EU-JAPAN free trade agreement: threats and opportunities

Yesterday in Bruxelles, Japan and EU representatives ended the first round of negotiations for the free trade agreement launched last month, just a year after the formal agreement with the EU state members. The second round will be held in Tokyo next June, and the negotiators are expecting a third session next autumn, without giving any certain forecast for the process conclusion. Some FTA negotiations lasted three years and more.EU-Japan summit

The key issues of the negotiation process are focused mostly on NTB (non tariff barriers) that prevent foreign exporters from accessing the Japanese market, with a negative impact especially for SMEs (small and medium enterprises) less structured to deal with complex scenarios.

The European Union will intervene on tariff levels on several goods from strategic industries in Japan, like automotive, machinery, chemicals and pharmaceutical products.

EU negotiators will also try to obtain measures from the Japanese government, designed to open the public procurement system, that would allow interesting business opportunities for EU manufacturers.

The European Commission bases its negotiation upon a detailed impact assessment report that, also in the most conservative and asymmetric scenarios, forecasts a general increase in the sales and business volume, as well as a boost in the employment levels in both countries. The key issues in the report are:

  • Tariff barriers level: both EU and Japan keep the average tariff level quite low, but each country has high tariff levels for some imports quite strategic for the counterpart. Japan keeps tariffs high for agricultural products, processed food, beverages, while the European Union focuses its tariffs on automotive industry (from 10% to 22%) and other key industries of Japanese export (electronic goods, machinery)

  • NTBs (non tariff barriers) are a relevant problem for several key export industries in EU: chemicals, pharmaceutical products, automotive, processed food, telecommunication and financial services. Complex industrial standard systems, though certification laws, and similar regulations, are a strong barrier to foreign trade.

  • Public procurement and government procurement are mostly unexplored by foreign suppliers. It represents a strategic and very interesting business niche for several excellence industries in Europe, like the aeronautical companies.

European Commission forecasts a GDP growth from 0,3% to 0,7%, a +6% export level growth and a +2,5% import increase. Other benefits would be an employment increase, a wage growth especially for semi-skilled resources, and a competitiveness boost for both the industrial systems.

There are many important consequences we should consider. The automotive industry is pretty concerned about the FTA progress: ACEA (the automotive manufacturers association in EU) fears a 70.000 jobs overall loss, and an unprecedented weakening of the major companies in Europe.

Marchionne, ACEA president (who was in quite big troubles after his attack to Volkswagen during the FTA promotion last year), expressed his concern about the first round of negotiations, remembering huge import streams after the EU-South Korea FTA, that weakened the already low levels of internal demand in Europe, with asymmetric benefits only for Korean producers.

ACEA published many speaking points on the launch of the free trade talks between EU and Japan and also a Deloitte impact assessment report. It focuses on the forecast of a growing gap between Japan market evolution and the better EU market potential. The graph is quite interesting, even if in my opinion, the EU automotive potential is widely overvalued.

Deloitte: Japan trade evolution forecast

Deloitte: Japan trade evolution forecast

The average Japanese producers advantage is evaluated in aprox. € 1.500 per vehicle, and the combined effect together with the Abenomics YEN depression, could be amazingly negative for EU manufacturers.

These issues are more relevant than before, because of the Abenomics effect, and its amplification due to the EU austerity policies (in one of my previous posts).

It’s important also to consider some benefits less covered by the media, like the important business opportunities created by the agreement for the agricultural producers, especially food & beverage companies, or the chemical/pharmaceutical industry. Countries historically important for automotive industry, like Italy, are also major excellence manufacturers in these industries (see graph below) so the final balance couldn’t be totally negative.

A closed road could unveil unexplored paths.

Japan - macro-industry figures - import from Italy

Japan – macro-industry figures – import from Italy

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One response to “EU-JAPAN free trade agreement: threats and opportunities

  1. Pingback: Japan Trade·

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