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Japan is the EU’s 7th largest overall trading partner whilst the EU is Japan's 3rd largest overall trading partner (after China and the US). The EU has finalized on 8 December 2017 negotiations for a trade agreement (EPA) with Japan, which entered into force on 1 February 2019, potentially bringing significant benefits to both parties.
Manufactured goods dominate bilateral trade
Machinery and transport equipment represent 39% of the total EU exports to Japan , chemicals 22.5% and all other manufactured products 21%, while primary products (such as agriculture, raw materials and energy) represent 14%. Machinery and transport equipment alone account for 67% of the total EU imports from Japan, while chemicals account for 10% and primary products for 3.5%.
Trade in Services
As for services, exports to Japan grew from €31bn in 2016 to €34.6bn in 2017, whilst services imports to the EU from Japan was basically unchanged at around €18bn in 2017. The EU's surplus of more than €16bn in its service trade with Japan was mainly due to trade in financial services, telecommunications/computer/information services, other business services and air transportation services.
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What is it, and why does it matter?
The EU and Japan are two economic giants, together accounting for one third of world GDP and more than a 30% of world trade. Studies show that the successful conclusion of an ambitious free trade agreement between EU and Japan could deliver a potential 32.7% increase in EU exports to Japan. Japanese exports to the EU could rise by as much as 23.5%. The Economic Partnership Agreement matters to both sides.
Milestones of the Economic Partnership Agreement negotiations
Negotiations were officially launched on 25 March 2013 by the then Commission President Jose Manuel Barroso, Council President Herman Van Rompuy and Japanese Prime Minister Shinzo Abe.
On 6 July 2017, the European Union and Japan reached an agreement in principle on the main elements of an EU-Japan Economic Partnership Agreement and Strategic Partnership Agreement. Building on this political agreement, Trade Commissioner Malmström and Japanese Foreign Minister Kono announced on 8 December 2017 the successful conclusion of the final discussions on the EU-Japan Economic Partnership Agreement. This was followed by the legal verification of the text (also known as "legal scrubbing"), the translation of the English text into the other 23 official languages of the EU, as well as into Japanese.
The Commission then submitted the agreement for the approval of the European Parliament and EU Member States, which led ultimately to the entry into force of the agreement on 1 February 2019.
At the same time, negotiations continue on investment protection standards and investment protection dispute resolution. The firm commitment on both sides is to reach convergence in the investment protection negotiations as soon as possible, in light of their shared commitment to a stable and secure investment environment in Europe and Japan.
This EPA is the most important bilateral trade agreement ever concluded by the EU. To Japan, our 7th biggest trade partner, we export around 10 million euros of goods and services per hour. And import almost as much. Meanwhile, nearly 5000 Japanese affiliates investing in the EU employ over half a million people. For the EU and its Member States, the Economic Partnership Agreement removes the vast majority of duties paid by EU companies, which sum up to €1 billion annually.
The main elements of the Economic Partnership Agreement
The Economic Partnership Agreement removes the vast majority of the €1 billion of duties paid annually by EU companies exporting to Japan, as well as a number of long-standing regulatory barriers. It also opens up the Japanese market of 127 million consumers to key EU agricultural exports and will increase EU export opportunities in a range of other sectors.
With regards to agricultural exports from the EU, the agreement in particular:
The agreement also opens up services markets, in particular financial services, e-commerce, telecommunications and transport. It also…
The deal also includes a comprehensive chapter on trade and sustainable development; sets the highest standards of labor, food safety and environmental protection; strengthens EU and Japan's actions on sustainable development and climate change and fully safeguards public services.
There is a strong and vibrant trade between the European Union (EU) and Japan in a number of industrial goods. In fact more than 75% of all Japanese goods exported to the EU and close to 60% of all European goods exported to Japan are from the following three product groups:
Bilateral trade in industrial goods is affected by various aspects of trade policy. In addition to import tariffs, so-called non-tariff measures are the most important factors which impede greater trade flows between the EU and Japan. Divergent standards and technical requirements – as well as other regulatory and administrative issues, both at the border and beyond – also limit current trade. They significantly increase the cost of compliance, and therefore of doing business. One of the principal aims of the concluded EPA has been to mutually eliminate these non-tariff barriers to trade.
The European Commission set out its key priorities on industrial policy in the EU in its Communication “For a European Industrial Renaissance”. It also put forward new measures to speed up attainment of the following objectives:
The EU and Japan are both signatories to the WTO Agreement on Government Procurement and have rules aimed at ensuring public money is spent in a transparent, efficient and non-discriminatory way. Nevertheless, European companies currently face obstacles in winning public contracts in Japan.
Both the EU and Japan are committed to achieving increased liberalisation and expansion of world trade; the EPA negotiations have paved the way to removing remaining obstacles and to ensuring that EU and Japanese firms can bid for public tenders on equal terms.
Further market opening in public procurement would be good for both the EU and Japan. For public authorities with tight budgets, it can bring:
For companies it could:
What are public procurement and concessions?
Public procurement refers to the process by which public authorities such as government departments or local authorities purchase work, goods or services from companies which they have selected for this purpose. Examples include building a state school, purchasing furniture for a public prosecutor's office or contracting cleaning services for a railway station.
A concession is a partnership between the public sector and a (usually) private company that has shown its added value in a specific area, for example developing infrastructure, and may take the form of a Public Private Partnership (PPP). While in a public contract a company is paid a fixed amount for completing the required work or providing a service, in a concession a company is remunerated mostly through being permitted to run and exploit the work or service and is exposed to a potential loss on its investment. Examples include road and rail transport, port and airport services, motorway maintenance and management, waste management, energy and heating services.
According to the European Investment Bank data, 1,780 Public Private Partnerships (PPP) projects reached financial close in the EU between 1990-2018, for a total value of EUR 368.6 billion.
For further information on how public procurement is covered under the EU-Japan EPA, refer to the following documents: DG TRADE, European Commission: http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155719.pdf;
EU- Japan Centre for Industrial Cooperation: https://www.eubusinessinjapan.eu/issues/economic-partnership-agreement/epa-public-procurement
Public procurement-related policy developments in the EU
Key EU legislation on public procurement includes:
- a directive on public procurement (Directive 2014/24/EU)
- a directive on procurement by entities operating in the utilities sectors, eg water, energy, transport and postal services (Directive 2014/25/EU); and
- a directive on the award of concession contracts (Directive 2014/23/EU).
The 'utilities sectors' are covered by separate and more flexible rules, which apply not only to traditional public purchasers (the state, municipalities, regions, etc.), but also to public or private companies. Unlike the 'public procurement' Directive, the 'utilities sectors' Directive also applies to contracts awarded by public undertakings (on which public purchasers have a dominant influence), and to those awarded by private entities which have obtained the exclusive or special right to operate in one of the sectors concerned.
In addition to regulating public procurement within the EU market, the EU advocates for an ambitious opening of international public procurement markets outside the EU, and has committed itself to granting market access to its public procurement market for certain foreign goods, services and companies. The EU negotiates both bilateral/regional and plurilateral international agreements.
The EU is working to ensure equal access and reciprocity in public procurement in the international fora. The European Commission’s International Procurement Instrument (IPI) proposal – first put forward in 2012, revised in 2016 and currently in the legislative process – would provide a powerful tool to improve the conditions under which EU businesses can compete for public contracts in third countries and to give the EU more leverage when negotiating its access to foreign public procurement markets."
Services are crucial to the European Internal Market and to the Japanese economy, accounting for around 80% of EU employment and value added. The EU and Japan already export many services to each other, but EU firms still face hurdles in selling their services on the Japanese market. Correspondingly services have represented a key area of discussion in the concluded EPA, as well as in plurilateral and multilateral negotiations.
What is covered?
Many different sectors are covered, eg retail and wholesale trade, construction, business/professional services, real estate, tourism and some entertainment services, transport, network utilities, health and financial services, and government services (public administration and education).
Goods and services are increasingly linked together. Access to services is a prerequisite for economic performance of many manufactured products. For example, producers and exporters of textiles, cars or computers cannot be competitive without access to efficient banking, insurance, accountancy, telecoms or transport systems. And the purchase of many products nowadays often comes with a service component.
The rise of cloud computing means that technical infrastructure, platforms and software are increasingly provided as services on a global basis. What used to be hardware installed at the premises of a company is becoming a service provided cross-border.
Services-related policy developments in the EU
In 2006, the EU adopted the Services Directive (Directive 2006/123/EC) to ensure that both consumers and businesses reap the full benefits of the Internal Market by being able to easily offer and buy services. The Directive facilitates the establishment of a business in a Member State, and it also aims at improving the regulatory environment for service providers who want to supply their services across borders to other Member States, without setting up an establishment there. The Services Directive obliges Member States to cut red-tape, increase transparency for undertakings and service recipients, and eliminate unjustified or disproportionate requirements. It applies to all activities and sectors that are not expressly excluded from its scope of application (e.g. financial services or gambling).
Services-related policies of the European Commission: DG Trade; DG Internal Market, Industry, Entrepreneurship and SMEs (general policy, postal services; tourism, business services); DG Mobility and Transport (air transport, maritime transport); DG Financial Stability, Financial Services and Capital Markets Union (financial services); DG Communications Networks, Content and Technology (telecommunications).
Promoting investment flows between the European and Japanese economies is increasingly at the forefront of the EU-Japan relationship and have been discussed in the EPA negotiations. More investment is of mutual interest. The EU benefits from an open Japanese economy with which European companies can trade smoothly and where they can easily establish branches or subsidiaries to develop their business activities. For Japan, Foreign Direct Investment (FDI) plays a crucial role in boosting its economy.
Investment protection provisions in the EPA will encourage investment by guaranteeing that governments will treat investment between the EU and Japan in line with some basic principles which prohibit:
What is covered?
Free movement of capital is at the heart of the European Single Market and is one of its 'four freedoms'. It enables integrated, open, competitive and efficient European financial markets and services - which bring many advantages to us all. For citizens it means the ability to do many operations abroad, such as opening bank accounts, buying shares in non-domestic companies, investing where the best return is, and purchasing real estate. For companies it principally means being able to invest in and own other European companies and take an active part in their management.
Foreign direct investment is a direct investment into production or business in a country by a company in another country. The EU has long been in the vanguard, promoting investment by European companies and investors into other Member States and third countries, and investment into the EU by third countries. This is in everyone's mutual interest and is all the more important now as the world emerges from the financial crisis and the economic downturn.
As investment is part of the EU’s common commercial policy the European Commission may legislate on investment. Its approach is outlined in its paper "Towards a comprehensive European international investment policy". The EU's investment policy is focused on providing EU investors and investments with market access, legal certainty and a stable, predictable, fair and properly regulated environment in which to conduct their business.
As well as ensuring that its markets are as open as possible to stable, secure and beneficial foreign investment, the EU also looks to promote these principles at a global level through international fora and multilateral agreements; bilateral investment dialogues and trade agreements; and through relations with third country investors, and, in particular, Sovereign Wealth Funds.
Investment-related policies of the European Commission: DG Trade; DG Financial Stability, Financial Services and Capital Markets Union. Destination Europe: The EU Single Market: An attractive destination for Japanese FDI (PDF)
Europe has begun a bold journey towards a Circular Economy (CE).
The CE Action Plan includes measures that will boost the global competitiveness of European business, foster sustainable economic growth and generate new jobs.
The European Strategy for Plastics aims at reducing marine litter as well as greenhouse gas emissions. Crucially the Strategy will also support changes in the the way plastics are consumed and produced.
The plastics industry will become more competitive as a result.
Building on its robust domestic legislation, the EU is active in the development of international environment policy and is working with partners to confront the global environmental challenges.
The EU and Japan have an active cooperation on a wide range of subjects, including issues related to illegal logging, to wildlife poaching and trade in endangered species (CITES), to biodiversity (CBD).
The commitments to multilateral environmental agreements are reiterated in the EPA.
For further information on circular economy, please refer to https://circulareconomy.europa.eu/platform/en/node/1301
The EU has set itself targets for reducing its greenhouse gas emissions progressively up to 2050. Key climate and energy targets are set in the 2020 and 2030 climate and energy frameworks. These targets are defined to put the EU on the way to achieve the transformation towards a low-carbon economy as detailed in the 2050 long-term strategy. The EU tracks its progress on cutting emissions through regular monitoring and reporting.
Cooperation with partner countries is an important part of the EU's climate policy. The EU cooperates with Japan though a regular policy dialogue to share experiences of climate policies and good practices. The EU and Japan also cooperate in international fora such as the UN Framework Convention for Climate Change (UNFCCC) to promote global cooperation to mitigate climate change.
The EPA also includes a paragraph on cooperation between the EU and Japan on implementation of the Paris Agreement.
The EU and Japan share a vision of agriculture aiming not only at feeding people but also at preserving the landscape, the environment and traditions. As such, the EU is actively engaging in meaningful exchanges with Japan bilaterally, in high-level meetings in Tokyo and Brussels, and multilaterally, in the WTO committee on Sanitary and Phytosanitary Measures, the World Organisation for Animal Health, CODEX Alimentarius Commission, Joint FAO/WHO Expert Committee on Food Additives, and agricultural negotiations within the WTO framework.
In addition to these fora, agriculture and food safety are an important part of the EU-Japan Economic Partnership Agreement (EPA) negotiations which were initiated in 2013 and concluded in December 2017.
Open trade is of utmost importance to the European agricultural sector since the farmers' and producers' livelihood depends on it. European producers are well recognised all over the world for their high quality food and beverages.
Japan is a major food importer and its food market is one of the biggest ones in the world. However, high entry barriers and high tariffs maintained on products of export interest to the EU limit the variety of products that EU producers can export to Japan. This results in a limited range of European food products on offer in Japan and also in high consumer prices.
Through the EPA negotiations with Japan, the EU has increased transparency and clear regulatory frameworks that will enable European companies to have easier access to the Japanese market and that the EU market share increases to its rightful level.
Japan itself has recently become more focused on improving the competitiveness of its agricultural sector and increasing its exports of agricultural and foodstuff products. As Japan begins to appreciate the possibilities for economic growth that trade opportunities offer also to the agricultural sector it will discover that gaining access to the markets of others is not a one way road. Instead of shielding the agricultural sector from trade opening, well designed agricultural policies need to be in place so that the agricultural sector can compete and reap the benefits of the trade opening on its own merits.
In case of the EU, the Common Agricultural Policy, CAP, and the major reforms undertaken since the 1980's have enabled the EU to participate in major trade negotiations and they continue to do so also today.
Approval of food additives
Food Safety was one of the major topics of the EPA negotiation between the EU and Japan. The Japanese list of food additives needs a major update and alignment with international standards. In December 2002, the Japanese government identified 46 priority food additives "whose safety is globally confirmed and which are widely used outside Japan". Although these substances had already been evaluated by the Joint WHO/FAO Expert Committee on Food Additives and are therefore approved and used in many countries including EU Member States and the US, the Japanese Government maintained that these substances should be evaluated individually on the basis of specific Japanese criteria. As for the additives of the EU's interest within the list of 46 priority additives, the approval process was completed. Positive developments took place also regarding approval of substances used in wine production. However, a significant number of other substances still need to be approved in Japan. Until this happens, many top quality and perfectly safe European food products cannot enter the Japanese market.
Trade in beef and beef products
Until recently, an issue of concern was related to European beef exports to Japan. EU beef was banned from the Japanese market for more than ten years. But starting from 2013, Japan has lifted its ban on imports of beef from France, the Netherlands, Ireland, Poland, Denmark, Sweden, Italy, and more recently from Austria. All this sends an encouraging signal to other EU Member States seeking to apply to export beef to Japan, and whose equally high sanitary status has already been internationally recognised by the World Organisation for Animal Health (OIE). This development shows that non-tariff barriers can be overcome on the Japanese market.
Information related to the accident at the Fukushima nuclear power station
EU Measures on import of food and feed originating in or consigned from Japan
The COMMISSION IMPLEMENTING REGULATION (EU) 2017/2058 of 10 November 2017 imposes special conditions for the import of feed and food originating in or consigned from Japan following the accident at the Fukushima nuclear power station. The regulation, which has replaced the previous Commission Implementing Regulation (EU) 2016/6 of 5 January 2016, is available at the following link.
The following are excluded from the application of the COMMISSION IMPLEMENTING REGULATION (EU) 2017/2058:
(a) Products which have been harvested and/or processed before 11 March 2011;
(b) Personal consignments of feed and food of animal origin which are covered by Article 2 of Commission Regulation (EC) 206/2009（http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32009R0206&from=en. For more information see the following link.）
(c) Personal consignments of feed and food other than of animal origin which are non-commercial and destined to a natural person for personal consumption and use only. In case of doubt, the burden of proof lies with the recipient of the consignment. For more information see the following link.
General Data Protection Regulation
Trust is a key resource of the digital economy. The new General Data Protection Regulation will put individuals in better control of their data. This will be possible thanks to clearer definition of existing rights and obligations, and through the introduction of both new rights (e.g. right to portability) and new obligations (e.g. data breach notification). The EU digital single market will be thus based on harmonised rules, on modernised governance for the protection of data, and on stronger institutions which will ensure consistent application of the Regulation, also thanks to a credible sanction mechanism.
Japanese businesses will have to comply with the GDPR if the company either processes data in the context of the activities of an EU establishment, or targets the EU market by offering goods or services specifically to customers in the EU or monitoring their behaviour.
Data transfers outside the EU are also covered by the GDPR. The Regulation provides for a broad toolbox of transfer tools, including existing ones that are regularly used by Japanese companies (standard contractual clauses, binding corporate rules, so-called derogations), and new instruments such as e.g. certification and codes of conduct. A specific set of recommendations are available also for Small and Medium Enterprises dealing with personal data.
It should be noted that the EU and Japan are currently working on reciprocal adequacy decisions which would significantly facilitate data flows between Japan and the EU, as Japan would in fact be considered like an EU Member State for the purpose of data transfers. With such decision in place, it would be as easy to transfer data from Paris to Tokyo as it is the case today from Paris to Berlin.
Several private and public-sector networks and initiatives bring together European and Japanese businesses in Japan. The EU-Japan Centre for Industrial Cooperation and the EU-Japan Business Round Table work with SMEs and large companies, the European Business Council brings together European companies in Japan to make policy recommendations. The EU's Executive Training Programme helps European businesses increase their knowledge of, and trade with, Japan.
EU-Japan Centre for Industrial Cooperation
The Centre promotes all forms of industrial, trade and investment cooperation between Japan and the EU, and aims to strengthen the technological capabilities and the competitiveness of the European and Japanese industrial systems. As a joint venture of Japan and the EU it has offices in Tokyo and Brussels and its services include access to training, including the Vulcanus in Europe and Vulcanus in Japan schemes for young engineers. It is also the contact point for Horizon 2020 in Japan, and offers various other information services. It organizes the annual Business Round Table (BRT).
EU-Japan Business Round Table (BRT)
The Business Round Table is made up of around 50 CEOs/senior executives from leading EU and Japanese firms who meet once a year to review all aspects of business cooperation and to make policy recommendations to the European Commission and Japanese government. It aims to contribute to the economic success of Japanese and European industry. It identifies mutually-beneficial initiatives and keeps track of progress achieved by the European and Japanese administrations. Its discussions cover various topics including the economy, the business environment and current issues.
European Business Council (EBC)
The European Business Council (EBC) is the trade policy arm of seventeen European National Chambers of Commerce and Business Associations in Japan and is registered as the EU Chamber of Commerce in Japan. It represents over 2,500 local European companies and individuals and works closely with the EU Delegation, the national European Embassies and business organisations to co-ordinate policy proposals. It makes suggestions to the Japanese government on how to create an open environment for trade and investment in Japan. The EBC, with its 26 industry committees, produces an annual report on the Japanese business environment, outlining the key issues of concern. Past issues of the report are available here.
EU Green Gateway to Japan Programme
Between 1994 and 2014 the EU Gateway to Japan programme has helped to boost trade and investment between Europe and Japan. From 2017 to 2019, the EU will implement the "EU Green Gateway to Japan Programme", which will focus on promoting trade and investment of green technologies in the following 5 sectors: construction, environment, energy, medical devices and railway components, parts and services. Twelve missions shall be organised during the 3 years of the project with four missions scheduled for 2018.
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