[ Nippon Keidanren ] [ Policy ]

Toward Japan-EU Economic Integration

-- Second Proposal for Japan-EU Economic Partnership Agreement --

(Provisional translation)

April 14, 2009
Nippon Keidanren

  1. Basic Thinking
  2. Developments Subsequent to the First Proposal
  3. New Framework for Economic Integration
    1. (1) Comprehensively covering all aspects of economic relations
    2. (2) Realizing a high level of liberalization
    3. (3) Creating a stable business environment
    4. (4) Contributing to strengthening economic relations with third countries
    5. (5) Promoting structural reform in Japan and the EU
    6. (6) Contributing to strengthening political and cultural relations
  4. Regulatory Cooperation for Economic Integration
    1. (1) People [Facilitation of the movement of businesspersons]
    2. (2) Goods [Lowering of non-tariff barriers]
    3. (3) Capital and services [Standstill on regulations and assurance of regulatory transparency]
    4. (4) Information and knowledge [Mutual recognition of patents and control of counterfeit and pirated products]
    5. (5) Government procurement [Facilitation of access to information and assurance of transparency]
    6. (6) Competition [Mandatory prior notification of specific measures]
  5. System for Promoting Cooperation toward Economic Integration

I. Basic Thinking

  1. (1) As the world's largest single market, the EU is Japan's third largest export market following the US and China and its second largest destination for foreign direct investment after the US. The EU is also an important partner for Japan in that both share such basic values as democracy, rule of law and a commitment to the market economy. Compared to the period through the 1980s and early 1990s when there was severe trade friction, Japan and the EU have maintained good economic relations during recent years. At the same time, mutual interests have relatively declined as Japan has continued to develop its trade and investment ties with East Asia, while the EU has steadily expanded its membership and deepened its internal integration.

  2. (2) With the EU's growing presence in the international economy and society, legal and institutional foundations for supporting and further developing close and stable economic relations with the EU is an important challenge for Japan to tackle. In terms of trade and investment, the EU is not as dependent on Japan as Japan is on the EU. However, economic relations with Japan are of continued importance to the EU, particularly in light of shared values and Japan's strategic position as an advanced economy in East Asia, the center for growth in the world economy.

  3. (3) Against this backdrop, the growing awareness that it could not afford to fall behind in the development of economic relations with the dynamic regions of Asia spurred the EU to formulate a new trade strategy in October 2006 and embark on negotiations for the conclusion of free trade agreements (FTA) with South Korea, India and ASEAN. Based on the basic thinking outlined above, Nippon Keidanren issued three years ago a proposal entitled "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" and set forth its views on prospects for strengthening economic relations with an increasingly integrated EU. Following on subsequent developments in the EU, we issued our "Call for the Start of Joint Study for a Japan-EU Economic Partnership Agreement" in June 2007. This first proposal on an economic partnership agreement (EPA) with the EU summarized the concerns of the Japanese business community pertaining to the need to conclude an EPA, particularly in light of the competitive disadvantages that Japanese companies were expected to suffer in EU markets vis-à-vis Korean companies.

II. Developments Subsequent to the First Proposal

  1. (1) The EU and South Korea have already held several rounds of FTA negotiations over the past two years, so the concern that Japanese companies may be placed at a competitive disadvantage vis-à-vis Korean companies, which was the direct reason for formulating Nippon Keidanren's first proposal, is expected to materialize sooner or later. In this context, the government of Japan should not view the establishment of foundations for the further development of economic relations with the EU as a "future issue." Rather, it should consider this to be an issue demanding immediate action. We believe that now is the time to engage in concrete initiatives with the EU, and that there is no good reason for further delaying this process. Working with the EU in the pursuit of concrete common objectives will benefit Japan by providing opportunities for developing a deeper understanding of EU systems and rules. Conversely, the same benefits would accrue to the EU in its relations with Japan.

  2. (2) The financial and economic crisis that has gripped the world since 2008 has given rise to protectionist pressures throughout the world. In addition, the prospects for the WTO Doha Round negotiations have become increasingly uncertain. Under these circumstances, the promotion of bilateral and interregional comprehensive economic relations for the creation of a more liberal and stable business environment is necessary for ensuring economic benefits. Moreover, such initiatives show the rest of the world the commitments of the parties concerned to free trade, thereby contributing to the advancement of the Doha Round negotiations.

  3. (3) Corporate activities are increasingly going global. To ensure the free cross-border movement of people, goods, capital and services, countries and regions throughout the world today are going beyond the reduction and elimination of trade barriers. They are making mutual efforts to improve and harmonize systems and rules to achieve higher levels of economic integration, thereby enhancing competitiveness and stimulating growth. In this context, EU market integration has been a pioneering effort, and the experiences gained from this initiative have contributed significantly to bolstering the EU's ability to formulate international rules. The Lisbon Strategy for growth and jobs is aimed at further expanding and deepening the European regional market. Moreover, related EU initiatives have gone beyond the boundaries of the region. Specifically, the Framework for Advancing Transatlantic Economic Integration was launched with the US in April 2007, and an agreement was reached with Canada in the fall of 2008 to work together to define the scope of a deepened economic agreement. Furthermore, the current financial and economic crisis has shown that existing differences in national and regional systems and rules not only distort competition but also exacerbate risks.

  4. (4) Japanese EPAs by definition go beyond the elimination and reduction of tariffs and are aimed at enhancing the level of economic partnership with the counterpart over a wide range of areas. This includes the elimination of domestic regulations and the harmonization of various types of economic systems. However, partly due to differences in the level of economic development, the EPAs that Japan has thus far concluded have not necessarily included the improvement and harmonization of systems and rules. The first departure from this pattern was seen in the EPA with Switzerland, which was recently signed as Japan's first EPA with a developed country. This agreement contains high-level achievements in the areas of investment, services and intellectual property. Furthermore, this is Japan's first EPA to contain a chapter on electronic commerce and to introduce a framework for origin declaration by approved exporters. As such, the Japan-Switzerland EPA includes provisions that relate to the improvement and harmonization of systems and rules. This agreement should serve as the basis for the development of economic integration-oriented EPAs, and its provisions should be further developed in future EPAs.

  5. (5) The foregoing summarizes the developments that have taken place during the approximately two years since the issuance of Nippon Keidanren's first proposal. These developments point to the increased need to build a new framework for Japan-EU economic relations. We believe that the framework for economic relations between our two advanced economies should go beyond the reduction of border measures to include measures aimed at economic integration through the improvement and harmonization of systems and rules. As stated in the first proposal, the Japanese business community is most interested in abolishing the EU's high tariffs on manufactured goods. On the other hand, the European side has taken a different view, saying that all tariff issues should be addressed at not bilateral negotiations, but at WTO negotiations. In the course of moving forward to economic integration, a win-win relation should be established by promoting the elimination and reduction of tariff and non-tariff barriers all together.

  6. (6) In recent years, various initiatives have also been taken in East Asia and the Pacific Rim for strengthening economic partnerships. Japan has concluded bilateral EPAs with six of the ten ASEAN countries. The EPA with Vietnam currently awaits enforcement. In addition to these, the ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEP) came into force in December 2008. It will also be important to promote East Asian economic integration using AJCEP and other ASEAN+1 agreements as a foundation. Such undertakings can play a crucial role in transforming East Asian economies from ones overly dependent on external demand to ones which develop not only as a manufacturing center but also as a major consuming market. Moreover, the US has proposed a Free Trade Area of the Asia Pacific (FTAAP) and is now negotiating for the Trans-Pacific Strategic Economic Partnership Agreement (TPP). In its pursuit of a stable business environment in Asia based on international rules, it is beneficial for the EU to use Japan as a channel for deepening its relations with the entire Asia region.

III. New Framework for Economic Integration

In light of the basic thinking and recent developments outlined in Sections I and II above, we believe that Japan and the EU should henceforth seek to create a new framework that can be referred to as an "economic integration-oriented EPA." Such a new framework should satisfy the following conditions.

(1) Comprehensively covering all aspects of economic relations

The new framework should comprehensively cover the movement of people, goods, capital and services. It should contain the following basic components that have been incorporated into the EPAs previously concluded by Japan: (1) elimination and reduction of tariffs on merchandise trade, rules of origin, and simplification of customs clearance procedures; (2) improvement of investment-related rules and investment liberalization; (3) liberalization of trade in services; (4) protection of intellectual property; (5) regulation of anti-competition behavior; and (6) discipline in government procurement. Furthermore, as in the case of the Japan-Switzerland EPA, a new framework should include provisions for electronic commerce and origin declaration by approved exporters.

(2) Realizing a high level of liberalization

Under today's mounting protectionist pressures, as advanced economies, Japan and the EU must exhibit a strong commitment to the promotion of free trade. For this purpose as well, the new framework should be ambitious enough to realize further elimination and reduction of tariffs. It should also contain provisions for the elimination of tariffs on environmentally friendly products. Furthermore, the new framework should aim to eliminate any non-tariff barriers that are effectively restricting imports. In addition, the new framework should not only make reference to the existing rules such as the WTO agreements, but seek deeper liberalization, harmonization, etc.

(3) Creating a stable business environment

The realization of a business environment that is as free as possible is an essential requirement for corporations. Moreover, it is also important to ensure predictability and stability. The current financial and economic crisis has led to scattered incidences of revisions to existing systems and rules for the purpose of protecting domestic employment and industries. These recent developments add to the need for establishing procedures for advance notification and consultation in the event of application of trade remedies and competition laws as well as revision of regulations and systems pertaining to foreign investment and domestic business activities.

(4) Contributing to strengthening economic relations with third countries

Within the new framework, systems and rules will be jointly designed by Japan and the EU or will emerge from harmonizing existing ones. Technologies will be jointly developed or standardized. While paying due attention to prevailing conditions in third countries, these systems, rules, technologies and standards should be propagated. Such undertakings will not only suppress the rise in production and transaction costs resulting from the proliferation of systems, rules, and standards unique to individual countries but will also benefit consumers in Japan, the EU and third countries through lower product prices. The new framework should act as a catalyst in promoting these processes.

(5) Promoting structural reform in Japan and the EU

As stated in the basic EPA policies of the government of Japan, one of the purposes of economic partnership agreements is the promotion of structural reform in Japan and its counterpart. Human resources, technologies and capital from foreign countries are essential to making the Japanese economy more value-added and raising productivity in service industries. For this purpose, Japan must improve its domestic regulations and systems and seek to promote international harmonization. On the other hand, the EU promotes investing in innovation, the free movement of knowledge, the reduction of administrative burdens, the creation of a single market for services, investing in human capital and the intake of highly skilled workers, thereby creating economic growth and jobs. The new framework should contribute to the promotion of structural reform through economic integration in a manner that generates medium- to long-term advantages for both sides. To this end, systems and rules must be continuously improved, and gradual harmonization must be pursued. As prescribed in Japan's past EPAs, this requires the establishment of sub-committees specialized in specific areas to engage in continuous consultations.

The strengthening of Japan-EU economic relations may, in certain instances, be obstructed by the differences in systems and rules that exist among EU member countries. One of the goals of the new framework should be to view these differences as a Japan-EU issue and to find appropriate solutions.

(6) Contributing to strengthening political and cultural relations

The realization of the objectives outlined in (1) through (5) above is expected to broaden and deepen Japan-EU economic relations. In turn, the deepening of economic relations will promote the achievement of the goals of "peace and security" and "bringing together people and cultures" contained in the Action Plan for Japan-EU Cooperation (December 2001), and will thereby provide a foundation for supporting the continued development of economic relations.

The process of negotiating an economic partnership agreement can be seen as an opportunity for deepening mutual understanding for each other's systems and rules and the cultural factors that underpin them. As discussed in Section IV below, the promotion of personal exchanges between Japan and the EU will be beneficial in advancing cooperation in regulatory affairs and in realizing economic integration.

IV. Regulatory Cooperation for Economic Integration

As in the case of EU market integration, the realization of an economic integration-oriented EPA requires both parties to liberalize the movement of people, goods, capital and services. Freedom must also extend to the movement of information and knowledge. In order to create an environment conducive to freer movement in these five areas, cooperation should be pursued in various ways. This section is meant to identify a way forward for Japan and the EU to cooperate in regulatory affairs among others.

Since it may be difficult to reach a consensus regarding some of the challenges below in a short period of time, it is necessary to immediately start exploring the way forward jointly based on the discussions and results of the Japan-EU Regulatory Reform Dialogue and other exchanges. The elimination and reduction of non-tariff barriers including the following should be tackled in a balanced way with those of tariff barriers.

(1) People [Facilitation of the movement of businesspersons]

Regarding the movement of people, the EU has requested the abolition of Japan's re-entry permit system. Under the proposed revisions to the immigration control system, foreign nationals to whom residence cards have been issued will, in principle, be able to re-enter Japan within a certain period of time without acquiring a separate permit. On the other hand, Japan has requested the EU members to improve their residence and work permit procedures. In this regard, the European Commission is currently considering the harmonization and simplification of these procedures.

Thus, the problems that have been pointed out on both sides appear to be moving toward resolution. However, various other issues remain to be addressed for improving the investment and business environment, and promoting economic integration. The EU is currently considering simplifying residence and work permit procedures, reducing the burden on intra-corporate transferees and promoting the acceptance of highly skilled workers. In this context, Japan and the EU (including the United Kingdom, Ireland and Denmark, which are not covered by EU immigration policies) should move forward on making necessary adjustments and cooperating on ensuring the highest possible level of freedom of movement for business purposes by focusing on companies in their role as employers.

(2) Goods [Lowering of non-tariff barriers]

As tariff barriers are steadily eliminated and reduced, the lowering of the following non-tariff barriers take on more significance for the achievement of economic integration.

[1] Lowering of technical barriers to trade
  1. (a) Harmonization of technical regulations and standards
    Technical barriers to trade can be lowered by formulating a common set of technical regulations and standards for Japan and the EU or by mutually harmonizing existing ones. When the latter approach is taken in areas where appropriate international standards already exist, due consideration should be given to be consistent with or approximated to such existing international measures and guides.
    For instance, in the Japan-EU Regulatory Reform Dialogue, the EU has expressed its concerns about the contents of consultation for Japan's clinical trials as well as the time required for review and approval of new drug applications. Among the various points made by the EU, alignment of Japanese Good Clinical Practice (GCP) with international GCP is one example of the harmonization of technical regulations and standards. Similar concerns have been voiced about Japan's long lags in approving medical devices. It is said that because of the slow pace of the review and approval processes, the Japanese public is denied access to medical devices already in use in Europe and the US. As in the case of pharmaceutical products, the EU has pointed out that Japan's good clinical practices remain un-harmonized with international practices.

  2. (b) Mutual recognition of technical regulations and standards
    There is the argument that the Agreement on Mutual Recognition (MRA) between Japan and the European Community is not fully utilized. One of the reasons for this is that the existing MRA is the agreement for mutual acceptance of the results of conformity assessment undertaken by conformity assessment bodies in the counterpart country. A possible solution would be to render the agreement designed for mutual acceptance of technical regulations and standards. In other words, technical regulations and standards applied by the other party would be recognized as equivalent.
    The EU has also raised the issue of mutual recognition of standards for building materials and has argued as follows. Building materials exported to Japan must be tested according to both European and Japanese standards. Since there are few testing bodies in the EU that are accredited to assess conformity of building materials bound for Japan, this raises the cost of EU exports. To alleviate this problem, the EU side has proposed mutual recognition of JAS/JIS and EN standards for building materials. On the other hand, in the Japan-EU Regulatory Reform Dialogue, Japan has brought up the issue of the organic agricultural product standard. This issue is moving toward resolution by mutually recognizing the equivalence between the Japanese organic standard and the EU organic product certification standard.
    Regarding the areas covered by the existing MRA, the governments of Japan and the EU should review how the agreement has been utilized, and should figure out a way for improvements based on the results of the study.

  3. (c) Assurance of transparency
    Efforts should be made to ensure transparency even in areas where mutual recognition and harmonization of technical regulations and standards have not been achieved. At the very least, notification should be made at an appropriately early stage before the adoption of technical regulations and standards, and adopted technical regulations, standards and conformity assessment procedures should be publicized.
    In the Japan-EU Regulatory Reform Dialogue, the Japanese government has requested the EU to make sure that environmental regulations do not impose an excessive burden on enterprises, impede sound economic activities or create barriers to trade. Ensuring a proper level of transparency will be of essential importance in the review and revision of such regulations.

[2] Diffusion of technologies
  1. (a) Standardization of technologies
    To enhance the competitiveness of Japanese and EU industries, Japan and the EU should engage in dialogue and cooperation to develop technology standards and spread them to third countries. In the future, cross-border standardization will become increasingly important in the commercialization of numerous new technologies. Examples include RFID technologies for improving efficiency in distribution and stopping counterfeit products, and various technologies related to biometric recognition. For this purpose, a new framework should be created with the participation of Japanese and EU governments and companies for joint study and experimentation leading to the development of new technologies. Such initiatives would prove particularly beneficial in fields related to international distribution and logistics including AEO as discussed below, and the application of biometric recognition technologies to such fields as immigration control and banking transaction and settlement systems. Joint recognition of technologies developed through this process and the creation of an environment facilitating their free use would benefit both Japanese and EU companies by expanding the market for goods incorporating these new technologies. Moreover, such initiatives are expected to contribute to the harmonization of systems that relate to Japan and Europe.

  2. (b) Review of systems in light of technological progress
    Japan has raised the reform of the private copying levy system in the EU in the Japan-EU Regulatory Reform Dialogue. The system was introduced as a means of charging compensation fees for reproductions of copyrighted works for private use at a time when analog equipment was commonly used to make copies. With the development of digital technologies in recent years, the majority of equipment and media to which the system is now applied are digital. Meanwhile, alternative means for copyright protection have been developed, including digital rights management (DRM) technologies. In light of this technological progress, the EU system should be reviewed with the option to scale down or abolish the system.
    When technological progress raises the issue of one party's treatment in tariff classifications of certain products, the other party should be consulted with.

[3] Assurance of secure trade

To ensure the security of international cargo while facilitating trade procedures, Japan has developed its own AEO program centered on its Specific Export Declaration System. The EU operates a similar program. However, since mutual recognition of their respective programs has not been arranged in this area, a company must be authorized by both Japan and the EU to benefit from simplifications of customs procedures.
To bolster the safety of supply chains while minimizing the lead-time in distribution, there is a pressing need to render the AEO program more effective in facilitating the speedy delivery of cargo and reducing cargo inspections. Consultations to realize mutual recognition should be accelerated so that excessive burdens on businesses can be avoided. Furthermore, an arrangement should be made for continuous review of the program.
From July 2009, the EU plans to implement a 24-hour advance notice system for the submission of maritime containerized cargo information. Mutual recognition for the AEO program with the EU is called for to alleviate any negative impact of the EU's 24-hour advance notice system on the distribution of freight from Japan to the EU.

(3) Capital and services [Standstill on regulations and assurance of regulatory transparency]

In areas where liberalization has already been achieved and where reservations have been taken concerning the granting of most-favored-nation treatment, national treatment and other forms of liberalization, standstill obligations should be introduced to maintain current levels of liberalization and to prevent the adoption of more restrictive regulations.

Regarding the introduction and revision of domestic regulations by one party, the other party should be allowed to make comments at an early stage of the process. Regarding legislative changes, the other party should be notified during the draft legislation stage.

(4) Information and knowledge [Mutual recognition of patents and control of counterfeit and pirated products]

Patent Prosecution Highway programs should be developed to promote mutual recognition of patents. Effective enforcement should be ensured to control counterfeit and pirated products and to increase penalties against violations. More advanced rules for intellectual property protection should be adopted, including the provision of assistance to third countries for countermeasures against counterfeit and pirated products.

(5) Government procurement [Facilitation of access to information and assurance of transparency]

It is necessary for both parties to study the possibility of incorporating provisions exceeding those contained in the WTO Agreement on Government Procurement, including the lowering of threshold values. In Japan, the central government's tender notices are all available (electronically, as well) in the official gazette (Kanpo). On the other hand, local governments' tender notices appear in various gazettes (such as prefectural and municipal gazettes) and are not published in a single unified medium. Considering that the EU has requested the establishment of an electronic single point of access where all Japanese tender notices (central, local, etc.) are published and available in English, the Japanese government should simplify procedures and enhance transparency, including setting up a virtual single access point.

(6) Competition [Mandatory prior notification of specific measures]

With a view to avoiding and reducing disputes pertaining to the application of competition laws and regulations, provisions obligating the competition authorities to provide their counterpart with prior notification on their specific decisions and measures should be incorporated, as has been the case with the EPAs Japan has concluded, so as to enable their counterpart to request consultations.

V. System for Promoting Cooperation toward Economic Integration

The areas for cooperation included in Section IV are examples. To effectively promote economic integration, it will be necessary to coordinate systems and rules over a broad range of fields. In order to facilitate this process, Japan and the EU, with the involvement of both sides' leaders, should undertake initiatives in close cooperation between the government and private sectors.

The leaders of Japan and the EU should reach an agreement on areas of cooperation and concrete work schedules, taking into consideration the requests and views expressed by the private sector. To manage and promote this process, a council presided over by the economic ministers concerned from both sides should be established. Decision to take specific measures should be made by both sides' leaders based on the report drafted by the council.

In order to set up such a system as soon as possible, first of all, the next Japan-EU Summit should agree to start work to build a new framework, including regulatory cooperation as outlined under Section IV. Based on it, an agreement should be reached on the new framework no later than the end of 2010, when the Action Plan for Japan-EU Cooperation will terminate. The new framework should be incorporated in the next action plan as a core element.

Nippon Keidanren is committed to playing a positive role in promoting these processes through such means as continued dialogue with the European business communities represented by BUSINESSEUROPE as well as other industrial and national organizations.

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