Delegation of the European Union to Japan

EU-Japan Trade and Investment Relations

07/12/2017 - 01:32
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The EU and Japan are both major international trading powers, and our trading relationship matters to both of us.

The EU and Japan are strategic trade partners and concluded the EU-Japan Economic Partnership Agreement which entered into force on 1 February 2019 and has been bringing significant benefits to both Parties. In 2020, Japan was the EU’s 7th largest overall trading partner, accounting for 3% of the EU’s external trade, whilst the EU was Japan's 3rd largest overall trading partner (after China and the US). Japan is the EU’s second-biggest trading partner in Asia after China.

Regarding the recently concluded EPA, an overview of the agreement can be found on Directorate-General for Trade web page, including chapter-by-chapter information

Manufactured goods dominate bilateral trade (EU27, 2020)

Machinery and transport equipment represent 35% of the total EU exports to Japan, chemicals about 24% and all other manufactured products 12.5%, while primary products (such as agriculture, raw materials and energy) represent 16%. Machinery and transport equipment alone account for over 63% of the total EU imports from Japan, while chemicals account for 14% and primary products for 2.5%.

Trade in Services - The EU runs a surplus in its trade in services with Japan (EU27, 2020)

As for services, exports to Japan declined from €30.8bn in 2019 to €25.5bn in 2020, whilst services imports to the EU from Japan decreased from €16.2bn in 2019 to €12.5bn in 2020. The EU's surplus of almost €15bn in its service trade with Japan was mainly due to trade in telecommunications/ computer/information services (€7.4bn surplus), IPR-related financial flows, other business services and financial services.

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What is it, and why does it matter?

This EPA is one of the most important bilateral trade agreement 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.

1 February 2021 marked the second anniversary of the entry into force of the EU-Japan Economic Partnership Agreement (EPA). During the first year of implementation of the EPA, bilateral trade in goods increased significantly for key categories of European products, but the coronavirus pandemic has had a negative effect on bilateral trade flows based on initial data. More time is needed to fully analyze data and assess the underlying trend.

Preference Utilization Rate (PUR) for the EU-Japan EPA

Preference Utilisation Rates (PURs) measure the extent to which tariff preferences provided by a particular trade agreement are being used by imports and exports of either side.

The overall PUR reached 63.1% in 2020, compared to 59% in 2019. The PUR for agricultural and related goods remained high, reaching 93.6% (compared to 85.2% in 2019). The PUR for industrial goods reached 45.6%, and it thus grew proportionally more than the PUR for agricultural goods.

The main elements of the Economic Partnership Agreement

The Economic Partnership Agreement opens up the Japanese market of 127 million consumers to key EU agricultural exports and increases EU export opportunities in a range of other sectors.

With regards to agricultural exports from the EU, the agreement in particular:

  • scrapped duties on EU wine immediately (1 February 2019)
  • progressively eliminates duties on many hard cheeses such as Gouda and Cheddar (which before the entry into force of the EPA were  set at 29.8%), while fresh cheeses such as Mozzarella benefit from a duty-free quota.
  • progressively eliminates duties for processed agricultural products such as pasta, chocolates, cocoa powder, candies, confectionary, biscuits, starch derivatives, prepared tomatoes and tomato sauce.
  • allows the EU to increase its beef exports to Japan substantially, while on pork there will be duty-free trade in processed meat and almost duty-free trade for fresh meat. 
  • ensures the protection in Japan of more than 200 high-quality European agricultural products, so called Geographical Indications (GIs), and also ensures the protection of a selection of Japanese GIs in the EU.

The agreement also opens up services markets, in particular financial services, e-commerce, telecommunications and transport. It also…

  • guarantees EU companies access to the large procurement markets of Japan in 48 large cities, and removes obstacles to procurement in the economically important railway sector at national level;
  • Addresses specific sensitivities in the EU, for instance in the automotive sector, with transition periods before markets are opened.

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:

  1. machinery and appliances: machinery and mechanical appliances, electrical equipment;
  2. transport equipment: motor and railway vehicles, aircraft and vessels; and
  3. products of the chemical or allied industries: chemicals and pharmaceutical products.

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:

  • mainstreaming industrial competitiveness in other policy areas to sustain the competitiveness of the EU economy;
  • maximising the potential of the internal market;
  • implementing the instruments of regional development in support of innovation, skills, and entrepreneurship;
  • promoting access to critical inputs in order to encourage investment;
  • facilitating the integration of EU firms in global value chains.

 

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:

  • better value for money
  • more choice
  • greater economic efficiency
  • good governance.

For companies it could:

  • increase demand for their products or services
  • create opportunities for growth
  • safeguard existing jobs
  • create new jobs.

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."

The EU is the world’s largest trader of services. Services are the backbone of the modern economy, contributing more to economic growth and job creation worldwide than manufacturing and mining activities or agriculture. Trade in services is vital for both the EU’s and Japanese economies.

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. The EU’s trade strategy seeks to complement multilateral liberalisation efforts with deeper commitments in preferential trade agreements.

Opening up trade in services is not about removing barriers at the border, as there are no tariffs on services. It is mainly about addressing discriminatory and quantitative restrictions that can hinder EU companies from supplying services outside the EU.

Correspondingly, the EU-Japan EPA includes comprehensive and ambitious provisions on services. Furthermore, services represent key area of discussion in plurilateral and multilateral negotiations at the WTO (General Agreement on Trade in Services, plurilateral negotiations on Domestic Regulation and E-commerce).

What is covered?

Trade in services covers a huge variety of sectors, such as business/ professional, financial, telecommunications, transport, postal and courier, retail and distribution, construction, environmental, health, education, tourism, entertainment and recreational services.

As the nature of trade evolves  goods and services are increasingly linked together. Trade is  becoming more innovation-driven, supported by intellectual property (IP) protection, with an increasing role of services trade compared to goods.

Services not only contribute directly to the value chain (financial services, telecommunication, IT, transport and logistics) but they contribute by being incorporated in manufacturing products. The servicification of the economy and the rise of digital technologies have created well-paid and high quality jobs and have fuelled economic growth.

The EU’s trade policy communication, An Open, Sustainable and Assertive Trade Policy, adopted in February 2021, identifies six areas that are critical to achieving EU trade policy – and supporting the digital transition and trade in services is among them.

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).

The European Commission proposed recently two legislative initiatives to upgrade rules governing digital services in the EU: the Digital Services Act (DSA) and the Digital Markets Act (DMA). They form a single set of new rules applicable across the whole EU to create a safer and more open digital space. The DSA and DMA have two main goals:

  1. to create a safer digital space in which the fundamental rights of all users of digital services are protected;
  2. to establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally.

Useful links

Services-related policies of the European Commission: DG Trade; DG Financial Stability, Financial Services and Capital Markets Union; DG Internal Market, Industry, Entrepreneurship and SMEs; DG Mobility and Transport; DG Communications Networks, Content and Technology.

Promoting investment flows between the European and Japanese economies is increasingly at the forefront of the EU-Japan relationship and 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 encourage investment by guaranteeing that governments treat investment between the EU and Japan in line with some basic principles, which prohibit:

  • discrimination
  • expropriation of foreign investments without compensation
  • denial of justice to foreign investors in domestic courts
  • abusive or arbitrary treatment of EU and Japanese investors in each other's territory.

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.

The EU is the world’s main provider and the top global destination of foreign investment. At the end of 2019, foreign direct investment stocks held in the rest of the world by investors resident in the EU amounted to €8,990 billion, including €108.2 billion in Japan. Meanwhile, foreign direct investment stocks held by third country investors in the EU amounted to €7,138 billion, including €217 billion from Japan.

Investment-related policies

As investment is part of the EU’s common commercial policy the European Commission may legislate on investment.

EU investment policy aims to:

  • secure a level playing field so that EU investors abroad are not discriminated or mistreated
  • make it easier to invest by creating a predictable and transparent business environment
  • encourage investment that supports sustainable development, respect for human rights and high labour and environmental standards - this includes promoting corporate social responsibility and responsible business practices
  • attract international investment into the EU, while protecting the EU’s essential interests
  • preserve the right of home and host countries to regulate their economies in the public interest

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.

Useful links

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)

Environment

Climate change and environmental degradation are an existential threat to Europe and the world. Over the past decades the European Union has put in place a broad range of environmental legislation and initiatives to overcome these challenges. More recently, in December 2019 the EU adopted the European Green Deal an ambitious vision of fair, climate-neutral, resource-efficient and competitive economy. The circular economy is an integral part of that vision and is key for sustainable production and consumption. That is why in March 2020 the EU adopted its New Circular Economy Action Plan which includes initiatives for the entire products life-cycle, from the design and manufacturing to the consumption, repair, reuse and recycling. The emphasis is on prevention, in particular waste prevention and the objective is to reduce the pressure on natural resources and to create sustainable growth and jobs through transition to a low carbon circular economy. The main pillar of this Plan is the Sustainable Product Policy Framework.

The EU is aware that the climate and environmental challenges are global and they have to be addressed jointly with other countries for a successful outcome. Therefore, the EU has initiated and participated in a number of global initiatives such as the Global Alliance on Circular Economy and Resource Efficiency (GACERE), the Global Agreement on Plastics, as well as a in a number of international agreements on biodiversity (CBD) and trade in endangered species (CITES).

European Green Deal

The European Green Deal proposed by European Commission President Ursula Von der Leyen is a response to these challenges. It is a new growth strategy that aims to transform the EU into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050, where economic growth is decoupled from resource use, where natural capital is protected and enhanced and where the health and well-being of citizens is shielded from environment-related risks and impacts. The Green Deal requires a transition across all sectors of society, for which significant upfront investments will put Europe on a new path of sustainable and inclusive growth. But just as climate change and biodiversity loss are global issues, the ambitions of the Green Deal are not limited by national borders. The EU calls on all countries to join this transformation, and will continue building alliances with like-minded partners such as Japan.  The EU and Japan have concluded a Green Alliance in May 2021 in the EU – Japan Summit. It is the first such alliance for the EU and it aims to accelerate the transition of both economies towards becoming climate-neutral, circular and resource-efficient in the coming decades. The two parties agreed to strengthen cooperation on protecting the environment, conserving biodiversity and fighting climate change.

Climate Change

The EU has set itself targets for reducing its greenhouse gas emissions progressively up to 2050. As part of the EU Green Deal, the EU has set itself an ambitious target on reduction of greenhouse gas emissions (by 55% from 1990 levels by 2030) and new more ambitious targets on energy transition (increasing the share of renewable energy to 40% and increasing energy efficiency by 36-39% by 2030) have also been proposed. 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 main aims of the EU’s energy policy are to diversify Europe’s sources of energy, ensuring energy security through solidarity and cooperation between EU countries; to ensure the functioning of a fully integrated internal energy market, enabling the free flow of energy through the EU through adequate infrastructure and without technical or regulatory barriers; to improve energy efficiency and reduce dependence on energy imports; cut emissions, and drive jobs and growth; to decarbonise the economy and move towards a low-carbon economy in line with the Paris Agreement; And to promote research in low-carbon and clean energy technologies, and prioritise research and innovation to drive the energy transition and improve competitiveness.

The EU and Japan cooperate on a number of energy issues including decarbonisation of their energy systems, promotion of renewable energy, hydrogen, electricity market reform, Liquefied Natural Gas markets etc. An annual energy dialogue is held to exchange views on policy developments in the EU and in Japan, to identify priorities for cooperation and to discuss positions in international fora.

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.

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 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, so called 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.

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) 2021/1533 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 Implementing Regulation (EU) 2019/1787, is available at the following link.

The COMMISSION IMPLEMENTING REGULATION (EU) 2021/1533 shall not apply to the following categories of consignments of the products not exceeding the gross weight of 10 kg of fresh product or 2 kg of dry product:
(a)    consignments sent as trade samples, laboratory samples or as display items for exhibitions, which are not intended to be placed on the market;
(b)    consignments which form part of passengers’ personal luggage and are intended for personal consumption or use;
(c)    non-commercial consignments sent to natural persons, which are not intended to be placed on the market;
(d)    consignments intended for scientific purposes.

In case of doubt over the intended use of the products the burden of proof lies respectively with the owner of the personal luggage and with the recipient. 

For further enquiries, please contact delegation-japan@eeas.europa.eu or have a look at the PDF icon frequently asked questions

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. 

EU-Japan Centre for Industrial Cooperation

The EU-Japan Centre for Industrial Cooperation is a joint venture established in 1987 by the European Commission (DG GROW) and the Japanese Government (METI) for promoting all forms of industrial, trade and investment cooperation between the EU and Japan. It is jointly funded and managed by both sides. It has its head office in Tokyo and an office in Brussels. Please have a look at the Centre’s activities in a nutshell to get a sense of the Center’s activities.

 

EU-JAPAN CENTRE

 

EU-Japan Business Round Table

The EU-Japan  Business Round Table is made up of around 76 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 fifteen 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 22 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.

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