EU-Japan Economic andTrade Relations:
What Impact of EU-Korea FTA
on Japan?
Dr. Patricia A Nelson
Adjunct Professor
Faculty of Economics
Seijo UniversityDecember 2, 2009

Outline• A Tale of Two Scribes• EU-Korea FTA: Two-Pronged Effect• FDI and Non-tariff Barriers• A Common Strategy

Price is the Top Competitive Factor between
Japanese and Korean Manufactured Products

Source: Bank of Tokyo-Mitsubishi UFJ,”The South Korea-EU Free Trade Agreement Negotiations: Some Observations,”
Economic Review, vol. 4, no. 4, August 2009, p. 5.

For Japanese Manufacturing Affiliates in Europe,Korea-EU FTA Expected to have Large‘Substantial Disadvantages’

Source: Bank of Tokyo-Mitsubishi UFJ,”The South Korea-EU Free Trade Agreement Negotiations: Some Observations,”
Economic Review, vol. 4, no. 4, August 2009, p. 5.

EU Trade with Japan is Dominated by theImbalance in Machinery and Transport Equipment

Source: EU, ”Japan: EU Bilateral Trade and Trade with the World,” DG Trade, 22 September 2009, p. 10.

EU Trade with Korea is Dominated by theImbalance in Machinery and Transport Equipment

Source: EU, ”South Korea: EU Bilateral Trade and Trade with the World,” DG Trade, 22 September 2009, p. 10.

A Golden Moment?
Dual Impact of EU-Korea FTA
 Machinery & Transport Equipment
 Japanese affiliates operating in Europe
 EU-Japan bilateral trade• 71.7% of EU’s imports from Japan;
34.5% of Japan’s imports from EU• ( 72.1% of EU’s imports from Korea;
48.1% of Japan’s imports from EU )

EU + Japan = 40% global GDP

Top Trading Partners: EU, Japan, Korea 2008
Japan:EU:

Korea:

Source: EU, ”Japan: EU Bilateral Trade and Trade with the World,” DG Trade, 22 September 2009, pp. 5-6; EU,”South Korea: EU Bilateral Trade and Trade with the World,” DG Trade, 22 September 2009, p. 6.

Foreign Direct Investment andIntra-industry Trade• Japanese FDI enhanced intra-industry trade andinterregional trade (Wakasugi, 1997).
• Intra-firm trade (MNCs) increased.
• Japanese FDI has increased EU-ASEAN intraindustry trade (Andréosso-O’Callaghan & Bassino, 2001).
 Exception: transport equipment• FDI in esp. new EU member countries enhanced
intra-industry trade between Japan and Europe(Yoshida et al, 2009).

Andréosso-O’Callaghan, B. And Bassino, J-P. (2001) “Explaining the EU-ASEAN Intra-industry Trade Through JapaneseForeign Direct Investment: The Case of High-tech Industries, Journal of the Asia Pacific Economy, 6(2): 179-93;
Yoshida, Y., Leitao, N.C. And Faustino, H.C. (2009) “Vertical Intra-industry and Foreign Direct Investment between
Japan and European Countries, Atlantic Economic Journal 37: 351-65; Wakasugi, R. (1997) “Missing Factors in
Intra-industry Trade: Some Empirical Evidence Based on Japan,” Japan and the World Economy 9: 353-62.

Resolve Lingering Issues• Non-tariff barriers:– Food additives (in progress since 2002)– Organic food labeling (changed 2006)– International standards: e.g. building
materials, medical devices, financial services– Regulatory transparency– Certification procedures• Promote inward FDI (into Japan)• Open up competition in e.g. aircraftA Common Strategy
Japan-ASEAN FTAJapan-India FTA

EU-ASEAN FTA
EU-India FTA

Japan-China agreement
EU-China agreement
Japan-Korea FTA
EU-Japan agreement
EU-Korea FTA