EU and Japan accelerate FTA in bid to conclude it by end of year

The Deputy Foreign Minister of Japan Yasumasa Nagamine is optimistic the EU-Japan free trade agreement (FTA) will reach agreement in principle by the end of this year. He has been asked by Japanese Prime Minister Shinzo Abe to “accelerate” negotiations.

Mr Nagamine, from the economic wing of the Ministry of Foreign Affairs in Japan, was in the UK after a trip to Brussels at the end of February, where he had represented Japan in the ninth round of negotiations on the ambitious FTA.

“The goal of ‘in principle’ agreement by the end of this year has been identified by political leaders as ambitious – but possible. In order to achieve that goal the negotiation teams need to accelerate the pace of negotiations further and so I am very much working on that task,” he said, during an interview with Asia House Web Editor Naomi Canton.

“We covered a wide range of areas and had a fruitful discussion and negotiation,” he added.

“This spring marks two years since we started these negotiations and we are now in the second stage of negotiations where we are bound to forge the ideas into an agreement.”

The first round of negotiations, aimed at liberalising trade and promoting investment between the EU and Japan, took place in Brussels in April 2013. The Japanese Government refers to FTAs as Economic Partnership Agreements (EPA) since what they cover is wider than just trade.

Japanese investment into the UK in 2013 was the highest in history – more than ¥1 trillion, or over £5 billion – which is second to Japan’s investment in the US. The EU is already the top investor in Japan.

The FTA will give Japanese businesses far greater access to European markets and increased cooperation with European businesses, as well as give EU businesses greater access to the Japanese market.

Lower tariffs will boost Europe and Japan’s economy, boost exports in both directions and create thousands of jobs in both places.

EU-Japan FTA will help with the third arrow of ‘Abenomics’

One hundred Japanese government officials flew to Brussels for the latest round of negotiations, which once agreed and implemented, will help Mr Abe with the third arrow of his economic policy ‘Abenomics’, namely that of structural reforms. For that reason Mr Abe is very keen for the negotiations to be finalised, Mr Nagamine explained.

“Under ‘Abenomics’, the third arrow is our growth strategy and a major FTA-EPA with a major trading and investment partner is an important part of this economic policy,” he said.

“PM Abe is keen to realise major EPAs and FTAs like this one which are contributing to the third arrow of ‘Abenomics’, so for that reason his EPA-FTA is very important. Japan will work closely with other growth centres in the world to negotiate freer trade and investment for the third arrow,” Mr Nagamine added.

The latest round of negotiations in Brussels covered market access for goods, trade in services, investments, non-tariff measures, IP rights and government procurement, he said.

“The negotiations are making good progress but at the same time we have identified the major areas that require serious negotiations ahead,” he said.

He could not comment specifically on progress over market access to the European automobile sector but he said that that fell under the market access negotiations and non-tariff measures areas. EU car manufacturers complain that Japanese car manufacturers have an unfair advantage over them as they have to make modifications to meet Japanese safety and environment standards. The railway is also a sensitive topic. EU railway firms and the firms providing equipment and components to the railways are unhappy with ‘operational safety clauses’ in Japan which they say are being used to protect Japanese suppliers and exclude foreign suppliers from winning contracts.

“The railway is an important area – mainly we are focusing on the procurement side of that issue but we are promoting industry dialogue in the railway area for future co-operation. We would like to provide more opportunities for both sides to have more business between Japan and the EU in these areas,” Mr Nagamine said.

“The EPA/FTA will provide an opportunity for inward direct investment from Europe and also the EPA will provide an opportunity to establish new rules, namely, 21^st century rules for trade and investment. This EPA will also provide further promotion of regulatory reform in Japan and also provide regulatory cooperation between Japan and the EU,” he added. “The movement of business people between Japan and the EU should become easier too,” he said.

“Japan and Europe share the same value system,” he said.

“Japanese companies have been accepted as good corporate citizens in the UK and enjoyed a very good business environment and the EPA under negotiation is aimed at further providing a better investment environment between the two – therefore we certainly would like to see the successes of Japanese companies in the UK to be expanded across Europe,” he added.

The next round of EU-Japan FTA negotiations will take place in Tokyo in April 2015.

As for any implications were the UK to leave the EU, Mr Nagamine was unwilling to comment on Britain’s domestic affairs, but he implied Japan preferred UK to play an influential role within the EU. He said: “The UK has played a very important role in the EU and I am certain that the UK has exercised a greater influence in the international community when the UK acted as an important member of the EU.”

He added that more than 1,000 Japanese businesses were investing and operating in the UK and the UK was the second largest recipient of Japanese businesses after Germany, which have created 160,000 jobs in the UK.

“Japanese businesses have been enjoying the wonderful investment environment of the UK but also have benefited from the UK being the gateway to the European market. Therefore I am not commenting on how the UK’s relationship with the EU is, but I only expect and hope that the UK will continue to play that major role in the context of the EU and the international community. We are especially appreciative of the UK’s strong support of freer trade and investment,” he added.

Japan is the EU’s second biggest trading partner in Asia, after China. The EU and Japan together account for more than a third of the world’s GDP.  Japan is a major investor in the EU.

Mr Nagamine admitted there was sensitivity in Japan’s agriculture sector but said that the Japanese Government had engaged with the EPA “for the benefit of Japanese interests while paying attention to the sensitivities related to the agriculture sector.”

“We have achieved overall high-level comprehensive EPAs with our partners and we would very much like to realise such a balanced outcome of this EPA with Europe. When you open up your market by a new EPA you would always face the challenges. However in order to achieve a high-level EPA both sides need to overcome the challenges,” he said.

Japan is engaged in eight different EPA negotiations currently, one of which is the Regional Comprehensive Economic Partnership (RCEP), a proposed FTA between the ten member states of ASEAN and the six states with which ASEAN has existing FTAs. Mr Nagamine is also Japan’s chief negotiator for the China-Japan-South Korea FTA.

Mr Nagamine said that whilst Japan supported the multilateral trading system of the World Trade Organisation (WTO) as a main pillar of international trade, the Japanese Government had actively engaged with bilateral or pluri-lateral EPA/FTAs to “complement” the WTO.

Japan: TPP is not getting priority over EU-Japan FTA

The Japanese Government was giving equal importance to the EU-Japan FTA as to the TPP (the Trans-Pacific Partnership), currently involving 12 countries, which is in the final stages of negotiations, he said.

“All the negotiations are important for us but as a so-called ‘mega trade negotiation’ both the Japan-EU EPA/FTA and the TPP are very important,” he insisted. “The media covers the TPP more because of the political attention on it. Certainly the TPP negotiations are at the final stages so are getting more attention – but the Japan-EU EPA is also being given as much importance by us,” he added.

The interview, which was held at Asia House, was conducted following a breakfast briefing at which Mr Nagamine briefed Asia House corporate members on the progress of the ninth round of negotiations on the EU-Japan FTA. This was followed by a roundtable discussion held under the Chatham House Rule.

Corporate members represented at the briefing included Amec Foster Wheeler, Anglo-American, EY, GSK, Jardine Matheson, Nikkei, PwC, Rio Tinto and Shell.

naomi.canton@asiahouse.co.uk

Our next breakfast briefing looks at Indian Prime Minister Narendra Modi’s first full-year budget. Richard Rekhy, CEO of KPMG in India and Sanjeev Sanyal, Global Strategist & Managing Director of Deutsche Bank, will brief Asia House corporate members on the budget on 17 March. This will be followed by a roundtable discussion. For more information click here.