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Japan is the EU’s 6th largest overall trading partner whilst the EU is Japan's 3rd largest overall trading partner (after China and the US). The EU has finalised negotiations for a trade agreement with Japan on 8 December 2017, which is expected to bring significant benefits to both parties after it enters into force.
Manufactured goods dominate bilateral trade
Machinery and transport equipment represent 37% of the total EU exports to Japan , chemicals 25% and all other manufactured products 22%, while primary products (such as agriculture, raw materials and energy) represent 14%. Machinery and transport equipment alone account for 65% of the total EU imports from Japan , while chemicals account for 10% and primary products for 2%.
Trade in Services
As for services, exports to Japan grew from €28bn in 2015 to €31bn in 2016, whilst services imports to the EU from Japan increased from €16.bn in 2015 to €18bn in 2016. The EU's surplus of €13bn in its service trade with Japan was mainly due to trade in financial services, computer/information services, travel 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 a quarter of world GDP and more than a fifth 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 Cecilia Malmström and Japanese Foreign Minister Taro Kono announced on 8 December 2017 the successful conclusion of the final discussions on the EU-Japan Economic Partnership Agreement.
The main elements of the Economic Partnership Agreement
The Economic Partnership Agreement will remove 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 will also open 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 will, 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 labour, safety, environmental and consumer protection; strengthens EU and Japan's actions on sustainable development and climate change and fully safeguards public services.
Concerning data protection, which is being dealt with separately from the Economic Partnership Agreement, a Joint Statement was issued during the July 2017 EU-Japan Summit, in which the EU and Japan stress the importance of ensuring a high level of privacy and security of personal data as a fundamental right and as a central factor of consumer trust in the digital economy, which also further facilitate mutual data flows, leading to the development of digital economy.
With the recent reforms of their respective privacy legislation, the two sides have further increased the convergence between their systems, which rest notably on an overarching privacy law, a core set of individual rights and enforcement by independent supervisory authorities. This offers new opportunities to facilitate data exchanges, including through a simultaneous finding of an adequate level of protection by both sides. The EU and Japan continue working towards adopting adequacy decisions under the respective data protection rules as soon as possible in 2018.
After the announcement of 8 December 2017, the EU and Japan has started the legal verification of the text, also known as "legal scrubbing".
Once this exercise is completed, the English text of the agreement will be translated into the other 23 official languages of the EU, as well as into Japanese.
The Commission will then submit the agreement for the approval of the European Parliament and EU Member States, aiming for its entry into force before the end of the current mandate of the European Commission in 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 will be the most important bilateral trade agreement ever concluded by the EU. To Japan, our sixth 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 will remove the vast majority of duties paid by EU companies, which sum up to €1 billion annually.
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:
Final REACH registration deadline 31 May 2018
The final date for registering chemical substances under the EU legislation REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) is 31 May 2018. After that date, substances produced or imported in quantities reaching one tonne or more per year per manufacturer or importer that are not registered with the European Chemicals Agency (ECHA) can no longer be placed on the EU market.
Non-EU companies are affected by REACH if they export chemicals to the EEA in quantities of more than 1 tonne per year. Non-EU companies that export to the EU cannot register substances themselves, but their EU-based importers must do that. To complete the registration dossier, the EU-importer will need detailed information on the composition and the properties of the chemical substance, which will need to be provided by the non-EU company. Alternatively, the non-EU company can also appoint a so-called "Only Representative", who must be based in the EU, to submit the registration on his behalf. In both cases, the non-EU company must be prepared to provide the information that is required for the registration. Companies that need to register the same substance must share data and related costs and submit most of the information jointly.
Adopted in December 2006, REACH reversed the burden of proof on the safe use of chemicals. It is now up to companies to demonstrate that the chemicals they manufacture or import in the EU can be used safely and do not cause unacceptable risk to human health and the environment. The companies' findings and conclusions are recorded in a registration dossier that is submitted to ECHA. The information in the registration dossiers is used for further regulatory processes and published on the ECHA's website. This helps European and non-EU companies, authorities and citizens to make informed decisions on chemicals they use or that they may be exposed to.
The ECHA's website contains extensive information on REACH and other EU chemicals legislation. The detailed information is available from the following links: Leaflet "Do you export to the European Union?", REACH registration 2018, and ECHA information on chemicals (search for information on chemicals). Companies can also directly contact ECHA for more information: https://echa.europa.eu/contact.
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 kind of partnership between the public sector and a (usually) private company that has shown its added value in a specific area, for example developing infrastructure. 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.
Public contracts falling within the scope of the European directives represent EUR 425 billion annually or 3.4 % of the EU’s GDP (2011 figures). According to the European Investment Bank, more than 1 300 public private partnership (PPP) contracts were signed in the EU between 1990 and 2009, representing more than EUR 250 billion. Concessions are the most common form of PPP (60 %).
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.
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)
The European Union and Japan are like-minded partners, sharing common interests and similar concerns on protection and enforcement of intellectual property rights (IPR). Innovation and creativity drive economic growth in both the EU and Japan. They also help give consumers more choice and create jobs.
The EU and Japan already export and import to and from each other many goods and services which depend heavily on intellectual property. But there is room for improvement. In the on-going negotiations for the Free Trade Agreement we want to:
What are intellectual property rights?
Intellectual property rights enable authors, artists, designers, inventors and other IPR users to decide how their creations and inventions are used. These rights, most of which are time-limited, are a key incentive to creativity and innovation, and thus improve consumer choice and job creation.
IPR fall into two categories:
(1) Industrial property, which principally comprises:
• patents, meaning new technical inventions;
• trademarks, which can be a word, logo or symbol that competitor companies may not use once it has been protected;
• designs, meaning the outward appearance of a product;
• geographical indications (GIs), which identify a product as originating in a specific region and whose reputation or quality is essentially attributable to its geographical origin.
In the EU-Japan Economic Partnership Agreement (EPA), the EU and Japan have agreed on mutual protection of GI names. High level of protection has been achieved through this agreement.
(2) Copyright, covering literary and artistic works such as books, articles, plays, films, musical works, paintings, photographs, sculptures and maps. Rights related to copyright include those of performers and producers of films and rights in sound recordings and broadcasts.
In addition to the rights themselves, ensuring awareness of and respect for intellectual property, alongside appropriate mechanisms for enforcement, are essential links in the invention chain.
IPR-related policy developments in the EU
Since 2011, the EU has made significant progress in promoting intellectual property rights which are fit for purpose in the 21st century:
• a unitary patent allowing companies to have a single and affordable patent giving them protection in the EU;
• updated rules on tackling fake products at our borders;
• empowering museums and libraries to digitise Europe’s cultural heritage;
• setting up a platform for stakeholders to discuss and help address IPR infringements, in particular by collecting reliable data.
Improving the protection and enforcement of IPR in third countries is also one of the EU's trade policy objectives. This objective is being pursued inter alia through multilateral (World Trade Organisation and the World Intellectual Property Organisation), and bilateral agreements (FTAs).
IPR-related policies of the European Commission: DG Trade; DG Internal Market, Industry, Entrepreneurship and SMEs; DG Agriculture and Rural Development; European Patent Office, The Office for Harmonization in the Internal Market
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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