with business support to explore the feasibility of a Japan-EU Economic Integration Agreement (EIA). This would be an enriched economic agreement that includes priority issues for business, such as strengthened regulatory cooperation, intellectual property, trade enhancement, and improving the investment environment. The BDRT expects the results of the task force to be available by the 2008 BDRT meeting.
    See http://www.eujapan.com/roundtable/officialdocs.html
    See also the recommendations of the European Business Council: http://www.ebc-jp.com/news/2007%20EIA%20Position%20Paper%20-%20Final%20(E).pdf

  5. Japanese companies see the EU's high tariffs as hindering exports of such products as automobiles and electronic appliances, according to the appendix "Nations/regions and items of interests in negotiation for non-agricultural market access (NAMA): Results of a survey conducted in April/May 2006" in Nippon Keidanren's proposal "Japanese business community calls on all WTO members to save the WTO Doha Round: Nippon Keidanren urges final agreement during 2006" announced on June 20, 2006. Among such products, the survey cited color TV/video monitors and multifunctional liquid crystal display monitors (tariff 14%), passenger cars (10.0%), DVD recorders (14.0%), car radios with CD players (RDS) (14.0%), camcorders (4.9% or 12.5%), audio amplifiers with radio receiver (9.0%), lenses (6.7%), ink cartridges (6.5%), toners (6.0%), porcelain insulators (4.7%), and synthetic resin materials (6.5%).
    See http://www.keidanren.or.jp/english/policy/2006/039.html
    http://www.keidanren.or.jp/japanese/policy/2006/039/betten1.html (Japanese)

    A similar argument was presented in "Toward a closer and stronger economic partnership between Japan and Europe: Nippon Keidanren's Observations and Views on European Integration and Japan-Europe Business Relations" issued on April 18, 2006.
    See http://www.keidanren.or.jp/english/policy/2006/017.html

    The Information Technology Agreement (ITA) was concluded in the WTO ministerial meeting held in Singapore in December 1996, with 69 participating members including Japan, Europe, and the U.S. It covers 97% of IT products traded worldwide.

  6. Similar remarks were made in the following Nippon Keidanren's proposals: "Towards broader and deeper economic partnership agreements" (October 17, 2006), "Call for the start of joint study for a Japan-U.S. Economic Partnership Agreement" (November 21, 2006), "Call for the earlier conclusion of a Japan-Switzerland Economic Partnership Agreement" (February 20, 2007), "Proposals for the Intellectual Property Strategic Program" <PDF/Japanese> (March 20, 2007).
    http://www.keidanren.or.jp/japanese/policy/2007/019.pdf (Japanese)

  7. Nippon Keidanren's proposal in regard to the WTO Doha Round, "Japanese business community calls on all WTO members to save the WTO Doha Round: Nippon Keidanren urges final agreement during 2006" (June 20, 2006), calls for making the moratorium of customs duties on electronic transactions permanent.
    See http://www.keidanren.or.jp/english/policy/2006/039.html

  8. See "Toward a closer and stronger economic partnership between Japan and Europe: Nippon Keidanren's Observations and Views on European Integration and Japan-Europe Business Relations" ( April 18, 2006).

  9. The European Commission presented comparable remarks in its communication to the Council, the European Parliament, the European Economic and Social Committee, and the Committee of the Regions; "Global Europe: Competing in the World -- A Contribution to the EU's Growth and Jobs Strategy" {COM(2006)567}.
    In a press interview regarding this document, European Commissioner Mandelson made a comment "Doha first has never meant Doha alone."

  10. Of Japan's total imports from the EU (2006), dutiable agriculture, forestry, and fisheries products accounts for 10.46%.

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