While the EU is working to strengthen its ties with the emerging Asian economies, Tokyo fears that Europe is losing interest in its market and is pushing for a bilateral agreement in order to bring two of the biggest economies of the world closer to each other. Behind the scenes, a quiet battle about the future of EU-Japan economic relations is taking place involving business communities, the European Commission and governments. The aim is to enhance trade and investments ties between two key global players at a time when Europe increasingly shifts its attention to the emerging Asian economies. The debate is too sensitive to be concluded by the leaders during the EU-Japan summit, scheduled for 23 April.

Fearing that the EU is losing interest in the Japanese market, policy makers and businesses in Tokyo are pushing for a bilateral economic integration agreement (EIA) that would include further tariff liberalisation. But this idea triggers little enthusiasm only within the EU, where a light framework to address the remaining regulatory obstacles on the Japanese market is favoured.

“What matters to our firms is the regulatory issues. Tariff lines can be addressed at the multilateral level,” said a representative of BusinessEurope, which is trying to craft a common business position with its Japanese sister organisation, Nippon Keidanren, on this delicate file. Both organisations will attempt to present a joint recommendation to the EU and the Japanese government during the EU-Japan Business Dialogue Round Table, to be held on 3-4 July in Tokyo, ahead of the G8 summit. But divergences of interest will lead to tough negotiations. “Japanese business people are looking at tariffs reduction,” confirmed to EuropoliticsTakekazu Kawamura, Japan’s ambassador to the EU. Car makers and electronics firms would have much to gain from a reduction of the EU tariffs line in their sectors, according to an expert. Japanese companies fear that they are losing ground to their Korean competitors, since Seoul has concluded a free trade agreement with the US and is negotiating one with the EU. “The business community in Tokyo is concerned with the Korean FTAs,” said a Commission source.

NEW FRAMEWORK

On the European side, regulatory barriers are seen as the main obstacle to the expansion on the Japanese market. In many sectors, legislations discriminate foreign companies and limit their expansion. Access to public procurements is also a source of complaint for EU firms. Foreign investment in Japan remains very low, less than 3% of GDP compared to 20% on average in the EU. “It is impossible to get a contract in the railway sector. It is almost impossible to sell an Airbus in Japan,” said a Commission source. “The Commission and the member states are concerned by many regulatory obstacles,” confirmed EU Trade Commissioner Peter Mandelson’s spokesperson.

Therefore, instead of an EIA, European businesses favour a lighter framework similar to the Transatlantic Economic Council, set up last year with the US that would focus on regulatory issues. On 11 April, BusinessEurope called for the creation of an ‘EU-Japan Economic Partnership Council’, in a letter sent to Peter Mandelson by its Secretary-General Philippe de Buck. The new framework would cover regulatory cooperation, services, investment, public procurements and food and phytosanitary standards. “It should focus on non-tariff issues as any bilateral tariff negotiation could put at risk” the future of the Doha Round, warned De Buck.

Although the Commission and Tokyo have not yet reacted officially to this proposal, it falls short of the Japanese expectation in terms of tariffs liberalisation. “We already have a regulatory dialogue that has been running for more than ten years,” indicated Takekazu Kawamura. There are also some differences of views within the administration in Tokyo. While the powerful Ministry of Economy, Trade and Industry (METI) favours an FTA, the Ministry of Foreign Affairs seems less pushy. On the EU side, the Commission is keen to stress that it is pursuing FTAs only with emerging economies and wants to establish a more comprehensive kind of cooperation with its largest trade partners, such as the US or Japan.

Therefore no decision is expected in the short term but the issue is likely to surface again before the end of the year despite the lack of enthusiasm on the EU side. The Commission stresses the importance of avoiding any bilateral initiative that could derail the Doha Round at a time when efforts to achieve a multilateral breakthrough are accelerating in Geneva. However, once the outcome of the ongoing efforts to salvage Doha will be known, the Japanese side is likely to raise again the possibility of a bilateral agreement. “In case of a failure at the WTO, we will need to think about some alternatives,” a Japanese diplomat told Europolitics.

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