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The EU-Japan agreement explained

The EU is negotiating a trade agreement with Japan.

Find out all about it – what would be in it, what impact it would have, and how we can reach a final deal.

Context

Content

Impact

Benefits
Concerns

Process

Why is the EU negotiating a trade agreement with Japan?

Japan is a big market for EU exports:  Every year EU firms already export to Japan:

  • €58 billion of goods
  • €28 billion of services

As a rich country of 127 million people, Japan holds huge potential for EU firms to export even more.

But European firms face lots of trade barriers when exporting to Japan – such as high import duties and procedures and standards different from international standards, which make it hard for them to compete. 

Every €1 billion of EU exports supportssome 14,000 jobs in Europe.  The more Europe exports, the more jobs it can safeguard and create.

So the EU wants a trade agreement with Japan to:

  • remove trade barriers and make it easier for EU firms to sell goods and services to Japan.
  • help the EU and Japan shape global trade rules in line with our high standards and our shared values of democracy and rule of law.
  • send a powerful signal that two of the world's biggest economies reject protectionism.

How big is the Japanese market? How much trade does the EU do with Japan?

Japan is the world's fourth largest economy.  With a population of 127 million, its economy is about one third larger than Germany's. 

Japan is the EU's second biggest trading partner in Asia after China.  EU firms export over €58bn of goods and €28bn of services to Japan every year. 

Yet although Japan is the world's third largest consumer market, it is only Europe's seventh biggest export market.  EU firms could export more to Japan if it were easier to do so.

About 10% of Japan's trade is with the EU, making it the country's third most important trading partner.

What sort of problems do EU firms face when exporting to Japan?

European firms often find it difficult to export to Japan because of:

  • High Japanese tariffs on some products
  • Costs of compliance with Japanese rules and regulations when they differ from international standards
  • Technical barriers to trade such as:
    • Requiring separate permits for each variety of citrus fruit exported to Japan
    • Blocking foreign firms from bidding for government contracts in some sectors

The EU wants the trade agreement with Japan to get rid of such unnecessary obstacles to European exports so that European firms can sell more goods and services to Japan.

What do the EU and Japan want from the deal?

The EU wants Japan to remove unnecessary obstacles to European imports so that EU firms can export more.

Japan's main interest is in the EU removing tariffs on imports of Japanese products, such as cars and car parts.

Both the EU and Japan want to:

  • shape global trade rules in line with their high standards and shared values of democracy and rule of law
  • send a powerful signal that two of the world's biggest economies reject protectionism.

What are the main things the agreement will do, in a nutshell?

1. Get rid of tariffs

High Japanese tariffs make European products in Japan more expensive.  Japan imposes high tariffs on imports of European products such as:

  • wine
  • pasta
  • chocolate
  • shoes and leather products.  

The EU wants Japan to get rid of its tariffs on a wide range of products so that:

  • European products will be more competitive in Japan
  • it will be easier for European producers and exporters to sell their goods in Japan.

A trade deal with Japan could greatly improve the access of European exports to the Japanese market and see up to over €1 billion a year in tariffs progressively removed.

2. Get rid of other obstacles to trade

The main obstacles to EU firms penetrating the Japanese market are Japanese rules and regulations which are different from international standards and practices, and the resulting high compliance costs for EU firms. 

Some companies say these obstacles make it 10-30% more expensive to export to Japan.

Most EU standards are based on international ones but Japanese standards often differ from international standards to a lesser or greater extent. 

This makes it difficult and expensive for EU exporters because they have to set up separate production lines for the Japanese market.

The EU wants improvements in over 70 areas where Japanese trade barriers make it difficult for European exporters.

The EU wants Japan to bring its standards into line with international norms.  This would:

  • make it easier for EU firms to export to Japan
  • reinforce international standards

3. Show the world that the EU and Japan reject protectionism

At a time when protectionist pressures are growing, a trade agreement between the EU and Japan would send a clear signal that two of the world's largest economies:

  • reject protectionism
  • are open for business and for trade on the basis of fair rules and high standards. 

What will the agreement mean for trade in goods?

The EU wants Japan to abolish import tariffs on European goods and to remove obstacles to EU exports, such as unclear rules and regulations.

Making it easier to export to Japan is expected to benefit EU firms making and selling:

  • agri-food products
  • electrical machinery
  • pharmaceuticals
  • medical devices (x-ray machines, pacemakers etc.)
  • motor vehicles
  • transport equipment
  • textiles and clothing
  • footwear and leather products
  • forestry products

Every €1 billion of EU exports represents some 14,000 jobs in Europe.  The more Europe exports, the more jobs it can safeguard and create.

What will the agreement mean for trade in services?

The agreement will make it easier for EU firms to sell their services in Japan.

Firms in the following areas in particular are expected to benefit:

  • Business services
  • Financial services
  • Telecoms
  • Transport
  • Distribution

The agreement will prevent the EU or Japan from discriminating against each other's service providers. 

The agreement will:

  • not prevent the EU or Japan their ability from regulating their services markets in a non-discriminatory manner
  • not affect public services like public healthcare or state-funded education.

Whether they apply to foreign and domestic services suppliers, the agreement will not change or affect rules on:

  • safety
  • health
  • environmental standards
  • qualification requirements
  • labour rights
  • working conditions

How much difference will an agreement make to trade between the EU and Japan?

 An independent Impact Assessment of a potential trade deal with Japan suggests it could increase EU output by up to 0.76%.

The London School of Economics carried out a Sustainability Impact Assessment of a potential EU-Japan trade deal. The study looks at the possible economic, social and environmental impacts of an agreement.  It suggests that EU exports to Japan could increase by over one third. 

Today, more than 600,000 jobs in the EU are linked to exports to Japan. Japanese companies employ more than half a million people and form an integral part of the EU's economy. If we make trade and investment with Japan easier, these figures could be higher.

Which sectors will benefit most?

In the EU the sectors that are expected to benefit include:

  • pharmaceuticals
  • medical devices
  • agri-food
  • motor vehicles
  • transport equipment

How will the agreement help small businesses and not just big ones?

Smaller exporters are disproportionately affected even by smaller barriers, because they don't have time and resources needed to overcome them.  That is why the EU wants to have a dedicated chapter for them in the agreement.

The EU wants the agreement to:

  • make it easier for exporters to find out which Japanese rules apply to their product
  • make Japanese regulations more transparent
  • simplify Japanese customs procedures

These improvements will be especially helpful for small businesses. 

How will European consumers benefit?

The agreement should see Japanese products in the shops become cheaper.

How will the agreement benefit the EU's farming communities?

EU farming communities stand to gain from easier access to the Japanese market and more opportunities to sell their produce to Japan's 127 million consumers.

Japanese consumers like high quality European products such as wines, cheese, chocolate, pork and pasta.

But Japan imposes high tariffs on imports of these and other European food and drink products.  For example:

  • 30-40% on cheese
  • 38.5% on beef
  • 15% on wine
  • Up to 24% on pasta
  • Up to 30% on chocolate

The EU wants Japan to remove these high tariffs and other trade barriers such as unclear rules and regulations so it will be easier for European producers to export their produce to Japan.

How will the agreement help EU food and drink producers market their distinctive regional products (Geographical Indications)?

The EU is a major producer of distinctive regional food and drink products such as Parma ham, Parmesan cheese, Italian Prosecco and Irish Whiskey. 

These products enjoy a special status known as a 'Geographical Indication' which lets consumers know that they are the genuine article.  It also allows European producers to earn a premium for the quality of their produce.

The EU wants Japan to recognise 205 European Geographical Indications so that only products with this status will be allowed to be sold in Japan under the name corresponding name. 

This would make it illegal to sell imitation produce – for example cheese labelled as Roquefort but which is not made in Roquefort.

This will:

  • help European producers and exporters
  • reassure Japanese consumers that they are buying a genuine European product.

How will the agreement open up Japan's public procurement market?

The agreement will make it easier for European firms to bid for Japanese government contracts. 

The lucrative railways sector, in particular, is an area that Japan has kept tightly closed to foreign competition. Under the trade agreement, the EU wants Japan to open up this sector so European train manufacturers can compete on a level playing field.

How will the deal help Europe's creative industries, innovators and artists?

Both the EU and Japan have robust systems for protecting and enforcing intellectual property rights such as:

  • trademarks
  • patents
  • designs
  • trade secrets

The EU wants the agreement to reaffirm both the EU's and Japan's existing systems. 

The EU also wants Japan to comply with international standards, notably on copyright protection.

How will the agreement encourage more investment between the EU and Japan?

The agreement will make it easier for European and Japanese firms to invest in each other's markets, so more Japanese companies might invest in Europe or set up production in the EU.

The agreement will also contain some provisions on corporate governance.  The aim is to attract and encourage investment by raising investor confidence and improving competitiveness.  This will enable investors to make the most of the opportunities created by the trade agreement.

The EU is committed to integrating its new approach to investment protection and dispute resolution – an investment court system – in all its new trade agreements.  The investment court system would create a more predictable environment for investors.

How will the agreement protect European standards, including food safety standards?

As with all the EU's trade agreements, the agreement with Japan will not affect European product standards, including standards for food and agricultural products.

Like the EU, Japan has very strict product standards, including for food and agricultural products.  Indeed, the EU and Japan have the highest consumer protection standards in the world.  The agreement will reinforce these standards.

Thanks to the talks, the EU and Japan are working more closely with each other in several international standard-setting bodies in areas such as:

  • Cars
  • Pharmaceuticals
  • Textiles care labelling

As EU standards are already in line with international ones, this will make it easier for EU firms to export to Japan.

How will the agreement uphold workers' rights in both the EU and Japan?

Both the EU and Japan have strong laws protecting workers' rights.  They have agreed that the trade deal between them must support existing rights and not lower or dilute them.

The agreement prohibits either side from unduly encouraging trade and investment by:

  • derogations from labour laws
  • not enforcing labour laws

This is how we can help shape globalisation.

How will it affect EU car makers?

Japan wants the EU to remove its tariffs on imports of Japanese cars and components. This would make imports of Japanese cars and components cheaper.

However, more than two-thirds of all Japanese-brand vehicles sold in the EU are actually manufactured in the EU.  Another 240,000 Japanese-brand vehicles made in the EU are exported to third countries.

Japanese car makers have 14 production plants in the EU and 16 research and development centres. According to Japanese cars manufacturers, these employ 34,000 people in the EU and a further 127,000 indirectly.

So removing tariffs could boost production and jobs in Japanese-owned car plants in Europe.

In 2014 the EU sold €6 billion worth of cars to Japan, while Japan sold €4.7 billion worth of cars to the EU – a surplus for the EU of €1.3 billion.

Prior to the EU signing a trade deal with Korea, some people feared it would result in a flood of Korean car imports to Europe. In fact, the EU-Korea trade agreement has seen a sharp rise in EU car exports to the Korea and a trade deficit being transformed into a surplus.

What about the agreement's impact on the environment?

The European Commission used an independent contractor to carry out a Sustainability Impact Assessment (SIA) of the EU-Japan trade agreement.

The study, published in 2016, looked at the potential environmental, social and economic effects of the agreement.  It concluded the agreement would:

  • see a growth in trade in green technologies, thereby offsetting any negative environmental effects such as an increase in waste and use of resources
  • benefit less energy and emission intensive sectors and see a move in production towards cleaner sectors in both Japan and the EU
  • not raise energy demand
  • not lead to a rise in imports of natural resources

Both the EU and Japan have strong environmental laws. They have agreed that the trade deal between them must support existing rights and not lower or dilute them.

The agreement prohibits either side from unduly encouraging trade and investment by:

  • derogations from environmental laws
  • not enforcing environmental laws

How will the EU tackle the issue of Japanese whaling?

The EU and its Member States are committed to the conservation and protection of whales, and have consistently expressed strong reservations about whaling for scientific purposes.  

The EU is an active participant in the International Whaling Commission – the most effective framework to address Japanese whaling at international level – where it works closely with like-minded partners.

Whales receive special protection under the EU law and the EU strictly enforces the ban on trade in whale products under the Convention on Trade in Endangered Species, also known as CITES.  The EU-Japan trade agreement will not change our position.

The EU already has regular talks with Japan on environment-related issues, including whaling.

In the negotiations for the trade agreement, we are discussing a chapter on sustainable development with Japan.  The chapter will provide an additional platform to foster dialogue and joint work between the EU and Japan on environmental issues of relevance in a trade context.

Will the agreement force EU governments to privatise state-owned firms or break up state-owned monopolies?

No.  The agreement will NOT require EU governments to:

  • privatise any existing state-owned firms or monopolies
  • take rights or privileges away from state-owned firms or monopolies
  • lower the standard of public services.

The EU would like European firms to be able to sell products or services to Japan Post – the world's largest state-owned firm – without being discriminated against.

Does the agreement contain a reference to the precautionary principle?

No – but it does not need to because the precautionary principle is already enshrined in the EU treaties and EU trade agreements must respect those treaties.

The EU ensures that all its trade agreements:

  • fully respect the right to regulate on the basis of the precautionary principle
  • are in line with existing food safety regulations and other 'secondary legislation' which includes the precautionary principle.

Will the chapter on sustainable development be enforceable?

Yes. 

The chapter on sustainable development covers issues such as:

  • workers' rights
  • the environment
  • climate change

The commitments set out in the chapter will be enforceable agreement through a dispute settlement mechanism that includes:

  • external review by an independent panel of experts
  • a role for civil society, including representatives of employers and trade unions, at all stages
  • expertise of international organisations such as the International Labour Organization

How will the agreement affect public services in Europe?

The agreement will not affect public services.

No EU trade agreement forces governments to privatise or deregulate any public service at national or local level. The EU–Japan agreement is no different.

EU governments will still be able to nationalise any privately provided services.  Of course, they would have to respect their own and EU laws – for instance on conditions for ending a contract early or for paying compensation for expropriation.

EU trade agreements do not affect any country's ability to regulate its services markets.  They try to stop governments discriminating between service suppliers because of their nationality.

The EU-Japan agreement will not change rules suppliers – whether foreign or domestic – have to meet to:

  • protect people's health and safety
  • organise education systems
  • distribute water
  • protect the environment.

Some EU Members States have chosen to allow non-EU service providers to provide private education and health services. Others have specifically barred them. 

Whatever a Member State decides, the Lisbon Treaty does not limit

  • Member States' ability to regulate or provide services of general interest such as energy and water
  • the EU's ability to regulate such services in a non-discriminatory manner

How will the agreement safeguard governments' right to regulate in the public interest?

The agreement will not affect the right of EU or Japan:

  • to regulate for public policy objectives such as protecting the public health, the environment or workers
  • to provide public services.

No EU trade agreement forces governments to privatise or deregulate any public service at national or local level.  The EU–Japan agreement is no different.

The agreement will enable the EU and Japan to work together on some regulatory issues – on a voluntary basis. 

Cooperation will only apply to general EU laws or those that affect trade or investment.  It will not include EU Member States laws.

Why does the EU want to include an investment court system when Japan already has an independent, impartial judiciary?

The EU is committed to integrating its new approach to investment protection and dispute resolution – an investment court system – in all its new trade agreements.  It has already included in its recent agreements with Canada and Vietnam.

Like Canada, Japan has an independent, impartial judiciary. 

But including an investment court system in its trade agreements will help the EU build support for a public, international investment court with:

  • highly qualified judges
  • transparent working methods

An international investment court would replace the current panoply of private arbitration arrangements contained in thousands of bilateral trade deals around the world.

This represents another important step in shaping globalisation and ensuring a fair, rules-based system founded on the highest standards.

Who decided to launch negotiations for a trade agreement with Japan?

In 2013 the EU's 28 Member States decided unanimously that the EU should open negotiations with Japan for a trade agreement.

They decided to do so after an study published in 2012 showed that it would be in the EU's economic interest to do so.

The governments of the EU's Member States instructed the European Commission to negotiate on behalf of the EU and gave it a mandate – a series of guidelines – setting out what they wanted it to achieve.

How much control will elected governments and MEPs have over the whole process?

The European Commission is negotiating on behalf of the EU in line with the guidelines given it by the governments of the EU's 28 Member States.

The Commission has always ensured that the negotiation process is accountable to EU Member States and to the European Parliament.

Cecilia Malmström, the EU's Trade Commissioner, and the Commission's negotiators:

  • work together with EU Member States to prepare the negotiations and negotiating texts
  • report back to the Member States meeting in the Council on how the negotiations are going 
  • keep the European Parliament updated of developments
  • appear before the European Parliament's International Trade Committee. 

Since January 2016 alone, there have been no less than 13 meetings with all EU Member States and 10 with the European Parliament's International Trade Committee.

The European Parliament has also set up a special Monitoring Group to follow the negotiations.

How is the Commission ensuring that everyone can follow what's happening in the talks?

Throughout the negotiations the Commission has regularly met, informed and shared information with:

  • EU Member State governments
  • the European Parliament
  • civil society organisations

On its website the Commission has published:

  • reports of negotiating rounds
  • texts of EU proposals submitted to Japan
  • press releases
  • background information about the negotiations

The Commission also:

  • holds press conferences with journalists
  • holds citizens dialogues in EU Member States
  • uses social media, such as Twitter.

How did the Commission ensure that it listened to everyone with a stake in the agreement?

The Commission regularly reports back to the governments of the EU's Member States and keeps the European Parliament informed of progress in the negotiations.

The European Commission has also held numerous meetings with representatives of over 470 civil society organisations. These EU-based, not-for-profit organisations include: 

  • trade unions
  • consumer bodies
  • employers' federations
  • business federations
  • farming organisations
  • environmental organisations
  • animal welfare organisations
  • faith-based groups
  • think tanks
  • community-based groups

These meetings enable a wide range of bodies to make their views heard and to comment on the negotiations.  At the meetings, the Commission informs and update civil society on the negotiations.

In 2015, the European Commission issued new guidelines for transparency.  Since then, the Commission has made public all new negotiating papers tabled in the talks.

The European Commission's doors are open.  So any organisation interested in the talks can meet officials to put forward their views and opinions.  

If CETA is a so-called 'mixed' agreement, will the one with Japan also be mixed?

The focus of the negotiations is on the content of the agreement. 

Once the negotiations are finished, and depending on what is actually in the agreement, the Commission will decide whether to propose the agreement as:

  • 'EU only', meaning it only covers policy areas the EU is responsible for

or

  • a 'mixed' agreement, meaning it covers areas both the EU and EU Member States are responsible for.

When did the negotiations start? When will they end?

The negotiations began in 2013 are expected to end in 2017.

What happens after the negotiations have finished?

Once the negotiations have finished, in the EU the text of the agreement will be:

  • Published on the European Commission website
  • Translated into all official EU languages
  • Checked by lawyer-linguists
  • Sent to EU Member States, the European Parliament and, possibly, Member State national parliaments for approval 

In Japan it will be translated into Japanese.

Who has the final say on whether or not the agreement goes ahead?

Once the negotiations have ended, the Commission will decide whether to propose the agreement as 'EU only' or as a 'mixed agreement'.

If it is an 'EU only' agreement it must then be approved by:

  • the governments of the EU's Member States
  • the European Parliament

If it is a 'mixed' agreement it must then be approved by:

  • the governments of the EU's Member States
  • the European Parliament
  • Member State national – and possibly regional – parliaments

In Japan it is the Lower and Upper Houses of the Japanese Diet that must approve the agreement.