Green light for trade talks with Japan

Member states agree to free-trade talks despite concerns of carmakers.

The European Commission was today (29 November) given permission to start trade talks with Japan, despite lingering concerns among European Union member states that a deal could harm the European car industry.

The mandate, which sets out objectives and constraints for negotiators, includes a ‘safeguard clause’ intended to protect sensitive industries, such as the automotive industry, and requires Japan to make specific, substantive concessions within the first 12 months of talks.

Japan was the first to suggest pursuing a free-trade agreement, and Karel De Gucht, the European trade commissioner, said today that “no other partner has ever gone as far as Japan before we sat down at the negotiation table together”.

Formal negotiations are likely to start “in the first quarter of next year”, an EU official said on Tuesday (27 November). The negotiating process would take several years.

A deal would open up the markets of the world’s largest trading bloc – the EU – and the third-largest national economy. Together, the EU and Japan account for more than one-third of the global economy.

De Gucht predicted that a free-trade agreement could expand the EU economy by 0.8% and create 420,000 jobs in Europe. An EU official said that a Commission study had concluded that “Japan is a winner, but the EU is the bigger winner”.

However, the EU accepts that the car industry would not gain from the deal. “Our study shows that carmakers are not a winner”, the official said. “But the results are acceptable and overall, the EU is a big winner.”

The objections of the automotive industry had been the main stumbling block in discussions between the Commission and member states since mid-July, when the Commission submitted its proposed mandate to member states.

Diplomats and officials have indicated that the member states that have in recent months pushed the Commission for clarifications and tougher positions include France, Italy, Germany, Greece, Spain, Romania, Bulgaria and the Czech Republic. The concerns related to the public-procurement, medical equipment, textile, chemicals, machinery and transport markets. France and Italy needed particular convincing.

ACEA, an association of European carmakers, immediately criticised the decision. “Independent studies have shown that this deal is a one-way street as far as the automobile industry is concerned,” said Ivan Hodac, its secretary-general. “This has already been our experience with the free-trade agreement with South Korea, which entered into force last year.”

Hodac said that a study commissioned by ACEA and conducted by the consultancy Deloitte had concluded that an agreement could result in the loss of 73,000 jobs by 2020. 

He said that carmakers now want any deal that emerges to ensure that “vehicles manufactured and type-approved in the EU are accepted in Japan without further testing or modification” and that small cars should be able to compete “on equal terms”.

Ahead of today’s meeting, an EU official said that it Japan had “given us all the assurances one can decently ask” of a trading partner prior to formal negotiations and said that it did not know how much more “clarity” could be given to member states. “We wouldn’t answer many of those questions if they were asked of us.”

The proposal approved by ministers includes a clause that the Commission will walk away from talks after a year if Japan does not follow an agreed roadmap to remove non-tariff barriers – ‘behind-the-border’ obstacles to trade such as standards and regulations.

“If the implementation has not been satisfactory, I will stop the negotiations,” De Gucht said today.

The Commission says that this is the only “explicit review clause of this kind” to have been introduced into a negotiating mandate. The notion of a specific deadline is also a novelty.

As well as making commitments about goodwill measures to be taken during negotiations, Japan in September took unilateral steps to ease access to its spirits market.

Food and drink companies are among the potential beneficiaries identified by the Commission’s study. Others include service industries and pharmaceutical companies.

The agreement of a mandate also removes the major obstacle to agreement on the timing of the next EU-Japan summit. The summit is annual, but it has not been held this year, as Japan has wanted prior agreement on the launch of trade talks. The last summit, in May 2011, authorised a ‘scoping exercise’ to explore the value and feasibility of opening up each other’s markets.

The EU is in the process of negotiating free-trade agreements with many other countries; the most advanced negotiations are with Canada and Singapore. Progress on both was discussed today by ministers. The EU’s hope is that the last remaining obstacles can be removed this year.

The Commission believes that the successful conclusion of all its ongoing talks would result in the EU economy growing by €275 billion a year, an increase of 2.2%. The lion’s share – two-thirds – of the increase would come from agreements with Japan and the US.

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