The European Commission (EC) has decided to ask the European Union (EU) member states for their agreement on opening negotiations for a free trade agreement (FTA) with Japan, against opposition from the European Parliament (EP) and European car manufacturers.

At the EU-Japan Summit of May 2011, the EU and Japan decided to start preparations for an FTA and stated that, on the basis of a successful scoping exercise, the EC would seek the necessary authorization from member states for negotiations to begin. After one year of intensive discussions, in May this year, the EC has now agreed with Japan on an agenda for the future negotiations covering all EU market access priorities.

It is to submit negotiating directives to the European Council to give the EC a mandate to start negotiating. Japan is the EU's second biggest trading partner in Asia, after China, and together the EU and Japan account for more than a third of global gross domestic product (GDP).

There are said to be enormous potential trade opportunities for European businesses in Japan. An FTA with Japan could boost the EU's GDP by 0.8%. EU exports to Japan could increase by 32.7%, while Japanese exports to the EU could increase by 23.5%. 420,000 additional jobs in the EU are expected as a result of the agreement.

"If growth in the next twenty years is likely to come from Asia, then overlooking Japan would be a serious mistake in our trade strategy," said EU Trade Commissioner Karel De Gucht. "Our priority in our talks will be to tackle the non-tariff barriers on the Japanese market, for example in the car sector, and to allow European business to access Japan's public procurement market.”

In fact, the EC has recognized the importance that the elimination of non-tariff barriers has for realizing a level playing field for European businesses in the Japanese market – which, in addition to the relatively small size of the Japanese market in relation to European demand, is a particular concern of European car manufacturers.

The negotiating directives therefore foresee that Japanese non-tariff barriers will have to be eliminated in parallel to any tariff reductions on the EU side, and that the EC would suspend negotiations if progress as specified in the non-tariff barriers roadmaps does not materialize within one year from the start of the negotiations.

However, despite those safeguards, the European Parliament, in a debate with De Gucht last month, voiced concerns that an FTA with Japan could still harm the European car industry. In a resolution adopted by a huge majority, MEPs requested the EC to wait for their own proposals before launching negotiations on the agreement – which would, in any case have to be finally approved by parliament.

During the debate, MEPs had doubts that Japan was actually ready to dismantle non-tariff barriers to its public procurement, pharmaceutical and, in particular, its car markets. They said the EC's report on the current state of play in the EU-Japan FTA talks had failed to allay their concerns.

In 2011, EU exports to Japan reached a value of EUR49bn (USD60bn). EU exports to Japan are mainly in the sectors of machinery and transport equipment, chemical products and agricultural products.

Japan is also the sixth largest source of imports into the EU after China, the US, Russia, Switzerland and Norway. In 2011, EU imports from Japan accounted for EUR67.5bn. Imports from Japan are mainly in the sectors of machinery and transport equipment and chemical products.

July 19, 2012

Source: Tax News

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