EU-Japan trade deal - rhetoric not reality
Public Service Europe | 17 May 2011
EU-Japan trade deal - rhetoric not reality
Despite warm words about providing aid during Japan’s hour of need, substantial steps towards a free trade agreement with the European Union are unlikely to come out of the bilateral summit at the end of May - writes Francesco Guarascio.
Speaking before the annual European Union-Japan summit, taking place in Brussels next week, a diplomat tells PublicServiceEurope.com: "The EU is committed to deepening its relations with Japan, but at this moment the commission and many member states feel we need to have a clearer idea of what we are getting into."
This clarification comes just as certain member states are pushing expectations in the opposite direction. The UK and Spain have long supported the idea of a Japan-EU FTA and have been far from silent in their championing of the idea. The Japanese authorities are also very keen to launch formal negotiations soon. And last week, German Chancellor Angela Merkel joined this group of enthusiasts - declaring: "Germany supports the opening of the talks with a view to reaching a free trade agreement with Japan."
But will the rhetoric become reality? "We don’t know what will happen, but we can say what will not happen - which is the formal launch of FTA negotiations," a representative of the Hungarian EU Presidency says, predicting the conclusions of the bilateral summit.
A meeting of EU trade ministers in Brussels, last Friday, also confirmed the lack of clear enthusiasm. Ministers confined themselves to going over the conclusions of a previous summit in March, rather than trailblazing across new ground. On that occasion and in the wake of the environmental and nuclear disaster, which had just hit Japan, European leaders had called for the "potential launch" of FTA negotiation.
But, despite the emotional outpourings, they were also eager to underline that any step forward would only be taken once Japan had tackled the long-standing issues of non-tariff barriers and restrictions on public procurement. Today, these remain the main stumbling blocks. From Europe’s point of view, the Japanese market is still too closed to foreign exports and investment.
Brussels complains that even if import duties were abolished, EU goods would not make it to Japan - owing to too high and discretionary technical requirements - or so-called non-tariff barriers. Foreign direct investment and access to public procurement is the other crucial sector where the EU feels its interests are not being properly taken into account by the Japanese authorities.
As yet, acquiring a Japanese firm or participating in a tender for public works has been possible for foreign firms only in extraordinary conditions – for example, when a decade ago the carmaker Nissan found itself in desperate need of fresh capital and eventually bowed to Renault’s acquisition of a controlling stake. This operation and a few similar cases have considerably increased the share of EU investment in the Japanese economy, making Europe the largest source of FDI in Japan in recent years.
But, "these investments have been triggered mainly by a small number of ’big ticket operations’ and concentrated in a few ’rescue’ acquisitions, while a higher penetration of the Japanese economic tissue by FDI - including from performing foreign small and medium enterprises, is still to come," reads a European Commission document addressing the issue.
At stake are contracts worth hundreds of billions of euros, given that the Japanese public procurement market accounts for 18 per cent of its gross domestic product - according to commission estimates. In the Europe 2020 trade strategy, the commissioner in charge of the dossier Karel De Gucht threatened to retaliate against commercial partners unwilling to open up their public markets.
"While our market is already largely open, those of our major trading partners are much less so, especially at regional and local level," states the dossier, published last November. The paper calls for wider access for top European companies to procurement markets, especially in sectors where they are highly competitive - such as public transport, medical devices, pharmaceuticals and green technologies.
In view of these bottlenecks, the summit seems unlikely to reach any satisfactory conclusions despite the goodwill expressed following the tsunami and nuclear disaster. In the best-case scenario, the parties should be able to agree on a tentative date to start negotiations - but only where specific conditions are met.
Brussels is keen to use the summit to launch what it calls a "scoping exercise" to assess how far the Japanese intend to go with an FTA. This operation is expected to last for months and only if it proves successful will it bring about the actual launch of negotiations.
"The Japanese are desperate to announce a deal for internal political reasons, but we will not bend over," says a close adviser to De Gucht. "We will not accept an agreement, which is not ambitious." Pessimists might decry this zero-sum game approach from Europe in the hour of Japan’s need – but, in reality, both parties will have to bend a great deal to break the stalemate.
