Change and EU-Japan Relations:
Spotlighting Economic & Business Organization

Patricia A. Nelson, Ph.D.
Visiting Professor, Graduate School of Law, Keio University
Prepared for the Keio Jean Monnet COE Research Centre for EU Studies 4th International
Symposium “Implications of European Integration for the State and Sovereignty in a
Transnational World,” 26 June 2010

Outline• The Lion, the Bear & the Fox• Current Issues
o Korea-EU FTAo Overview: Barriers & Challenges
o Preoccupations vs. Progress• Structures and Patterns of Organizationo Unique, Uniformo Webs of relationships
o Cases• Beyond State-to-state Discussions26 June 2010

Patricia A Nelson, Ph.D.

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Dual Impact of EU-Korea FTA
Machinery & Transport Equipment
For Japanese affiliates operating in Europe:o Japanese FDI in Europe enhanced intra-industry trade andinterregional trade (Wakasugi, 1997);
o Intra-firm trade (within MNCs) increased;o Japanese FDI increased EU-ASEAN intra-industry trade (AndréossoO’Callaghan & Bassino, 2001); Exception: transport equipment
o FDI -- particularly in new EU member states -- enhanced intraindustry trade between Japan & Europe (Yoshida et al, 2009).
Sources: Andréosso-O’Callaghan, B. And Bassino, J-P. (2001) “Explaining the EU-ASEAN Intra-industry Trade ThroughJapanese Foreign Direct Investment: The Case of High-tech Industries, Journal of the Asia Pacific Economy, 6(2): 17993; 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 Intraindustry Trade: Some Empirical Evidence Based on Japan,” Japan and the World Economy 9: 353-62.

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Patricia A Nelson, Ph.D.

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EU trade with Japan is dominated by a tradeimbalance in machinery & transport equipment.
€-39,100 (2009)

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

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Patricia A Nelson, Ph.D.

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EU trade with Korea is dominated by a tradeimbalance in machinery & transport equipment.
€-16,058 (2009)

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

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Price is the top competitive factor between
Japanese & Korean manufactured products.
EU’s tariffs: …

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.

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For Japanese manufacturing affiliates inEurope, Korea-EU FTA is expected to‘have substantial disadvantages,’larger than ASEAN- or India-EU FTAs.

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.

26 June 2010

Patricia A Nelson, Ph.D.

6Overview: Barriers & Challenges
World GDP
Trade in Goods

Services

Trade Partners
Gravity Model(Tariffs & NTMsremoved)

JapanEU

44 % (Japan + EU)

11 %

33 %

Exports: Target Co. GDP

15 %

10 %

Imports: Domestic Demand

6%

17 %

Trade in Services

6.3 %

7.6 %

Export Orientation inServices

2.9 %

4.1 %

Imports

EU ranked 3rdJapan ranked 4thExports

EU ranked 3rdJapan ranked 5thExports

30-32% increase€25-28 billion

23-50% increase€14-29 billion€18 billion€33 billion

Welfare Effects

Sources: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, pp. 6-9.

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EU-Japan Trade in Goods,
2000-2008, € billion
Imports from Japan dropped;
Exports to Japan steady.

EU-27 Trade with Japan,
2000-2008
Ranked 4th & 5th as aper cent of total trade
4th5thSource: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, pp. 18-19.

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EU exports to Japanare broadly distributed
across sectors.

EU imports from Japanare concentrated in afew sectors.

Source: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, pp. 25-26.

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Resolve Lingering Issues
 Non-tariff barriers (measures):– 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)
 Tariffs

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Japan’s Imports : Domestic Demand
Japan lies below the average of major
economies in most sectors.

Source: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, p. 22.

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EU’s Main Export Markets (Exports : GDP)
Elimination of tariffs and NTMs would makeJapan’s trade with EU more ’normal.’

Source: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, p. 20.

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Japan’s total trade with ASEAN
increased rapidly relative to tradewith EU, 1998 & 2008

Source: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, p. 24.

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Preoccupations vs. Progress• Focus on order of agreements incorrect
 Settle NTBs (NTMs)
 Settle TBs• Simultaneous settlement better• Agreement to move forward… but minimal,
progress, 2000-now• Economic evidence: Balanced bi-lateralagreement could deliver results for both the EU
and Japan (Sunesen, Francois and Thelle, 2009)• Now what?
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Webs of Relationships• Intermediaries: Business-Labour-Government– Big business– Labour– Associations and foundations– Bureaucrats -- in-fighting– Politicians -- constituents• Links among market-business-society layers– Quasi-business-government organizations– Patterns of influence– Lobbying
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Unique & Uniform• Companies in Japan are uniform– ‘Japan, Inc.’– Similar goals, practices, methods, etc.
– Don’t do anything without the government• Countries are unique ?
– Flawed myth of Japanese uniqueness– Japan: Cozy business-government relations– EU: One country is the same as the next

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Cases• Approach– Historical structuralism– Structural power• Government: top down (#1, 3)• Consumers: bottom up• Mixed forces (#2)
• Companies have common goals, artificiallyseparated by borders.

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Aerospace & Space Industry• History: US military dominance in Japan(structural power)• Japanese government (top down) ‘Procurement decisions are made on a noncompetitive basis.’ ‘Mutual Japanese and European export
control procedures should be recognized.’(Sunesen, E.R., J.F. Francois, M.H. Thelle, 2009)• Government-level agreement needed• Military/security and thus sensitive
Source: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, p. .

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Food Safety, Standards• Japan’s technical barriers vs. FAO/WTO CODEX
Alimentarius Commission food standards• ‘No regulatory compliance with CODEX standardsfor: ‘organic crop imports, ‘safe food additives and ‘testing regimes for pre- and post-harvest
pesticides.’ (Sunesen, E.R., J.F. Francois, M.H. Thelle, 2009)• Organics: lack of demand, thus not consumer(bottom up) issue?
• Environment affects all… domestic or global issue?
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Telecommunications• Service barriers: ‘Unreasonably high interconnection fees intelecommunications.’ ‘Weak competitive safeguards against the abuse ofdominance in telecommunications.’ ‘Lack of competition in markets for wire line and mobile
inerconnection.’ ‘Absence of a clear separation between the Government’s
roles as both owner and regulator in telecommunications.’(Sunesen, E.R., J.F. Francois, M.H. Thelle, 2009)• Non-traffic sensitive (NTS) interconnection chargeso NTT carrier of traffic, others pay to use
o Sunk cost of infrastructure• Distribute sunk cost among users of system• Distribute cost across society
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Import Penetration in Selected Countries’
Communiction Services Sectors, per cent

Source: Sunesen, E.R., J.F. Francois, M.H. Thelle (2009) “Assessment of Barriers to Trade and Investment between
the EU and Japan: Final Report,” Copenhagen Economics, November, p.6.

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Beyond State-to-State Discussions• Webs of interconnectednesso Case studies
o Similarities across national borders• Vertical -- in country, company• Horizontal -- interest groups / parties• Formal and informal structures oforganization
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Structures & Patterns of Organization• Industry history, comparative• Evolution over time
• Structure, competitiveness• Similarities across borders– Companies not uniform– Countries not unique

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Enter the Fox?
• Settle arguments now, not later• Move forward pragmatically– Seek similarities, common ground– Horizontal linkages exist– Governments cannot solve
everything– Business initiative with government
support26 June 2010

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