"If growth in the next twenty years is likely to come from Asia, then overlooking Japan would be a serious mistake in our trade strategy", said EU Trade Commissioner Karel De Gucht. "Our priority in our talks will be to tackle the non-tariff barriers on the Japanese market, for example in the car sector, and to allow European business to access Japan's public procurement market. If Japan will not have removed key non-tariff barriers within one year from the start of the negotiations, we will stop the negotiations."
The European Commission decided to ask the Member States for their agreement on opening negotiations for a Free Trade Agreement with Japan. Negotiating directives will be submitted to the Council which will have to give the Commission a mandate to start negotiating. Japan is the EU's second biggest trading partner in Asia, after China, and together the EU and Japan account for more than a third of world GDP. A trade deal with Japan could boost the EU's GDP by almost one per cent and EU exports to Japan could increase by one third.
A free trade deal with Japan would boost Europe's economy by 0.8% and EU exports to Japan could increase by 32.7%, while Japanese exports to the EU would increase by 23.5%. 420,000 additional jobs in the EU are expected as a result of this agreement.
Given the importance that the elimination of non-tariff barriers has for realising the level playing field for European businesses on the Japanese market, the negotiating directives foresee that:
At the EU-Japan Summit of May 2011, the EU and Japan decided to start preparations for both an FTA and a political framework agreement and stated that on the basis of a successful scoping exercise, the Commission would seek the necessary authorisation from the Council for negotiations.
After one year of intensive discussions, in May 2012, the Commission has agreed with Japan on a very ambitious agenda for the future negotiations covering all EU market access priorities. The Commission has also agreed with Japan on specific 'roadmaps' for the removal, in the context of the negotiations, of non-tariff barriers as well as on the opening up of public procurement for Japan's railways and urban transport market.
Now that the scoping exercise has been successfully concluded, the Commission has decided to request the Member States' green light to start negotiating a Free Trade Agreement.
There are enormous potential trade opportunities for European business in Japan. In 2011 the decline over the past five years in EU exports to Japan had made a substantial recovery. EU exports had reached a value of €49 billion, mainly in the sectors of machinery and transport equipment, chemical products and agricultural products.
In 2011 EU imports from Japan accounted for €67.5 billion. Imports from Japan are mainly in the sectors of machinery and transport equipment and chemical products. In 2010, EU imports and exports of commercial services from and to Japan were €12.7 and €17.2 billion.
The trend in flows of FDI was quite dynamic between 2006 and 2009, with a substantial rebalancing of investment flows, from a balance of €-17.8 billion in 2006 (the EU invested €16.2 billion and Japan disinvested €1.6 billion) to a positive balance of €1.1 billion in 2009 (the EU disinvested €23 million and Japan disinvested €1.15 billion).
Japan is a major investor in the EU. In 2010 the EU inward DFI stock had reached a value of €129.1 billion. Japan's inward FDI has increased markedly since the mid-1990s, but remains very low in comparison with other OECD countries.