COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT ON EU-JAPAN TRADE RELATIONS Accompanying the document Recommendation for a Council Decision authorising the opening of negotiations on a Free Trade Agreement between the European Union and Japan
Date: 2012-07-18
Institutions: European Commission
Subjects: Japan, economic growth, foreign trade, free-trade agreement, negotiation of an agreement (EU)

EUROPEAN COMMISSION 

Brussels, 18.7.2012  
SWD(2012) 209 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT REPORT ON EU-JAPAN TRADE RELATIONS 

Accompanying the document 

Recommendation for a Council Decision 

authorising the opening of negotiations on a Free Trade Agreement between the 
European Union and Japan 

{COM(2012) 390 final} 
{SWD(2012) 210 final} 

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COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT REPORT ON EU-JAPAN TRADE RELATIONS 

Accompanying the document 

Recommendation for a Council Decision 

authorising the opening of negotiations on a Free Trade Agreement between the 
European Union and Japan 

1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

TABLE OF CONTENTS 

1.1. Organisation and timing 

1.2. Consultation and expertise 

2. PROBLEM DEFINITION 

2.1. Introduction 

2.2. The problem 

2.3. The problem drivers 

2.4. The need for EU policy intervention 

3. OBJECTIVES 

3.1. General objectives 

3.2. Specific objectives 

3.3. The EU's operational objectives 

3.4. Japanese operational objectives 

3.5. Consistency of the EU's operational objectives with other EU policies 

4. POLICY OPTIONS 

4.1. Policy Option A: No policy change (baseline scenario) 

4.2. Analysis of a possible enhancement through sectoral agreements 

4.3. Policy Option B: EU-Japan Free Trade Agreement 

5. IMPACT ANALYSIS 

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5.1.  Economic impacts of the different policy options 

5.1.1 Option A: The baseline scenario 

5.1.2 Option B: EU-Japan Free Trade Agreement 

5.1.3: Sector specific analyses  

5.1.3.1: Financial services sector 

5.1.3.2: Business services sector 

5.1.3.3: Motor vehicle sector 

5.1.4: Impact on sectoral competitiveness 

5.1.5: Impact on small and medium enterprises (SMEs) 

5.2. Analysis of environmental impacts on the EU, Japan, and the world 

5.2.1: Introduction 

5.2.2: Analysis of the impact of the policy options on the climate and climate 
change resulting from CO2 emissions 

5.2.3: Assessment of the potential impact of the policy options on biodiversity, 
natural resources and waste, and the environmental consequences for firms and 
consumers 

5.3. The social impact 

5.3.1: Overall increase of welfare for both the EU and Japan 

5.3.2: Sectoral analysis of the impacts on employment 

5.4 Analysis of the impact on Human Rights 

5.5 Impact on administrative costs and mutual simplification benefits 

6. COMPARISON OF THE DIFFERENT POLICY OPTIONS 

6.1. Positive and negative effects of each option 

6.2.  Comparison  of  the  effects  of  the  different  policy  options  on  individual 
stakeholders 

6.3. Summary of the effects of the different policy options in table form 

6.4. Identification of a preferred option  

7. MONITORING AND EVALUATION:  

7.1. Core indicators of progress towards meeting the objectives 

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7.2. Monitoring and evaluation arrangements 

GLOSSARY OF ACRONYMS 

ANNEXES 

ANNEX 1 

ANNEX 2 

ANNEX 3 

ANNEX 4 

ANNEX 5 

ANNEX 6 

ANNEX 7 

Executive summary of the complementary study assessing 
barriers to trade and investment between the EU and Japan 

The main aspects of the Computable General Equilibrium 
(CGE) Model 

The approach on non-tariff measures  

The current institutional framework for EU Japan bilateral 
relations 

Tables showing the economic impact of policy options 

EU Japan statistics 

Summaries of contributions to the Public Consultation on: 
‘The future of EU Japan trade and economic relations’ 

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1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

1.1. Organisation and timing 

The 2001 EU/Japan Action Plan – which set up the political and economic framework of the 
EU  Japan  bilateral  relationship  –  is  coming  to  an  end  in  2011  and  has  to  be  reviewed.  The 
Japanese government has proposed to enter into a free trade agreement (FTA) with the EU. 

The 28 April 2010 Japan-EU summit established a Joint High Level Group (JHLG) to identify 
"options for strengthening all the aspects of the Japan-EU relationship'. The JHLG reported to 
the  summit  held  on  28  May  2011  with  a  full  analysis  of  the  current  working  arrangements, 
and the options open to the parties to enhance and improve their relationship. 

At the 28 May 2011 Japan-EU summit the Summit statement concluded as follows: 

" . . . Summit leaders agreed to start the process for parallel negotiations for: 

• 

• 

a  deep  and  comprehensive  Free  Trade  Agreement  (FTA)/Economic  Partnership 
Agreement  (EPA),  addressing  all  issues  of  shared  interest  to  both  sides  including 
tariffs,  non-tariff  measures,  services,  investment,  Intellectual  Property  Rights, 
competition and public procurement; and 

a binding agreement, covering political, global and other sectoral cooperation in a 
to 
comprehensive  manner,  and  underpinned  by 
fundamental values and principles. 

their  shared  commitment 

Summit leaders decided, to this end, that the two sides would start discussions with a view to 
defining the scope and level of ambition of both negotiations. Such scoping would be carried 
out as soon as possible." 

The summit statement echoed the conclusions of the European Council meeting of 25 March 
2011, which referred to the 'potential launch of negotiations for a free trade agreement on the 
basis that Japan is willing to tackle inter alia the issue of non tariff barriers and restrictions on 
public procurement'.  

The  scoping  exercise  with  Japan  foreseen  by  the  2011  Summit  in  respect  of  a  possible 
FTA/EPA is currently ongoing.  

In  advance  of  a  decision  to  request  a  negotiating  mandate,  Commission  services  have 
undertaken  an  impact  assessment  of  a  possible  FTA  with  Japan1.  An  impact  assessment 
steering group (IASG) was created on 14 June 2010 for the purpose of this impact assessment 
and met on 24 June 2010, 29 September 2010, 14 January 2011, 18 July 2011 and 14 October 
2011. 

1 

The Directorate-General for Trade is the lead service behind this impact assessment report. Other DGs 
and  services  involved  in  the  preparation  of  the  report  were:  DG  Agriculture  and  Rural  Development, 
DG  Budget,  DG  Climate  Action,  DG  Competition,  DG  Development,  DG  Economic  and  Financial 
Affairs,  DG  Employment  Social  Affairs  and  Equal  Opportunities,  DG  Energy,  DG  Enterprise  and 
Industry,  DG  Environment,  DG  Health  and  Consumers,  DG  Information  Society  and  Media,  DG 
Internal  Market  and  Services,  DG  Maritime  Affairs  and  Fisheries,  DG  Mobility  and  Transport,  DG 
Taxation  and  Customs  Union,  European  Anti-Fraud  Office,  Eurostat,  the  Legal  Service,  and  the 
Secretariat-General. The External Action Service has also been involved. 

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The decision of the Commission flowing from this impact assessment would take the form of 
a  proposed  decision  of  the  Council  authorizing  the  opening  of  negotiations,  as  well  as  the 
public  legal  act  nominating  the  Commission  as  the  negotiator  on  behalf  of  the  European 
Union, accompanied by negotiating directives, which provide guidance to the Commission as 
negotiator subject to ongoing review within the Council of the progress of negotiations. 

The  scoping  exercise  currently  underway  is  designed  to  test  the  extent  to  which  the  parties 
agree on the scope of coverage of an FTA and the degree of shared ambition concerning their 
priorities.  As  such,  it  is  destined  to  give  both  sides  some  reassurance  that  the  negotiations, 
once entered into, will produce results which are likely to fall within an acceptable range of 
outcomes.  

The  scoping  exercise  is  independent  of  the  impact  assessment  but  it  has  nevertheless  been 
informed by the findings of the latter. It will not in any event affect the EU's own assessment 
of  its  priorities.  The  Council's  decision  to  authorize  negotiations  is  likely  to  be  taken  only 
after  the  Member  States  can  see  that  the  scoping  exercise  provides  this  reassurance.  The 
negotiating directives that will give guidance to the Commission as the EU's negotiator, will, 
however,  reflect  the  EU's  goals  rather  than  the  indications  of  potential  outcomes  that  the 
scoping exercise may deliver.  

1.2. Consultation and expert evidence 

Several economic studies on barriers to trade and investment between the EU and Japan were 
already  available  when  the  impact  assessment  was  launched.  Ecorys,  the  Swedish  Board  of 
Trade,  and  Copenhagen  Economics  each  had  produced  a  study  analysing  the  potential 
economic impact of further trade liberalisation2.  

DG  Trade  commissioned  a  complementary  study  that  supported  the  impact  assessment  by 
supplying additional factual information and economic analysis. The contractor was requested 
to  compare  the  results  of  the  existing  studies  and  explain  the  differences  between  their 
findings;  to  look  in  greater  depth  at  barriers  to  trade  and  investment  in  Japan  in  certain 
sectors;  and  to  assess  the  likely  social  and  environmental  impacts  of  trade  liberalization 
between  the  two economies.  An executive summary is  set out in Annex 1  including  a table 
comparing the three pre-existing studies 

The  complementary  study  considers  two  possible  scenarios  for  closer  trade  and  economic 
cooperation: a limited liberalization scenario in key identified sectors, and a more ambitious 
scenario involving widespread liberalization of both tariffs and non-tariff measures. In order to 
complement the previous studies it provides inter alia:  

• 

an updated inventory of Japanese non-tariff measures, 

2 

The three studies are: 
The Swedish Board of Trade Study of October 2009:   
Copenhagen Economics of February 2010 
http://trade.ec.europa.eu/doclib/docs/2010/february/tradoc_145772.pdf   
The Ecorys Study of December 2009 
http://www.rijksoverheid.nl/bestanden/documenten-en-publicaties/rapporten/2010/03/08/report-the-
impact-of-free-trade-agreements-in-the-oecd-the-impact-of-an-eu-us-fta-eu-japan-fta-and-eu-australia-
new-zealand-fta/reportfinal1dec-edited1-2.pdf 

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• 

• 

• 

• 

a more detailed analysis of the impact on trade and investment of the full removal of 
the cost of Japanese NTMs in the distribution (retail and wholesale trade), maritime 
transport, postal/courier services and business services sectors3,  

an  examination  of  Japanese  tariff  barriers  which  constitute  market  access  priorities 
for EU industry4,  

an analysis of the employment impact of trade opening between the EU and Japan, 

an  analysis  of  the  impact  on  CO2  emissions  of  a  reduction  of  barriers  to  trade  and 
investment between the EU and Japan. 

The  impact  assessment  has  been  prepared  following  extensive  consultations  with  all 
interested stakeholders including representatives of civil society, industry and Member States. 
In addition, in the course of repeated and regular missions to Japan, DG Trade met a number 
of  interested  business  organizations,  such  as  the  European  Business  Council  in  Japan,  and 
other stakeholders. 

An online public consultation was launched on 9 September 2010 on the DG Trade website 
and posted on "Your voice in Europe"5. It took the form of a web-based online questionnaire 
open  to  all  interested  parties.  The  consultation  ran  from  9  September  2010  to  5  November 
2010 (with extensions  granted in  exceptional cases to stakeholders who requested them). In 
total, 87 exploitable contributions were received from representatives of industry and business 
associations,  non-governmental  organizations,  trade  unions,  academic  institutions,  research 
centres, private companies and government departments.  

The aim of the public consultation was to gather views and opinions from stakeholders on the 
future  of  the  EU's  trade  and  economic  relationship  with  Japan.  The  responses  to  the  online 
consultation  have  provided  very  useful  information:  in  terms  of  the  expectations  of 
stakeholders concerning the economic relationship, as well as precise, detailed elements of a 
large number of issues. The summary of the results of the consultation exercise is set out in 
Annex 7.  

The  majority  of  respondents  favour  strengthened  trade  ties  between  the  EU  and  Japan.  In 
particular, many called for greater cooperation and economic integration via a comprehensive 
free  trade  agreement  (sometimes  labelled  an  "economic  integration  agreement").  However, 
European respondents tended to qualify this conclusion with the major caveat that, before the 
EU entered into negotiations for any such agreement, Japan should show goodwill by making 
progress on existing trade barriers.  

In  parallel  to  the  online  consultation,  DG  Trade  organized  or  participated  in  a  number  of 
outreach activities designed to inform the public. First, two ad hoc civil society meetings took 
place  in  Brussels,  on  8  June  and  19  October  2010  respectively.  Although  the  former  was 
organized  before  the  impact  assessment  process  officially  began  and  was  only  partially 

3 
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5 

These sectors were included since they had not been fully covered in the previous studies 
The top 25 HS6 items ranked by level of protection (from the WTO integrated data base), the level of 
trade  and  the  total  duties  collected  were  correlated  to  show  the  importance  of  protection: 
complementary study. 
The Consultation Report and the full list of contributions are available at: 
http://trade.ec.europa.eu/consultations/?consul_id=148 

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devoted  to  the  future  of  EU-Japan  trade,  DG  Trade  used  the  opportunity  to  inform  civil 
society  about  the  upcoming  public  consultation.6  The  latter  meeting  was  undertaken 
specifically with the aim of consulting civil society on the issue. The Commission presented 
an outline of current EU-Japan relations, and described recent developments which led Japan 
to advocate the negotiation of an advanced trade agreement with the EU. It also explained the 
reasons  and  aims  behind  the  impact  assessment  process,  and  invited  representatives  of  civil 
society to share with the Commission their views on what the priorities for future EU-Japan 
trade  and  economic  relations  should  be.  Many  questions  were  raised  and  civil  society 
representatives  commented  extensively  on  the  issue.  As  a  result,  a  number  of  opinions  and 
recommendations were voiced about enhancing trade and investment with Japan, improving 
future  bilateral  cooperation,  and  tackling  market  access  problems  in  various  sectors  more 
effectively.7 These comments have been analysed and taken into consideration in the process 
of preparing the IA report.  

In  addition,  DG  Trade  took  part  in  the  multi-sectoral  social  dialogue  meeting  on  trade 
sustainability  impact  assessments  and  trade  policy  organised  by  DG  EMPL  on  15  October 
2010.  During  this  meeting  DG  Trade  delivered  a  presentation  on  the  public  consultation 
procedure,  and  informed  social  partners  about  the  ongoing  online  consultation  process. 
Additionally,  small  and  medium  enterprises  (SMEs)  were  informed  about  the  public 
consultation through the weekly newsletter of DG ENTR, which is distributed to its network 
partners over the intranet. 

DG Trade representatives also participated in a number of seminars and conferences dealing 
with EU-Japan relations, where they presented the Commission's views on the economic and 
trade aspects of the EU-Japan relationship. The events included a seminar8 organized by the 
European  Institute  for  Asian  Studies;  and  the  13th  EU-Japan  Conference9  organized  by  the 
Catholic University  of  Leuven  and  Brussels  Free  University,  together  with  the  EU-Japan 
Centre for Industrial Cooperation. Although not formally part of the IA process, these events 
supplied valuable information and insights on EU-Japan economic relations, and on the views 
of stakeholders in this respect. Their views have been taken into account, where relevant, in 
this IA report. 

1.3. The opinion of the Impact Assessment Board 

Following its hearing on  7  December  the Impact  Assessment Board delivered an opinion in 
favour of the impact assessment report but requiring a number of changes and additions to it. 

This  draft  incorporates  changes  designed  to  take  that  opinion  into  account,  notably  by 
clarifying  the  nature  of  the  Commission  decision  to  be  taken  pursuant  to  the  impact 
assessment, authorizing the negotiation of a Free Trade Agreement, and the relation between 
the process of impact assessment and the scoping exercise. The changes also clarify the area 
of  public  procurement,  including  the  relation  of  possible  FTA  negotiations  to  the  proposed 
horizontal  initiative  on  access  to  third  countries'  procurement  markets.  The  changes  are 
intended  to  explain  more  clearly  the  various  FTA  scenarios,  notably  as  concerns  non-tariff 

6 

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9 

The minutes of the meeting can be found at:  
http://trade.ec.europa.eu/doclib/docs/2010/july/tradoc_146285.pdf 
For a report of the meeting see http://trade.ec.europa.eu/doclib/docs/2010/october/tradoc_146847.pdf 
EU-Japan Free Trade Agreement: Dead and Buried or Alive and Well?, Brussels, 26 October 2010 
Japan - Europe: Preparing the third decade of intensified co-operation – convergence through values, 
Brussels, 30 November 2010 

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measures, and to provide a clearer picture of the methodology and modelling choices leading 
to the estimated impacts. Within those estimates, varous effects have been clarified, notably 
the contribution of spill over effects and the impacts on certain sectors.  

The  revised  draft  also  estimates  the  loss  to  the  EU  budget  from  the  loss  of  tariff  revenues 
following the implementation of an FTA but does not attempt to estimate increases in the EU 
budget arising from increases in GDP.  

2. PROBLEM DEFINITION 

2.1. Introduction 

Both  the  EU  and  Japan  are  highly  developed  economies  and  major  global  traders  and 
investors. The EU is the largest economy in the world, representing more than 25% of world 
GDP and 17% of world trade. Japan is the fourth largest national economy (the third largest 
national economy after the US and China) accounting for 8% of world GDP and 6% of world 
trade. Together, the EU and Japan account for more than 632 million people.10  

The bilateral trade relationship between the EU and Japan is important for both partners. In 
2011  the  EU  was  Japan's  third  largest  trading  partner  with  11.1%  of  trade  in  goods,  while 
Japan was the EU's 7th largest trading partner with 3.6% of the EU's total trade in goods.  

However, bilateral trade is in decline in both absolute and relative terms. The EU's exports of 
goods to Japan fell by 0.6% per annum over the 5 year period 2006/2010, while total exports 
rose by 3.8% over the same period. For Japan, exports to the EU fell by 3.2% per annum over 
the period 2006/2010, while Japan's total exports rose by 3.1% per annum11. The full figures 
for  trade  both  bilateral  and  in  a  global  context  are  set  out  in  Annex  6.  To  confirm  the 
longstanding downward trend, Japan's share in EU imports almost halved between 2000 and 
2008 (from 9.3% to 4.8% of the EU total imports, and continued to fall thereafter. Likewise 
EU exports to Japan fell from 5.4% to 3.2% of total EU exports, 

In 2010, the EU exported €18.3 billion of services 
to Japan, while imports of services from 
Japan amounted to €14.5 billion. EU exports of serv ices to Japan declined slightly relative to 
total  worldwide  exports  over  the  period  2008/3.8%,  2009/3.7%  to  2010/3.5%.  Japan 
accounted for just over 3% of the EU's total external trade in services12. 

EU  outward  FDI  stocks  in  Japan  grew  at  an  average  5.5%  over  the  period  2007-2010, 
amounting to 93.6 bn Euro in 2010. While this represented about 61.7% of total inward FDI 
stocks  in  Japan  over  the  same  period,  it  nevertheless  amounts  to  only  2.3%  of  total  EU 
outward FDI stocks (an average 3,592 bn Euro over that period). Moreover, FDI flows into 
Japan are generally considered very low in comparison with other developed economies and 
Japan was ranked the 6th most closed country in terms of restrictiveness of inward investment 
in the OECD's 2010 update on the FDI Restrictiveness Index. 

Conversely, over the same period, Japanese outward FDI stocks in the EU, at an average of 
127.3 bn Euro per year, represented around 4.8% of total EU inward FDI stocks (an average 

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See: http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=E27,JP 
Actual trends are harder to substantiate given the large dip in trade in 2009 and the even higher increase 
in trade in 2010. Economic recovery was set back once again following the earthquake and tsunami, but 
the reconstruction efforts have also provided a further source of economic stimulus. 
http://epp.Eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-26052011-AP/EN/6-26052011-AP-EN.PDF 

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of  2,660  bn  Euro  a  year  over  the  period)  and  25.5%  of  total  Japanese  FDI  outflows  (an 
average of 498.4 bn) over the period. 

Thus, even a cursory examination of trade and investment figures points at a relative decline 
and  at  flows  of  both  exports  and  FDI  from  the  EU  that  appear  not  in  line  with  the  relative 
weight of the EU and Japan in the world economy. 

A number of factors have contributed to the decline in trade and investment between the EU 
and  Japan.  One  major  factor  is  the  rapid  rise  of  emerging  market  economies  in  developing 
countries. In the last decade, the emerging economies of Asia and Europe have been growing 
faster  than  the  EU  and  Japan.  The  increased  competitiveness,  output  and  increased  export 
volumes  of  new  emerging  markets  have  altered  the  traditional  configuration  of  world  trade 
flows, by reducing the share of global trade taken by traditional developed economies such as 
the  EU  and  Japan.  Japan's  trade  has  followed  these  developments  with  its  exports,  for 
example,  to  China,  India,  Korea  and  ASEAN  growing  significantly  faster  than  exports  to 
established  markets  such  as  the  EU13.  Likewise,  China  has  just  moved  to  become  the  EU’s 
largest trading partner, just ahead of the US, and is the EU’s fastest growing export market. 

Rapid regional trade integration has also played a role. The EU's enlargement to EU 27 and 
the  EU's  Neighbourhood  policy  has  affected  trade  with  the  enlarged  EU's  neighbours,  in 
particular Russia and Turkey, which have become  major  trading  partners for the EU. China 
and Korea have become much more important for Japan, with China moving into position as 
Japan's  largest  trading  partner  ahead  of  the  USA.  There  has  also  been  a  rapid  expansion  of 
FTAs within Asia. 

The question arises, therefore, of whether this trend results from objective circumstances that 
render  it  unavoidable,  or  alternatively,  whether  there  is  unfulfilled  potential  in  EU-Japan 
bilateral trade and investment. The Japanese authorities appear to firmly believe that the latter 
is the case (as demonstrated by the clear policy choice to seek a FTA with the EU). From the 
EU’s point of view, the issue is rather more open, and it would be better framed as to whether 
the decline in bilateral trade ought to be attributed mainly to changes in global trade pattern or 
by  disillusionment  arising  from  the  well-known  difficulties  in  penetrating  the  Japanese 
market, or both. 

Indeed, there are particular problems – some cultural, others structural – relating to trade and 
investment  in  Japan.  In  trade  terms,  a  demanding  consumer  market  with  strong  national 
preferences  and  tastes  has  rendered  market  penetration  difficult.  In  terms  of  investment, 
historically, there has been a deep cultural aversion in Japan towards selling one's company; 
which  made  domestic  mergers  and  acquisitions  (M&A)  rare  and  foreign  takeovers  almost 
unthinkable. In a similar vein, a cultural aversion to confrontation has made hostile takeovers 
rare. The continued existence of cross-shareholdings acquired and held on the basis of non-
economic criteria restricts the amount of common stock available in the market. These factors 
have contributed to maintaining an imbalance in favour of Japan in respect of both trade and 
investment. 

For  many  years  Japan  has  enjoyed  a  strong  trade  surplus  vis-à-vis  the  EU.  At  one  level 
export-driven economies such as Japan generally have lower imports relative to GDP, and the 
particular macro-economic structure of Japan’s economy (with high savings and investments) 
must also be taken into account. By contrast, the EU market has always been relatively more 
open to imports.  

13 

IBID. NB Treads are however hard to substantiate given the very large drop in Japanese trade in 2009 
followed by a substantial recovery in 2010. 

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Nevertheless,  the  fact  that  Japan's  trade  and  current  account  surpluses  have  remained  high 
since  1995  is  also  a  reflection  of  continuing  market  access  problems  for  foreign  firms  in 
Japan.  Trade  figures  have  become  less  imbalanced  recently,  but  Japan  continues  to  be  a 
country  where,  because  of  specific  structural  features  in  the  Japanese  economy,  trading  and 
investment are often particularly difficult. 

2.2. The problem 

A. 

Bilateral trade is not fulfilling its potential 

However, even against the background of the cultural and structural factors highlighted in the 
preceding  section,  both  the  economic  studies  and  the  public  consultation  underscored  that 
bilateral  trade  volumes  are  not  as  large  as  could  be  expected  between  large  developed 
economies,  cited  the  need  to  revitalise  bilateral  trade  between  the  EU  and  Japan,  and 
highlighted a perception of considerable unrealised economic potential.  

The  European  and  Japanese  stakeholders  responding  to  the  public  consultation  exercise 
conducted  for  this  impact  assessment  towards  the  end  of  2010  all  voiced  concern  that  the 
bilateral trade relationship is failing to deliver results that live up to its potential. Almost all 
the  EU  respondents  indicated  that  the  Japanese  market  offers  significant  potential  and  that 
business interests and opportunities are limited by barriers in a number of areas. Most of the 
Japanese respondents also indicated that Japanese business interests go beyond current trade 
flows  with  the  EU.  These  business  interests  involve  both  trade  (for  a  variety  of  goods  and 
services  sectors)  and  investment.  Specific  issues  were  raised  in  relation  to  interests  and 
opportunities in the public procurement sector.  

For example, the EU agro-food, dairy and meat sectors reported that the current combination 
of high import tariffs and low tariff-rate quotas is restricting their market share. The leather 
and  sports  goods  sector  highlighted  interest  and  opportunities  that  are  limited  by  tariff 
barriers.  Japanese  respondents  stated  that  EU  tariffs  on  a  number  of  products,  such  as  cars, 
parts and components, home appliances and agrochemical products, should be eliminated  

The  majority  of  respondents  also  pointed  out  that  NTMs  are  the  major  barriers  limiting 
existing interests and opportunities. The EU food, automotive, pharmaceuticals and medical 
devices  sectors  all  stressed  that  current  Japanese  regulatory  barriers  limit  their  business 
interests and opportunities.  

A similar message, of business interests, ambitions and potential higher than the current level 
of trade flows, has also emerged from other consultation exercises, such as those within the 
EU-Japan Business Round Table. In that context, inter alia, the vast majority of respondents 
from  the  pharmaceutical,  medical  devices,  healthcare,  telecommunications  and  railway 
sectors emphasize that tariffs and especially NTMs limit business interests to a level that is 
below their potential. 

Expert  studies  have  also  noted  that  business  interests  and  opportunities  are  limited  by  the 
current level of tariffs and NTMs, and have highlighted the opportunities that might exist for 
the  EU  pharmaceutical,  medical  devices,  processed  food,  motor  vehicles  and  transport 
equipment  sectors14.  The  Copenhagen  Economics  (2009)  study  for  instance  highlighted  that 
three quarters of the firms they had surveyed perceived the Japanese market as more difficult 

14 

"Assessment of barriers to trade and investment between the EU and Japan", Copenhagen Economics, 
2009. 

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than other markets. For two thirds of these firms, the existing barriers reduce the variety of 
goods they supply to the Japanese market and increase the cost of exporting to Japan by 10 to 
30 percent, depending on the sector. The studies further claim that Japan’s imports of services 
are below their potential; and services import penetration of the Japanese market is certainly 
low when compared to those of other developed countries. The degree of penetration of the 
financial  services  and  communications 
in 
Japanese  market 
(telecommunications  and  postal)  services  as  well  as  in  business  services,  transport  and 
distribution.  

is  particularly 

low 

The public consultation exercise also revealed that Japan represents an investment destination 
of  considerable  interest  for  EU  investors.  That  impression  is  combined,  however,  with 
perceptions  of  unfulfilled  potential  and  of  the  need  for  the  EU  and  Japan  to  improve  the 
situation. Independent studies also underline the high potential for FDI in Japan – set against a 
low current performance 

The public procurement market in Japan is another area where European firms report serious 
difficulties.  Japan's  commitments  under  the  WTO  Government  Procurement  Agreement 
provide  a  theoretical  level  of  access,  if  falling  short  of  that  of  the  EU.  However,  the 
implementation  of  the  commitments  has  been  restrictively  interpreted  to  further  cut  back 
access. Examples of difficulties in the Japanese procurement market include: (i) the lack of a 
central  access  point  for  information  about  public  contracts;  (ii)  the  lack  of  clarity  and 
transparency  about  eligibility  and  award  criteria;  (iii)  extensive  use  of  single  or  restricted 
tendering;  (iv)  Japan’s  “operational  safety  clause”  has  been  used  extensively  to  exclude 
foreign  suppliers  from  even  bidding  for  public  contracts  in  the  rail  transport  sector;  (v) 
complex  customer-supplier  relationship  requirements  favour  domestic  bidders;  (vi)  new 
bidders  may  be  deterred  by  requirements  to  demonstrate  previous  work  carried  out  in  the 
Japanese  market,  and  previous  experience  of  working  with  local  partners.  The  Copenhagen 
Economics  study  referred  to  above  confirm  strong  potential  in  Japan's  public  procurement 
market15.  

B.  Why unfulfilled potential is undesirable 

As  highlighted  in  the  document  accompanying  the  Commission  Communication  "Trade, 
Growth  and  World  Affairs",  trade  is  a  driver  of  prosperity16.  Completing  all  ongoing  free 
trade  negotiations  (DDA  and  bilateral  agreements)  would  add  more  than  0.5%  to  EU  GDP, 
and  making  further  progress  on  services  and  regulatory  issues  with  major  trading  partners 
could push this figure above 1% of EU GDP.  

Thus globally, trade and investment are important for the welfare. Given that Japan represents 
3.8%  of  overall  EU  trade,  while  the  EU  represents  over  11%  of  Japan's  overall  trade  (in 
2010), the first consequence of unfulfilled trade and investment potential is a reduction of the 
possibility  to  increase  the  welfare  of  both  sides.  In  addition,  opportunities  to  increase  the 
competitiveness  and  productivity  of  both  EU  and  Japanese  firms  are  lost.  For  example, 
opportunities  for  technology  and  knowledge  transfer  as  well  as  research  cooperation  are 
limited in the absence of more intense trade and investment flows; and as a result, potential 
gains  in  competitiveness  and  productivity  resulting  from  cooperation  between  two  highly 
developed industrial economies with high levels of research and development are lost.  

15 
16 

http://trade.ec.europa.eu/doclib/docs/2010/february/tradoc_145772.pdf see e.g. Chapter 7.1, p 88. 
Trade as a driver of prosperity ; COM(2010) 612}; {SEC(2010) 1268} 

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Accordingly,  failure  to  harness  the  full  benefits  derived  from  trade  and  investment  to 
economic growth must be considered to be another undesirable consequence.  

C. 

The consequences of restricted access and choice for consumers 

The Commission Communication "Trade, Growth and World Affairs" highlighted that trade 
brings a wider variety of goods and services to consumers and to companies, at lower prices. 
Consumer benefits alone are estimated at 600 Euro per year17. In the current state of affairs, 
both  EU  and  Japanese  consumers  are  deprived  of  the  opportunities  flowing  from  a  wider 
choice of goods and services. For example, trade in the least environmentally harmful motor 
vehicles  seems  to  be  far  below  its  potential.  In  a  similar  vein,  consumers  are  deprived  of 
choice and access to the latest technologies and treatments – for example, Japanese consumers 
in the healthcare sector. Moreover, EU and Japanese consumers face higher prices because of 
the  reduced  competition  resulting  from  limited  trade  flows.  NTMs  identified  in  the  expert 
studies increase the cost of exporting to Japan by 10% to 30%, depending on the sector. This 
in turn affects consumers and firms who pay the costs for many of these measures in terms of 
higher prices, reduced competition, and limited access to capital, know-how, or skilled labour.  

D. 

Lost labour and welfare benefits 

Stagnating bilateral trade and investment undermine the productivity and competitiveness of 
firms  in  the  EU  and  Japan,  and  result  in  lost  opportunities  to  capture  labour  and  welfare 
benefits  for  both  their  citizens.  7.2%  of  EU  employment  depends  directly  or  indirectly  on 
exports.  When  all  trade  effects  are  taken  into  account  (exports,  imports,  productivity  and 
efficiency  gains,  income  effects,  etc),  around  18%  of  EU  labour  force  (36  million  jobs)  is 
dependent on our trade performance. Trade also generates a wage premium estimated at 7%. 
This  figure  results  from  a  CGE  model  simulation  aimed  at  quantifying  the  wage  premium 
arising from the current EU trade patterns, which estimated that the average wage in Europe 
would  be  7%  lower  if  the  EU  did  not  trade  internationally:  see  Commission  staff  working 
document "Trade as a driver of prosperity".The existing trade barriers depress wages for both 
lower-skilled and higher-skilled workers in the EU and Japan, and reduce output and growth. 
Opportunities to create new jobs are lost, and existing employment may also be threatened. 

The  underlying  causes  behind  trade  and  investment  flows  between  the  EU  and  Japan  being 
well  below  their  potential  are  analysed  more  in  detail  in  2.3.  The  charts  on  the  following 
pages relate the problems identified to the underlying causes, grouped thematically; and to the 
actual or potential consequences for both the EU and Japan, in the form of a 'Problem Tree'. 

17 

A Broda and Weinstein study (2006) estimates the gains to American consumers from the growth on 
global  variety  during  1972/2001  to  have  been  around  2.8%  of  GDP.  Translated  into  an  EU  context, 
suggest average European consumer benefits in the range of €600/year. 

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2.3. The problem drivers 

There  are  a  number  of  underlying  drivers  and  factors  contributing  to  the  trade  and 
investment  landscape  between  EU  and  Japan.  They  can  be  grouped  in  two  main 
categories: those that might be addressed by trade policy or domestic reforms, and those 
that are less likely to be affected by such measures.  

In  the  former  group  are  factors  that  cause  trade  to  fall  below  its  potential.  In  the  latter 
group there are factors such as geographical distance, language/communication problems, 
consumer  attitudes  and  preferences,  and  cultural  differences,  which  contribute  to 
determining the extent of the potential for trade.  

The  group  of  drivers  susceptible  to  change  through  trade  policy  and/or  domestic  reform 
(which, in  turn,  may  be prompted or facilitated by trade policy and trade agreements) is 
comprised  of  tariffs,  non-tariff  measures  and,  more  generally,  discriminatory  or 
excessively burdensome features of the regulatory environment, which affect trade in both 
goods  and  services  as  well  as  investment  and  public  procurement.  Differences  in 
regulatory approaches, particularly when the same regulatory objective and similar levels 
of protection of the public interests at stake are sought, is also an issue as these differences 
raise  both  the  cost  of  compliance  for  business  and  the  cost  of  enforcing  regulations  for 
public authorities at large to an unnecessary extent. 

a) Tariffs 

In general, both the EU and Japan have low tariffs on goods, with simple average MFN 
tariff rates of 3.8% for both partners. The trade-weighted tariff protection in Japan for EU 
exports is 1.7%, while the trade-weighted tariff rate for Japan’s exports to the EU is 3.4%.  

Nevertheless,  Japan's  tariffs  remain  very  high  in  the  agricultural  and  processed  food 
sectors  and  for  beverages,  in  which  the  EU  is  a  major  global  exporter.  Japan's  trade-
weighted tariff on European food and beverage exports is on average 34.7%, with several 
tariff peaks above 500%; while the EU's trade-weighted tariff for Japan's exports in the 
sector is on average 12.4%. However, apart from the processed food sector, average tariffs 
applied to other principal EU exports are generally very low.  

In  contrast,  EU  tariffs  applied  to  the  main  Japanese  export  sectors  are  higher,  with  the 
8.66% average tariff for motor vehicles as the most visible example. In fact, the bulk of 
Japanese  exports  to  the  EU  is  concentrated  in  a  small  number  of  manufacturing  sectors, 
mainly  motor  vehicles,  electronics  and  machinery).  It  is  not  surprising  therefore  that 
Japan's  offensive  interests  tend  to  focus  on  the  elimination  of  tariffs.  This  issue  has 
become a pressing matter for a number of Japanese exporters ever since the signing of the 
EU-Korea FTA, given the similarity in trade patterns towards Europe and the competitive 
relationship between Japanese and Korean exporters. 

It thus becomes clear that EU tariffs drive the main problem for Japan, whereas Japanese 
tariffs do not drive the main problem for the EU as a whole, except in some product areas 
where the problem is more acute. However, the elimination of tariffs in Japan would allow 
EU companies to better integrate into the Japanese market and exploit regional integration, 
by  avoiding  barriers  in  the  overall  sourcing  and  supply  chains  in  the  region.  As  Japan 

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continues  to  outsource  production  within  the  region  this  aspect  may  become  more 
important also for EU companies active on the Japanese market. 

b) Non Tariff Measures (NTMs) 18 

b.1) In Japan 

Japanese non-tariff measures constitute a leit motif in the factors identified as most 
impeding trade between the EU and Japan, whether in studies, surveys or by way of 
anecdotal evidence. NTMs exist across the board. 

Several sectors of the Japanese market are almost totally closed to EU exports. This 
is the case for some agricultural products (e.g. beef) but also for certain types of transport 
equipment and aeronautic products. The motivations and instruments differ from one case 
to another, but with protection of domestic economic interests appearing to be paramount, 
accompanied in a number of cases by distrust of foreign practices and privileged relations 
with certain third countries, notably (for political reasons) the US. 

EU exporters to Japan are confronted by distorted market prices in the agricultural sector 
due to Japanese price support, which is twice the level of the OECD average. In addition, 
state-trading  activities  regulate  the  import  and  distribution  of  leaf  tobacco,  rice,  wheat, 
barley, and milk products; and prices for these goods tend to be higher than world prices. 
Opiates are also subject to state-trading. 

Divergent  standards  and  technical  requirements  –  as  well  as  other  regulatory  and 
administrative issues, both at the border and beyond – also limit current trade flows. They 
significantly  increase  the  cost  of  compliance,  and  therefore  of  doing  business. 
Respondents  to  the  public  consultation  further  report  that  unpredictable  interpretation  of 
the  relevant  regulations  by  authorities  creates  additional  uncertainty  for  foreign 
companies.  
A recent study examined 194 individual NTM issues in various sectors19. The most costly 
barriers stem from the dissimilarity of the regulatory structures in the EU and Japan, and 
include: 

• 

• 

• 

Divergent technical standards and regulations, and a lack of harmonization with 
international standards, 

Complex,  cumbersome  and  lengthy  procedures  (especially  for  conformity 
assessment), and problems with mutual recognition, 

A regulatory environment in Japan in services sectors and for FDI which results 
in relatively weak competition and a dominant position for incumbents. 

The public consultations and the expert studies also highlight the lack of transparency in 
public procurement, and particular problems relating to IPR, as two other important sets of 

18 

19 

The Copenhagen Study defines non-tariff measures as "all non-price and non-quantity restrictions 
on trade in goods and services. This includes border measures (customs procedures etc.) as well as 
behind-the border measures flowing from domestic laws, regulations and practices)". 
See Copenhagen study pre-cited appendix 3. 

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non-tariff  barriers  that  make  the  Japanese  market  effectively  inaccessible  for  EU 
companies.  

Seven business sectors that cover the bulk of EU exports to Japan are those most affected 
by  existing  NTMs:  chemicals  (including  pharmaceuticals),  automotive,  medical  devices, 
processed foods, transport equipment, telecommunication and financial services.  

In particular, as far as the goods sector is concerned: (i) EU pharmaceutical exports are 
severely impeded by a complex and costly regulatory environment, as a result, exports to 
Japan  have  grown  much  more  slowly  than  those  to  other  markets;  (ii)  the  automotive 
sector  suffers  from  divergent  technical  standards  and  regulations,  as  well  as  from 
differences  in  conformity  assessment  procedures;  (iii)  medical  devices  from  the  EU  are 
restrained by costly and cumbersome procedures that affect the process of launching new 
products  on  the  Japanese  market;  (iv)  processed  foods  suffer  from  high  costs  for  EU 
exporters, because of the combination of differences between EU and Japanese standards 
and technical requirements, as well as cumbersome border procedures.  

There  are  substantial  barriers  in  the  services  sectors  as  well.  The  results  of  the  public 
consultation  highlight  the  fact  that  providing  services  in  Japan  is  –  as  a  general  rule  – 
fraught with restrictions, delays, and inefficiencies. Local governments often impose their 
own  procedures  and/or 
to 
discriminatory rules vis-à-vis foreigners or visibly preferential treatment for local service 
providers.  Attractive  sectors  in  Japan,  such  as  financial  services  (in  particular  insurance 
and banking) and telecoms, remain relatively closed to EU investors because of the anti-
competitive  behaviour  of  dominant  players  and  an  insufficiently  robust  competition 
policy.  

interpretation  of  regulations,  giving  rise 

their  own 

Other specific grievances raised by EU exporters include the non-transposition by Japan 
of most UN-ECE agreed standards as well as the absence of recognition of international 
accreditation  systems  more  generally,  thus  depriving  EU  exporters  of  the  possibility  of 
simpler recognition procedures where the EU relies on such standards and avails itself of 
such  systems  of  accreditation..  EU  exporters  also  complain  about  slow  and  complex 
product  approval  systems  and  insufficient  use  of  regulatory  impact  assessment.  And 
Japan’s  "public  comment  procedure"  may  not  provide  sufficient  time  for  international 
consultation on regulatory proposals that will have an impact on trade.  

NTMs  may  also  create  a  formidable  barrier  to  FDI,  and  service  sectors  are  prominent 
among those most affected. Examples include: (i) in general, the entry of foreign workers 
is severely restricted; (ii) there is a requirement for prior approval of FDI in sectors where 
there  is  (a  risk  of)  a  significant  adverse  effect  on  smooth  management  of  the  national 
economy,  and  in  other  sectors  on  grounds  of  public  order,  public  safety,  and  national 
security;  (iii)  there  are  a  number  of  regulatory  barriers  to  entry  in  network  industries 
(including  gas,  electricity,  rail,  airlines,  and  post);  (iv)  the  effectiveness  of  Japan’s 
“triangular  merger”  scheme20  is  undermined  by  rules  governing  the  deferral  of  capital 
gains tax.  

20 

The  triangular  merger  scheme  allows  foreign  companies  to  offer  their  stock  as  consideration  in 
cross-border M&As, provided that the acquirer has an existing Japanese subsidiary with which the 
Japanese target company can be merged. However, the effectiveness (and therefore, the take-up) of 

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There  are  also  significant  barriers  resulting  from  Japanese  NTMs  in  the  area  of  public 
procurement  which  can  be  grouped  into  four  categories:  limited  coverage  under  the 
WTO  Government  Procurement  Agreement  (GPA),  leading  to  restricted  access  in  some 
strategic  sectors;  obstacles  due  to  restrictive  interpretations  by  Japan  of  its  GPA 
commitments, such as the operational safety clause in the railway sector; difficult access 
to  notices  on  calls  for  tender,  due  to  the  absence  of  a  single  point  of  access;  and 
procurement practices that confer advantages for domestic suppliers.: see also Chapter 2.2 
A.  

b.2) In the EU 

Japanese  firms  also  face  non-tariff  barriers  in  Europe  as  a  result  of  our  regulatory 
environment and technical standards. In relation to the regulatory environment, Japanese 
companies point to differences between the EU and Japanese regulatory systems (e.g., for 
drug  labelling,  registration  systems  for  medical  devices,  or  systems  for  certification  of 
industrial  products).  They  also  complain  of  insufficient  bilateral  consultation  with  the 
Japanese  authorities  when  the  EU  introduces  or  changes  these  systems.  They  argue  that 
there  is  insufficient  regulatory  cooperation  between  European  and  Japanese  authorities 
(for example on recognition of professional qualifications, on validity of practice permits, 
on  bilateral  patent  cooperation),  as  well  as  insufficient  cooperation  between  competition 
authorities for investigation matters. 

In relation to technical standards, Japanese authorities refer to a lack of mutually accepted 
standards (e.g. concerning automobile parts, electric vehicles, lithium-ion cells, chemicals, 
or  the  nutritional  constituents  of  food  with  health-promoting  benefits).  And  once  again, 
they complain of the absence of bilateral consultation with Japanese authorities when the 
EU introduces or changes its standards. 

The Japanese authorities complain about a number of non-tariff barriers in the EU’s public 
procurement  market,  including  payment  delays  in  procurement  procedures,  de  facto  and 
de  jure  barriers  such  as  “one  package”  procurement,  divergent  standards  on  technical 
specifications  and  administrative  procedures,  and  a  lack  of  transparency  as  well  as  de 
facto barriers in the railway sector. 

More details on the identification of the NTMs and their trade cost is provided in Annex 3. 

2.4. The need for EU policy intervention 

The main objective of policy intervention would be to create more favourable conditions 
for trade and investment between the EU and Japan. Such objectives can theoretically be 
attained  by  both  ad  hoc  policy  intervention  or  by  the  use  of  comprehensive  trade 
instruments such as deep and comprehensive FTAs.  

these new provisions – which were intended to promote FDI – has been undermined by strict tests 
of business relevance and viability (between the acquiring company and the target) applied by the 
Japanese authorities against claims (by the target company's shareholders) for deferral of tax on the 
associated capital gains. 

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EU policy, confirmed by political statements such as that at the European Council on 25 
March 201121, favours deep and comprehensive FTAs, if the right conditions can be met. 
As referred to in Chapter 1, at the 28 May 2011 Japan-EU summit, Summit leaders then 
agreed to start the process for parallel negotiations for such and FTA between the EU and 
Japan  together  with  a  binding  agreement  covering  political  global  and  other  sectoral 
cooperation in a comprehensive manner.Trade policy and the negotiation of international 
trade  agreements  are  areas  of  exclusive  EU  competence  pursuant  to  Article  207  of  the 
Treaty  on  the  Functioning  of  the  European  Union,  which  states  that  the  European 
Parliament  and  the  Council,  acting  by  means  of  regulations  in  accordance  with  the 
ordinary  legislative  procedure,  shall  adopt  the  measures  defining  the  framework  for 
implementing the common commercial policy. 

Thus, the principle of subsidiarity does not apply in this case. The proposal complies with 
the principle of proportionality, because even the most far reaching options do not extend 
beyond fulfilment of the stated policy objectives. These matters are more fully covered in 
the assessment of policy options. 

3. OBJECTIVES 

3.1. General objectives 

In line with the Treaties, the overall objective of EU policy as regards economic and trade 
relations is to 

• 

• 

• 

enhance and further develop bilateral trade, 

progressively abolish existing restrictions on trade and foreign investment, and  

to lower customs and other barriers.  

The general objectives of European trade policy therefore include: 

• 

• 

• 

• 

21 

22 

23 

promoting  smart,  sustainable  and  inclusive  growth  through  the  expansion  of 
trade22.  

the creation of job and labour opportunities and welfare gains23. 

lower consumer prices and other consumer benefits. 

improving Europe’s competitiveness in global markets. 

'Looking  to  the  future,  the  European  Council  reiterates  the  strategic  importance  of  the  EU/Japan 
relationship.  The  forthcoming  summit  must  be  used  to  strengthen  this  relationship  and  bring 
forward our common agenda, including through the potential launch of negotiations for a free trade 
agreement on the basis that Japan is willing to tackle inter alia the issue of non-tariff barriers and 
restrictions on public procurement.' 
COM(2010) 2020, "Europe 2020: A strategy for smart, sustainable and inclusive growth", March 
2010.  “Trade,  Growth  and  World  Affairs.  Trade  Policy  as  a  Core  Component  of  the  EU’s  2020 
at: 
available 
2010, 
Strategy”, 
http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146955.pdf 
36 million jobs in the EU today depend directly or indirectly on trade. 

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3.2. Specific objectives 

In  respect  of  future  EU-Japan  economic  and  trade  relations,  the  EU’s  general  policy 
objectives set out above would translate into: 

• 

• 

• 

• 

Increasing the volume of bilateral trade in goods by reducing barriers 

Increasing the volume of bilateral trade in services by reducing barriers 

Increasing investment flows between the EU and Japan by reducing barriers 

Achieving  balanced  access  to  the  government  procurement  markets  of  both 
parties24. 

3.3. The EU's operational objectives  

Based  on  the  expert  studies  and  the  public  consultations,  a  number  of  more  specific 
operational  objectives  that  flow  from  these  aims  are  identified  and  described  below. 
Understandably,  they  reflect  primarily  the  European  perspective;  however,  this  section 
concludes with a brief outline of perceived Japanese objectives. The operational objectives 
indicate the specific areas in which negotiations are likely to be concentrated, the results 
of which negotiations will then provide the basis for the improvements calculated by the 
study in terms of aggregated tariff costs. 

As regards trade in goods, we should aim to eliminate tariffs to begin with.25 This 
(a) 
would  be  particularly  significant  for  those  sectors  (i.e.,  processed  foods,  agricultural 
products, motor vehicles) where tariffs still constitute a substantial barrier to trade. More 
importantly  in  this  particular  case,  we  should  aim  to  eliminate  non-tariff  barriers,  in 
particular  those  that  discriminate  against  EU  exports  and  those  that  are  associated  with 
excessively cumbersome regulation. 

To  the  extent  that  non-tariff  barriers  stem  from  legitimate,  non-discriminatory  and 
proportionate  regulatory  measures,  and  from  unavoidable  differences  in  the  regulatory 
environment, we should aim to eliminate or reduce as many of the existing differences as 
possible in order to limit the trade costs associated with them, making potential use of a 
number of methods, which are not mutually exclusive. These include the convergence of 
Japanese  standards  with  international  standards,  the  harmonization  of  standards  and 
technical  regulations  between  Japan  and  the  EU  and/or  mutual  recognition  and 
equivalence of standards and technical regulations.  

(b)  With regard to trade in services, we should aim at: 

24 

25 

Potential  to  improve  access  exists  within  the  FTA  negotiations  and  will  be  enhanced  by  the 
eventual adoption of the MASP instrument.  
Tariffs would be greatly reduced by the conclusion of the Doha Development Agenda negotiations. 
Nevertheless, they would continue to have an effect on bilateral trade and both the EU and Japan 
drive a general policy of tariff elimination, where appropriate, through bilateral FTAs. 

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• 

• 

• 

Effective  opening  of  key  services  sectors  to  European  providers,  including 
through addressing all kinds of non-tariff barriers, as described above for trade in 
goods; 

Ensuring  more  open  competition  and  establishing  a  level  playing  field  for  EU 
industry  in  the  services  sector,  especially  with  regard  to  existing  regulatory 
barriers; 

Ensuring effective national treatment and non-discrimination; 

(c) 
In  general,  concerning  both  trade  in  goods  and  services,  another  important 
objective  is  to  encourage  Japan  to  improve  the  transparency  of  its  regulatory  system,  as 
well  as  to  implement  simpler,  more  flexible  administrative  procedures  and  to  provide  a 
mechanism that prevents the emergence of new non-tariff barriers. 

The  operational  objectives  as  regards  investment  are  similar  to  that  for  trade  in 
(d) 
services and entail inducing Japan to address regulatory measures which create de jure or 
de facto barriers for EU investors. In particualr, we should aim to: 

• 

• 

• 

• 

Provide  better  market  access  and  effective  non-discrimination  both  before  and 
after establishment; 

Eliminate  all  quantitative  limitations  on  EU  investment,  eliminate  investment 
controls based on unclear and excessively wide definition of the national interest, 
and  ensure  as  transparent  as  possible  an  application  of  controls  such  as  those 
based on national security considerations; 

Persuade  Japan  to  implement  regulatory  reforms  designed  to  facilitate  cross-
border mergers and acquisitions; 

Persuade Japan to fully implement the Five Recommendations toward the Drastic 
Expansion  of  FDI  in  Japan  promulgated  by  the  Japanese  Expert  Committee  on 
FDI promotion26. 

(e) 
Furthermore,  in  order  to  facilitate  cross-border  flows  of  services  and  investment, 
another  aim  should  be  to  persuade  Japan  to  carry  out  a  process  of  reforming  and 
strengthening its competition law. In this context the EU should aim to: 

• 

• 

Persuade Japan to strengthen its antitrust rules and their enforcement; 

Encourage more co-operation and co-ordination in competition matters between 
EU and Japanese authorities. 

Linked to this topic is the issue of corporate governance in Japan. In this regard, 

(f) 
the EU should aim to persuade the Japanese authorities of the need to: 

• 

26 

EN 

Encourage transparency about Japanese companies' practices for blocking hostile 
takeovers; 

The text may be found in the Copenhagen Study, p. 110 

23 

   EN 

 
                                                 
• 

• 

Introduce the possibility for a company's shareholders to reverse decisions taken 
by its board on takeover bids; 

Require shareholder consent for other decisions concerning company ownership. 

Finally,  in  respect  of  public  procurement  we  should  aim  to  improve  EU  firms' 

(g) 
access to public procurement opportunities in Japan inter alia by: 

• 

• 

• 

• 

• 

Persuading  Japan  to  progressively  eliminate  trade  barriers  to  cross-border 
procurement,  particularly  as  regards  tendering,  by  using  international  standards 
and best practice; 

Persuading Japan to put in place unified challenge procedures; 

Ensuring  that  Japan  grants  access  to  procurement  information  relating  to  all 
Japanese procuring entities via a central portal;  

Eliminating market access restrictions in the railways sector related to excessive 
use of the Operational Safety Clause; 

Ensuring compatibility between the EU's and Japan's e-procurement systems. 

3.4. Japanese operational objectives 

Keeping  in  mind  that  the  bulk  of  Japanese  exports  to  the  EU  is  concentrated  in  a  small 
number of manufacturing sectors, mainly motor vehicles, electronics and machinery, it is 
clear that there are substantial gains to be had for Japan from a removal of tariffs in these 
sectors.  

Japan's offensive interests therefore tend to focus on the elimination of tariffs, particularly 
in  the  car,  components  and  electronic  sectors,  because  such  tariff  elimination  would 
constitute a major part of the gain from an FTA27 . 

As regards Japan's other objectives, a substantial number of issues can be identified from 
ongoing bilateral dialogues and exchanges of documents. The list of major items requested 
by Japan for the enhancement of bilateral trade and economic relations includes inter alia 
the following points: 

• 

• 

• 

27 

To further liberalise trade in services beyond the commitments in GATS; 

To  introduce  rules  of  origin  better  suited  to  current  industrial  conditions  and 
practice; 

To  establish  a  committee  through  which  Japan  could  participate  in  the  EU's 
process for setting standards, norms, and systems in a variety of fields28; 

Thus, the gains from greater bilateral trade liberalisation for Japan are, for the greater part, easier to 
identify and quantify than those for the EU, because the gains to be derived from NTMs reductions 
are harder to estimate. 

EN 

24 

   EN 

 
                                                 
• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

To  establish  mutually  acceptable  standards  in  the  automobile  sector,  through 
prior bilateral consultations;  

To realize further simplification and acceleration of EU customs procedures; 

To  aim  for  systematic  harmonization  of  various  regulations  and  systems 
regarding the distribution of pharmaceuticals within the EU, especially as regards 
Japanese  authorities  with  consultation 
labelling,  while  providing 
opportunities; 

the 

To aim for unification of registration systems for medical devices within the EU, 
while providing the Japanese authorities with consultation opportunities; 

To ensure that Japanese nationals employed in the EU (including intra-corporate 
transferees, as well as their family members) enjoy a status equivalent to that of 
EFTA nationals employed in the EU and their family members; 

To  introduce  mutual  recognition  of  professional  qualifications,  in  particular  for 
accountants, tax consultants and patent agents, and a unified practice permit valid 
in all EU Member States; 

To  promote  a  more  flexible  implementation  of  regulations  pertaining  to 
chemicals, while ensuring clarity, fairness and international harmonization; 

To  establish  EU  patent  and  an  EU  patent  court,  and  to  promote  bilateral  patent 
cooperation, as well as to expand the EU’s grace period; 

To  improve  certain  aspects  of  cooperation  between  the  EU  and  Japanese 
competition authorities on investigation matters; 

To  deepen  bilateral  cooperation  in  the  field  of  environment  and  energy,  in 
particular as regards standards and norms, and more specifically to collaborate on 
standards pertaining to electric vehicles and lithium-ion battery cells; 

To unify systems for the certification of industrial products. 

In  addition,  Japan's  particular  objectives  concerning  government  procurement  can  be 
summarized as follows: 

• 

• 

28 

Implementation  of  legislation  to  combat  the  practice  of  late  payments  in 
government and commercial transactions; 

Lifting  of  specific  de  facto  and  de  jure  barriers  to  non-EU  companies' 
participation in the bidding process (such as “one package” procurement, or strict 
requirements for bidders to be locally incorporated companies); 

According to a Japanese proposal such a committee would engage, in particular, in the following 
areas:  automobile,  environment  and  energy,  pharmaceuticals,  medical  devices,  nutritional 
constituents of food with health-promoting benefit, systems to certify industrial products. 

EN 

25 

   EN 

 
                                                                                                                                                   
• 

• 

Acknowledgement  of  the  equivalence  of  EU  and  Japanese  standards  for 
government procurement purposes (for example, in connection with requirements 
for the use/supply of specific equipment manufactured in the EU, and in relation 
to quality assurance). 

Simplification  of  administrative  procedures 
the  government 
procurement  bidding  process  (for  example  reducing  the  amount  of  documents 
required to participate in the bidding process). 

related 

to 

3.5. Consistency of the EU's operational objectives with other EU policies 

The  EU’s  operational  objectives  described  above  are  fully  consistent  with,  and  indeed 
stem from the principle that the European Union should "encourage the integration of all 
countries  into  the  world  economy,  including  through  the  progressive  abolition  of 
restrictions on international trade"29. 

The  EU's  operational  objectives  are  also  in  line  with  the  Europe  2020  Communication 
which announced that the European Commission would draw up a trade strategy in 2010 
including  "proposals  for  high-level  strategic  dialogues  with  key  partners,  to  discuss 
strategic  issues  ranging  from  market  access,  regulatory  framework,  global  imbalances, 
energy  and  climate  change,  access  to  raw  materials,  to  global  poverty,  education  and 
development"  and  referred  to  deepening  the  Union's  relationship  with  Asia  and,  in 
particular Japan.  

Accordingly,  the  Communication  on  Trade,  Growth,  and  World  Affairs  highlights  the 
priority  of  "finalizing  all  the  ongoing  negotiations  (…)  and  making  significant  further 
progress in our relations with strategic partners." 30 Japan is considered as one of the EU's 
top  strategic  economic  partners,  with  which  deepening  bilateral  economic,  trade  and 
investment links is stressed by the Communication as being of major importance.  

The  Communication,  while  placing  the  multilateral  process  of  negotiation,  and 
particularly the successful conclusion of the WTO Doha Development Round, as the EU's 
primary  policy,  also  recognizes  the  importance  of  deep  and  comprehensive  FTAs.  In 
addition,  the  latter  can  also  usefully  reinforce  the  benefits  to  be  derived  from  the 
multilateral  process,  in  particular  by  providing  improvements  in  trading  conditions,  not 
just  for  the  bilateral  partners  to  an  agreement  but  also  by  providing  benefits  via  most 
favoured nation treatment to other WTO members, where this results from the agreement 
in question.. 

The  EU's  operational  objectives  within  the  negotiations  for  an  FTA  also  allow  for 
appropriate coverage of the trade related parts concerning the environment and sustainable 
development.  They  will  thus  also  comply  with  the  principle  stipulating  that  the  Union's 
policies and actions should "help develop international measures to preserve and improve 
the  quality  of  the  environment  and  the  sustainable  management  of  global  natural 

29 
30 

Article 21 para 2 (e) TEU 
COM(2010)612/4, p. 2 

EN 

26 

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resources, in order to ensure sustainable development"31 in the manner set out in section 
5.2.  

4. POLICY OPTIONS 

With a view to attaining the objectives set out in Chapter 3, this chapter outlines different 
scenarios: (a) a baseline scenario envisaging modest progress under a framework similar 
to the current one; (b) an ambitious scenario involving negotiations for a comprehensive 
EU-Japan  FTA,  which  consists  in  fact  of  four  scenarios  –  two  'conservative'  and  two 
'ambitious' – that vary on the extent to which the cost of Non Tariff Measures (NTMs) can 
be  removed;  the  chapter  also  briefly  analyses  an  alternative  option  (the  possible 
enhancement  of  the  relationship  through  sectoral  agreements)  that  was  originally 
considered, but which has been shown by now as not being practicable .  

In fact, a comprehensive EU-Japan FTA was indicated as the option of choice of the EU 
and Japan by the decision taken at the 28 May 2011 summit to begin the process towards 
FTA negotiations, provided that the right conditions for this could be created. 

The  impact  assessment  carried  out  in  section  5  of  the  report  will  assess  the  opportunity 
and feasibility of these various options with a view to providing clear indications on what 
should be the best direction for enhancing the EU- Japan trade and economic relationship.  

It  is  foreseen  that  in  the  coming  years  both  the  EU  and  Japan  will  probably  conclude  a 
number of FTAs with third countries. In particular, the agreements that the EU is currently 
negotiating with other trade partners (Canada, India, Mercosur and ASEAN countries) or 
has recently finalised (e.g. the EU-Korea FTA came into provisional application on 1st of 
July 2011) have been taken into account. The different scenarios  are analyzed under the 
assumption that the Doha Development Agenda will be successfully concluded. However, 
wherever relevant, available data on bilateral trade liberalization starting from the current 
situation  (that  is  without  the  impact  of  a  future  DDA  deal)  have  been  included  and 
considered. 

4.1. Policy Option A: No policy change (baseline scenario) 

The first option would be to continue to operate under a framework similar to that found 
in  the  current  2001  Action  Plan.  This  would  entail  maintaining  the  on-going  bilateral 
economic  dialogues  and  business  cooperation  programmes,  such  as  the  Regulatory 
Reform  Dialogue,  and  the  High  Level  Trade  Dialogue  and  other  sectoral  bilateral 
dialogues  (e.g.:  Industrial  Policy  Dialogue,  Financial  Services  Dialogue,  IP  Bilateral 
Dialogue), with possible incremental improvement of their functioning and effectiveness.  

Under this scenario, the EU would also pursue cooperation in the sectors where the parties 
have  already  signed  agreements.  In  this  respect,  the  most  important  bilateral  agreements 
include: the 2001 Mutual Recognition Agreement, the 2003 Agreement on Cooperation on 
Anti-competitive  Activities,  the  2008  Customs  Cooperation  agreement,  and  the  2011 
Science  and  Technology  Agreement.  The  coming  years  would  possibly  bring  further 
improvements in the implementation of these agreements.  

31 

Article 21 para 2 (f) TEU 

EN 

27 

   EN 

 
                                                 
However,  given  the  very  limited  results  achieved  so  far  under  the  Regulatory  Reform 
Dialogue  and  other  bilateral  dialogues  it  is  reasonable  to  assume,  that  –  in  relation  to 
reducing NTM trade costs – any effects achieved under this option would be marginal and 
would  not  translate  into  substantial  growth  of  bilateral  trade  and  investment  volumes. 
Thus, no significant GDP gains could be expected in either the EU or Japan. While there 
might  eventually  be  some  progress  with  regard  to  the  elimination  of  trade  barriers,  any 
such progress is likely to be slow and limited. 

Thus the analysis of this baseline scenario is essentially based on the developments in the 
bilateral economic relationship that are likely to be generated by the evolution of the EU 
and Japan's economies as well as by the global economic situation. 

4.2. Analysis of a possible enhancement through sectoral agreements 

Within  the  process  of  an  impact  assessment  of  future  EU-Japan  economic  and  trade 
negotiations,  the  possibility  of  enhancing  current  relations  purely  through  sectoral 
agreements was also considered. 

Such an enhancement would have revised the current bilateral framework in order to set 
up  more  action-oriented  objectives  and  to  focus  on  actively  pursuing  the  elimination  of 
non-tariff  measures  that  have  the  biggest  impact  on  trade  and  investment  (in  particular, 
divergent standards, technical regulations and conformity assessment procedures).  

In  principle,  a  new  EU-Japan  framework  along  such  lines  could be  adopted.  This  could 
take the form of a legally binding or a non-binding document, covering political and trade 
issues.  This  would  entail  maintaining  the  on-going  bilateral  economic  dialogues,  as 
described  in  the  previous  option,  but  at  the  same  time  would  mean  redesigning  and 
refocusing them substantially in order to improve their effectiveness. Additional sectoral 
or "thematic" agreements of the kind mentioned under Part 4.1 could then be negotiated 
within this framework. This scenario was examined, in particular, by the Joint High Level 
Group set up by the 2010 EU-Japan summit. 

However,  this potential  scenario was effectively  discounted  by  the  parties  by  their 
decision at the EU-Japan summit on 28 May to begin procedures for possible negotiation 
of two parallel agreements, comprising an FTA and a framework agreement, with no other 
alternatives  in  mind. As  regards  trade  and  investment  relations,  Japan  had  indicated  in 
advance of the summit (including in the Joint High Level Group) that it was only prepared 
to negotiate an FTA, presumably because other alternatives would have focused largely on 
EU priorities with no possibility of lower tariffs in key sectors.  

Given  that  the  operational  objectives  of  both  parties  can  only  be  achieved  by  mutual 
cooperation and collaborative decision-making, any scenario discounted by Japan because 
it  does  not  address  key  Japanese  operational  objectives  cannot  be  considered  a  realistic 
policy option. 

4.3. Policy Option B: EU-Japan Free Trade Agreement  

Under this option, the EU and Japan would enter into negotiations for an EU-Japan Free 
Trade Agreement (FTA). In keeping with established policies both in the EU and Japan, 
such  an  agreement  would  be  of  a  deep  and  comprehensive  nature,  and  would  involve, 
inter alia, a major effort to eliminate all tariffs, as well as liberalization of trade in services 

EN 

28 

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under the conditions of Article V GATS and liberalization and facilitation of investment 
flows in both services and non-services sectors. A key component of such an FTA would 
have  to  be  to  address  a  critical  mass  of  identified  actionable  NTMs,  and  achieve  their 
elimination or at least a substantial reduction of their cost for traders and investors. Under 
this  option,  the  analysis  looks  at  four  different  possible  scenarios  proposing  different 
degrees of trade liberalization: two “conservative” and two “ambitious” scenarios, with a 
“symmetric” and an “asymmetric” scenario in each case.  

This selection of conservative and ambitious scenarios concerning cost reductions relating 
to NTMs is intended to provide a range of results in possible negotiations. The selection of 
20% and 50% cost reductions was made to provide, at the lower level of 20% NTM cost 
reductions, a minimum substantially below the results in fact achieved in the negotiation 
of  the  EU/Korea  FTA,  while,  at  the  upper  level  of  50%  cost  reductions,  assessing  the 
potential  of  what  would  amount  to  a  very  ambitious  outcome  concerning  NTMs.  Since 
results  within  this  range  are  consistently  positive,  varying  only  in  the  degree  of  overall 
gain, the report provides an assessment of a range of potential outcomes within which it 
can be seen that a positive result will be achieved32.  

The selection of symmetric and asymmetric scenarios has been chosen to provide a more 
complete  view  of  the  ambitions  and  objectives  of  both  parties.  The  symmetric  scenarios 
provide  a  theoretical  view  of  complete  parity.  The  asymmetric  scenarios  recognize  that 
while  the  reduction  of  the  burden  caused  by  NTMs  is  one  of  the  EU's  main  priorities, 
Japan's main priority is undoubtedly EU tariffs in a number of key sectors for Japan. The 
EU  would  be  bound  to  place  much  greater  emphasis  on  reduction  of  NTM  costs,  and  a 
degree  of  asymmetry  may  well  be  required  to  achieve  an  acceptable  balance  of  the 
eventual negotiated outcome. In the asymmetric scenarios examined here, only one third 
of  the  amount  of  reduction  in  the  cost  of  NTMs  on  goods  that  would  take  place  on  the 
Japanese side is assumed to take place on the EU side.  

Thus  the  asymmetric  scenarios  are  designed  to  approach  more  closely  the  actual 
negotiating  priorities  of  both  sides,  where  EU  priorities  on  the  one  hand,  notably  the 
reduction  in  the  negative  trade  effects  of  Japan's  NTMs,  will  be  negotiated  against 
Japanese  priorities  on  the  other,  notably  EU  tariffs.  Although  the  symmetric  scenarios 
show a greater overall increase in welfare, only a portion derives directly from changes to 
the  bilateral  relationship;  a  substantial  portion  results  from  the  spill-over  effects.  The 
symmetric scenarios provide a clear picture but do not fully reflect the parties' priorities, 
e.g. by implying that the EU would effect 20% and 50% cost reductions in EU regulations 
affecting trade, in circumstances when Japan's priorities lie mainly elsewhere. In reality, it 
seems  unlikely  that  the  FTA  negotiations  will  provide  the  platform  for  the  extensive 
discussion which would be needed for major changes to EU regulatory policies.  

The  first  two  scenarios  envisage  a  "conservative"  FTA  with  a  reduction  of  the  cost  of 
NTMs of 20%. The first of these scenarios calls for an asymmetric reduction of the cost of 
NTMs  in  the  EU  and  Japan,  while  the  second  analyses  the  effects  of  a  symmetric 
reduction. The conservative scenarios are based on more modest achievements in reducing 

32 

During  the  negotiation  itself,  DG  Trade  may  commission  an  additional  study  –  a  sustainability 
impact  assessment  (Trade  SIA)  –  which  could  provide  a  more  detailed  analysis  of  the  potential 
outcomes, the actual scope and content of the proposed agreement being better defined at that stage. 

EN 

29 

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the  costs  of  NTMs,  and  would  correspond  in  some  respects  to  older  EU  FTAs  and  also 
tend more to the somewhat lower levels of ambition shown in Japanese FTAs to date.  

The  remaining  two  scenarios  call  for  a  full-scale  FTA  with  a  reduction  of  NTMs  of 
50%with the first of these scenarios involving an asymmetric reduction of NTMs, and the 
second  a  symmetric  reduction.  The  upper  band  of  50%  is  in  recognition  that  not  all  the 
cost of NTMs can or will be removed by way of trade negotiations and provides a working 
hypothesis for an ambitious scenario33. 

This second pair of scenarios envisages that the parties would negotiate an agreement in 
line with the new generation of trade agreements that the EU is currently negotiating with 
trade  partners  such  as  Canada.  While  not  fundamentally  different  from  the  FTAs  that 
Japan has concluded in recent years, EU trade agreement nevertheless differ from them in 
terms of scope and level of ambition. A comprehensive EU-Japan FTA would thus have to 
cover a higher number of market access issues of interest to both parties, including tariffs, 
non-tariff measures affecting trade in goods (including TBT and SPS aspects) and trade in 
services, further market access for services, investment and public procurement as well as 
specific  chapters  on  investment  protection,  competition  and  intellectual  property  rights. 
Under  these  two  scenarios,  it  could  be  assumed  that  around  half  of  the  costs  related  to 
actionable NTMs would be eliminated. 

Current EU policy for deep and comprehensive FTAs aims at complete tariff coverage for 
all products as the starting point of negotiations. Asymmetry involving only a proportion 
of tariffs therefore would be inconsistent with this goal. Moreover, Article XXIV GATT 
requires  FTAs  between  WTO  members  to  cover  substantially  all  trade.  While  what 
constitutes substantially all trade is not legally defined, the exclusion of products carries a 
risk of legal argument within the WTO. The  manner in which tariffs will be eliminated, 
however, permits of a greater degree of flexibility in a WTO context and thus phase-out 
periods,  with  or  without  conditionality  as  to  progress  in  areas  other  than  tariffs,  are 
potential  tools  available  to  the  negotiator.  However,  since  these  are  essentially 
mechanisms designed to achieve agreed end results, rather than results in themselves, the 
report  does  not  attempt  to  assess  the  effect  on  the  timing  or  delivery  of  results  that  this 
might entail. 

33 

As  highlighted  in  Annex  3  since  there  are  any  number  of  legitimate  reasons  for  national 
regulations, assuming that all NTMs can be eliminated, or even that any regulatory divergence can 
be aligned is not realistic. A 50% cost reduction can therefore be considered as ambitious. 

EN 

30 

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Box 1: Overview of the modelled scenarios 

Policy  Option  B  (the  EU-Japan  Free  Trade  Agreement)  contains  conservative  and 
ambitious  scenarios,  which  are  detailed  below.  All  scenarios  apply  full  elimination  of 
tariffs. 

The  parameters  advanced  in  the  different  scenarios  generally  serve  as  an  indication  of 
order of magnitude rather than precise point estimates, and are based on the nature of the 
ex-ante  analysis  of  a  future  FTA.  Results  are  nevertheless  robust  as  long  as  simulation 
parameters remain in a reasonable range. The ambitious versus conservative scenarios and 
the sub options (B1 through B4) confer an additional robustness test. 

Conservative – reduction of no more than a quarter of NTM trade costs, including 

-  B1:  a  first  sub-scenario  envisaging  an  a-symmetric  reduction  of  NTMs.  The  scenario 
aims at eliminating all tariffs and the following reductions in the cost of NTMs: 

- 20% overall reduction in Japan,  

- 6.6% reduction in the EU for goods,  

- 20% reduction in the EU for services 

- B2: a second sub-scenario aiming at a symmetric reduction of NTMs. The scenario aims 
at eliminating all tariffs and the following reductions in the costs of NTMs:  

- 20% overall reduction both in Japan and in the EU 

Ambitious  –  around  half  of  the  costs  related  to  actionable  NTMs  would  have  to  be 
tackled, including 

- B3: a first sub-scenario envisaging an a-symmetric reduction in the costs of NTMs. The 
scenario aims at eliminating all tariffs and the following reductions in the costs of NTMs: 

- 50% overall reduction in Japan,  

- 16.5% reduction in the EU for goods,  

- 50% reduction in the EU for services 

- B4: a second sub-scenario aiming at a symmetric reduction of in the costs of NTMs. The 
scenario aims at eliminating all tariffs and the following reduction in the costs of NTMs:  

- 50% overall reduction both in Japan and in the EU 

EN 

31 

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5. IMPACT ANALYSIS 

This  section  will  analyze  the  impact  of  the  different  policy  options  outlined  above  on  a 
number of different levels. It will begin by summarizing the modelling strategy and setup. 
It then looks at the overall economic impact resulting from the different policy options in 
the  FTA.  It  also  includes  a  sectoral  analysis  of  economic  impacts  in  the  EU  and  Japan 
based on particularly important sectors, and covers environmental and social impacts. The 
impacts on administrative costs and simplification effects are briefly analyzed. 

5.1. Model and assumptions 

The Copenhagen Economics 2011 study34 estimated the impact of changes in the barriers 
to  trade  between  the  EU  and  Japan  by  using  a  computable  general  equilibrium  (CGE) 
model.  The  CGE  model  is  a  widely  used  tool  in  the  analysis  of  policy  options  when 
different scenarios are to be simulated and compared to a baseline scenario. Concurrently, 
a wide network of users contribute to the systematic checking of the appropriateness of the 
underlying data and parameters (including dozens of agencies and institutions around the 
world), providing a reasonable degree of confidence in the robustness of CGE results. 

Model's characteristics 

The  currently  employed  model  is  a  multi-region  global  CGE  model  with  the  following 
important  features:  it  covers  global  world  trade  and  production,  it  allows  for  scale 
economies  and  imperfect  competition,  it  includes  intermediate  linkages  between  sectors, 
and it allows for trade to impact on capital stocks through investment effects. 

The  model  gives  short-run  and  long-run  results.  The  long-run  assessment  provides 
information about the impact of reductions of barriers to trade induced policy changes on 
the capital stock, thereby capturing the induced expansion (or contraction) of the economy 
over a longer time horizon following trade barrier reductions. In contrast, in the short-run 
the impact of investment on installed capital stocks is not included35. 

To analyse the impact of an FTA, two types of trade policy shocks were simulated by the 
model: the full elimination of all tariffs on goods, and the partial reduction of trade costs 
generated by non-tariff measures (NTMs). As indicated in chapter 4, the removal off the 
costs of NTMs considered were of 20% (conservative FTA) and 50% (ambitious FTA). 

NTMs and MFN spillover effects 

The impact of the various scenarios is analysed below. However, as a general comment, it 
is worth noting that tariff liberalization alone is not going to bring substantive benefits to 
either the EU or Japan. Ambitious reductions in the costs of NTMs on top of reductions in 
tariffs are the pre-condition for a significantly positive impact of the FTA, for both the EU 
and Japan, in all the scenarios considered.  

34 

35 

"Economic  Impact  Assessment  of  an  FTA  between  the  EU  and  Japan",  also  referred  to  as  the 
"complementary study". 
For more details on the methodology, please see Annex 2. 

EN 

32 

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It  is  also  worth  noting  that  preferential  bilateral  tariff  and  NTM  cost  reductions  account 
for only about 10% of the overall macro-economic impacts observed, and as much as 90% 
of  the  overall  economic  impact  is  attributable  to  NTM  “spill-over”  effects.  Many  of  the 
NTMs relate to differences in regulations, as well as procedures, which mostly cannot be 
altered  on  a  purely  bilateral  basis.  Once  addressed,  they  will  improve  market  access  for 
third  countries  as  well.  Therefore,  to  a  large  extent,  NTM  cost  reductions  operate  on  an 
MFN basis.  

Based  on  an  examination  of  barriers  identified  (in  the  Copenhagen  Economics  2009 
study),  the  Copenhagen  Economics  2011  study  has  assumed  that  65%  of  NTM  cost 
reduction  also  yields  benefits  for  third  countries,  while  35%  of  any  reduction  delivers  a 
strictly bilateral benefit. 

The strong economic leverage effect of NTM spill-over effects can then be explained by 
the relative importance of bilateral trade between the EU and Japan: since less than 2% of 
EU imports come from Japan, reducing NTM trade costs for the EU’s imports from Japan 
implies  that  the  remaining  98%  of  EU  imports  also  benefit  at  least  partially  from  these 
reductions. Similarly, imports from the EU represent about 10% of Japan's total imports. 
Reductions in the cost of NTMs on imports from the EU will spill-over to the other 90% 
of Japan's imports.36  

The  analysis  that  follows  highlights  the  effects  of  the  policy  scenarios  in  Copenhagen 
Economics 2011 model, presented in terms of net changes from the values estimated in the 
baseline  scenario  (which  includes  Doha).  For  simplicity,  the  narrative  will  on  occasion 
focus on the asymmetric scenarios. These are considered more likely to materialize, and 
serve as a conservative measure of the results, given that the symmetric scenarios produce 
higher gains.  

5.1.1. The baseline scenario 

The  baseline  scenario  assumes  no  changes  in  trade  policy:  tariffs  and  NTMs  remain  as 
they are at present, subject to the conclusions of trade negotiations currently underway, as 
explained  below.  It  projects  the  world  economy  to  2020,  using  the  October  2010  IMF 
World  Economic  Outlook37  macro-economic  projection  up  to  2015.  The  2014-2015 
average growth rate is used for projections up to 202038.  

The baseline scenario is based on all EU trade agreements in force at the time the relevant 
studies  were  completed  and  also  on  the  assumption  that  EU  bilateral  FTA  negotiations 
with  a  number  of  important  partners  –  India,  ASEAN,  Korea  and  Canada  –  will  be 
concluded and implemented by 2020. In fact the EU-Korea FTA has been in force since 1 
July 2011. 

36 

37 
38 

Further information on the definition and nature of these NTMs can be found in the Copenhagen 
Economics 2011 study, as well as in the "Assessment of barriers to trade and investment between 
the EU and Japan" study by Copenhagen Economics. 
See IMF website at http://www.imf.org/external/pubs/ft/weo/2010/02/index.htm 
In the event of reduced growth, percentage changes in bilateral trade will largely remain unchanged 
but  the  overall  gains  would  be  affected  to  the  same  extent  as  the  changes  in  world  economic 
conditions. 

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The baseline scenario also assumes that the Doha multilateral negotiations will have been 
concluded and implemented by 2020, based on the tariff proposals that were on the table 
in 2008. While this is the basic working assumption, the tables in Annex 5, which set out 
in  detail  the  effects  of  the  various  options,  include  an  alternative  scenario  in  respect  of 
tariffs, based on the status quo: i.e. based on tariff reduction that take place from current 
applicable  levels  (which  are,  for  both  the  EU  and  Japan  in  this  context  their  respective 
WTO-consolidate tariffs)39. 

In fact, there is little practical difference, given that both the DDA and an EU/Japan FTA 
would overlap in terms of the implementation period for tariff reduction, and that the aim 
of  an  ambitious,  WTO-compatible  FTA  is  the  elimination  of  tariffs  on  substantially  all 
trade, whatever the starting point is. Thus, the tariff elimination scenario envisaged here is 
that of tariff reduction to zero, in any event, by 2020 with the possibility that some of that 
tariff liberalization would result from the DDA and some from the FTA (the 'with Doha' 
figures), or that all the liberalization results from the FTA (the 'without Doha' figures)40. 

In respect of procurement, the forthcoming initiative on third country access to the EU's 
public procurement market would seek to improve access to public procurement markets 
by  imposing  a  symmetrical  approach:  by  allowing  for  restrictions  to  access  to  the  EU's 
procurement market (80% of which is currently open to bidders from outside the EU), for 
companies  from  third  countries  that  fail  to  grant  reciprocal  access  to  EU  companies  in 
respect of their own public procurement markets. This instrument is not normally foreseen 
for use in cases where FTA negotiations are under way. However, once the instrument is 
adopted, its existence is likely to provide an additional incentive on the part of Japan to 
consider  the  question  of  procurement  in  the  FTA  negotiations.  Furthermore,  in  an  FTA 
negotiation, agreement on procurement would form part of an agreed bundle of objectives, 
providing a broader negotiating platform  

5.2. Overall economic impact from the Free Trade Agreement  

5.2.1. Expected impact from a conservative FTA  

Scenarios  B1  and  B2  make  conservative  assumptions  about  the  extent  of  NTM  cost 
reductions in the EU and Japan (see Box 1).  

Under  these  conservative  scenarios,  the  Copenhagen  Economics  2011  model  predicts 
GDP  increases  for  the  EU  of  0.34%  by  2020  in  the  case  of  asymmetric  NTM  cost 
reductions  (or  0.75%  assuming  symmetric  NTM  cost  reductions).  For  Japan,  the 
magnitude of the increase is about 0.27% in either case. The estimated gains for the EU 
amount to 42 billion Euros in the case of asymmetric NTM cost reductions or as much as 
92.8  billion  Euros  in  the  case  of  symmetric  NTM  cost  reductions;  for  Japan,  the 
comparable amounts round to 5.1 billion Euros. Most of the gains for NTM cost reduction 
stem from the spill-over effect of overall – as opposed to purely bilateral – liberalisation, 

39 
40 

See the column "For reference only: Tariff elimination without Doha" in tables in Annex 5. 
The  Copenhagen  Study  of  February  2009  was  carried  out  by  reference  to  a  baseline  that  did  not 
include the Doha tariff concessions or the effects of the EU/Korea FTA, but took also into account 
an  additional  baseline  that  included  those  elements  as  a  cross  reference.  From  this  'with'  and 
'without'  Doha  comparison,  the  study  reached  the  conclusion  that  'results  of  the  EU-Japan  trade 
liberalisation scenarios are unaffected by the inclusion of the Doha Round in the baseline'. 

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hence  the  higher  gains  for  the  EU  in  the  symmetric  scenario,  whereas  for  Japan  the 
difference is very small. 

Under  these  conservative  scenarios  (and  in  the  asymmetric  case),  EU  exports  to  Japan 
would  increase  by  22.6%,  while  Japan’s  export  to  the  EU  would  increase  by  17.1%. 
Overall, the value of the EU's global exports would rise by 1.2%, with EU's global imports 
rising  by  1.2%.  Japan's  global  exports  show  an  increase  of  about  3.8%,  while  Japan's 
imports increase by about 4.5%.  

Table 1: Economic impact of the asymmetric scenarios (Mln €,  percentage change) 

Policy options

Impact in the EU

Baseline 
values
(Mln €)

Conservative 

Ambitious

Asym.
B1

Sym.
B2

Asym.
B3

Sym.
B4

GDP
National Income (Mln €)

17,642,509
17,642,509

0.34
42,006

0.75
92,805

0.79
99,774

1.88
319,292

Global exports fob
Global imports cif
Bilateral exports to JPN

5,334,549
5,611,441
68,553

1.2
1.2
22.6

2.7
2.8
23.7

2.8
2.9
32.7

6.7
N/A
N/A

Impact in Japan

GDP
National Income (Mln €)

3,845,622
3,845,622

0.27
5,069

0.27
5,137

0.67
13,173

0.67
18,321

Global exports fob
Global imports cif
Bilateral exports to EU

720,175
684,535
109,201

3.8
4.5
17.1

3.9
4.5
18.0

7.3
8.6
23.5

7.4
N/A
N/A

5.2.2. Expected impact from an ambitious FTA 

Scenarios B3 and B4 are more ambitious as to the extent of NTM cost reductions achieved 
by both sides (Box 1). 

Under the ambitious scenarios, the model predicts GDP increases for the EU of 0.8% in 
the  case  of  asymmetric  NTM  cost  reductions  (or  1.9%  assuming  symmetric  NTM  cost 
reductions). For Japan, GDP increases amount to 0.7%. For the EU, these estimated gains 
amount  to  99.8  billion  Euros  for  asymmetric  NTM  cost  reductions  or  as  much  as  319.3 
billion  Euros  in  the  case  of  symmetric  NTM  cost  reductions;  for  Japan,  the  comparable 
amounts are €13.2 billion for asymmetric NTM  cost reductions and €18.3 billion Euros for 
symmetric NTM cost reductions41. 

41 

Further evidence is to be found in the report of a sub-group of the Japan-EU Trade and Economics 
Working Group (TEWG) of the Joint High Level Group set up by the 2010 EU-Japan summit. This 
report  compares  the  results  obtained  from  different  economic  studies  and  provides  data  on  the 
estimated  impact  of  an  ambitious  FTA  policy  option  according  to  two  different  models:  one 
European and the other Japanese (different also from the models used in the various studies). The 
European  model  suggested  that  EU  GDP  would  increase  by  about  0.7%,  while  Japanese  GDP 
would  increase  by  about  1%.  A  very  high  GDP  gain  (0.5%)  was  also  predicted  for  other  OECD 
countries,  while  ASEAN  countries  would  see  the  region's  GDP  increase  by  about  0.25%.  The 
Japanese model found that EU GDP would increase by about 0.5% and that Japanese GDP would 
increase by about 1.2%. 

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Under this ambitious scenario, with asymmetric cost reductions from NTMs, EU exports 
to  Japan  would  increase  by  32.7%,  while  Japan  export  to  the  EU  would  increase  by 
23.5%. Overall the value of the EU's global exports would rise by 2.8% under asymmetric 
NTM cost reductions or 6.7% under symmetric NTM cost reductions; EU global imports 
would also rise by about 2.9% assuming asymmetric NTM cost reductions. Japan's global 
exports increase by about 7.3%, while its imports increase by about 8.6% in the case of 
asymmetric NTM cost reductions (no estimate for imports assuming symmetric NTM cost 
reductions is available). 

5.3. Impact on sectoral competitiveness 

The  macro-economic  analysis  above  has  shown  that  trade  liberalisation  between  the  EU 
and  Japan  improves  welfare  overall  for  both  partners.  In  reducing  trade  barriers  it 
increases competitive pressures in industries that to some extent have been sheltered from 
global competition by these barriers. However, the impact of trade opening may differ by 
sector and by firm within each sector.  

According  to  the  European  respondents  to  the  public  consultation,  increased  export 
prospects linked to NTMs cost reduction would be particularly important for the chemical 
and pharmaceuticals  sectors  in the  EU. Reducing the cost of NTMs would also increase 
competitiveness  and  enhance  market  access  for  European  businesses  in  the  information 
technology, consumer electronics and telecommunications sectors, which would boost or 
support  employment  in  those  sectors.  A  similarly  favourable  effect  is  expected  for  the 
EU's textile sector. By contrast, the EU automotive sector does not expect to gain from an 
elimination  of  tariffs  and  NTMs  costs,  which  will  put  it  at  a  competitive  disadvantage 
relative to the Japanese sector. 

According  to  the  Japanese  respondents  to  the  public  consultation,  the  Japanese 
automobile, IT and electronics sectors in particular expect to benefit from an elimination 
of tariffs and reduction of NTM costs in Europe. 

Note  that  the  simulation  model  used  in  this  analysis  does  not  forecast  innovations  in 
technology, productivity and/or the quality of outputs produced by sectors. Forecasts are 
based  on  current  technology  and  competitiveness  in  the  world  market.  In  reality,  many 
firms will respond by improving their technologies and products in the wake of increased 
competition.  The  sectoral  analyses  presented  below  should  therefore  be  considered  as 
"bottom  line"  scenarios  that  leave  considerable  margin  for  improvements  in  the 
competitiveness of sectors. 

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Table 2: Sectoral impact of the asymmetric scenarios* (percentage change) 

Policy options

Exports

Imports Output

Exports

Imports Output

Global Bilateral Global

Global Bilateral Global

Conservative FTA (B1)

Ambitious FTA (B3)

Impact in the EU

Processed foods
Chemicals
Electrical machinery
Motor vehicles
Other transport equipment
Other machinery
Finance
Insurance
Business services

Impact in Japan

4.4
1.0
4.1
0.6
0.9
1.1
1.6
0.8
2.3

182.6
21.9
8.1
8.2
20.6
3.3
0.9
2.3
8.9

3.3
1.4
-0.1
1.3
1.6
1.2
2.5
1.8
3.8

0.6
-0.3
3.5
-0.3
-0.1
0.1
0.1
0.2
0.1

7.6
2.7
10.9
2.0
2.1
3.1
3.9
1.9
5.8

202.2
51.8
20.8
18.1
47.3
7.6
1.3
4.7
22.2

8.6
3.2
-0.4
2.7
3.5
2.7
6.4
4.7
9.7

Processed foods
Chemicals
Electrical machinery
Motor vehicles
Other transport equipment
Other machinery
Finance
Insurance
Business services
* For brevity, the table presents a selection of sectors. The full set of sectors is available in annex 5. The same 
applies to the policy scenarios, where only the asymmetric options are reported.

45.8
3.4
19.4
28.2
50.4
34.4
7.7
5.7
11.3

36.7
9.7
13.8
24.6
31.1
20.7
2.6
1.8
4.0

41.5
15.4
1.1
6.5
17.0
1.3
0.6
1.9
8.8

-0.2
-7.3
11.1
5.6
24.6
19.0
4.3
1.7
3.8

-1.0
-1.1
4.9
4.0
11.6
8.6
1.4
0.4
1.2

-3.3
-3.5
1.6
2.5
0.7
5.2
0.1
0.0
-0.1

50.1
40.7
1.7
13.9
37.3
3.0
0.6
3.9
21.8

0.5
-0.5
9.3
0.0
-0.1
0.6
0.1
0.4
0.3

-4.0
-11.0
3.8
3.4
0.8
11.5
0.3
0.1
-0.4

5.3.1. Expected sectoral impact of a conservative FTA 

In  case  of  a  conservative  FTA,  the  Copenhagen  Economics  2011  model  forecasts 
significant  rises  in  EU  global  exports  for  the  processed  food,  electrical  machinery  and 
business services sectors. The motor vehicle industry would see a rise in both exports and 
imports.  

The  EU's  global  imports  would  rise  substantially  for  the  processed  foods,  finance, 
business  services,  and  air  transport  sectors.  Imports  in  the  electrical  machinery  sector 
would on the other hand fall.  

For Japan,  a  conservative  FTA  with  the  EU  would mean  significant  increases in global 
exports  in  the  electrical  machinery,  motor  vehicles,  other  transport  equipment  and  other 
machinery  sectors.  Japan's  imports  would  rise  substantially  in  the  processed  foods, 
chemicals, motor vehicles, other transport equipment, and business services sectors. 

In  terms  of  bilateral  trade,  the  biggest  sectoral  effect  is  expected  to  take  place  in 
processed foods – a sector representing almost 7% of total EU exports to Japan – with an 
increase of over 180% of EU exports to Japan and an improvement of €9.5 billion in the 
trade balance. EU exports to Japan of chemicals and other transport equipments are also 
expected to increase by more than 20%. 

The sector where we expect to see the largest increase in output, i.e. overall production, in 
the  EU  is  in  electrical  machinery;  other  sectors  would  see  more  limited  increases  (e.g. 
processed foods, or modest decreases (chemicals, metals). This apparent contradiction in 
the chemicals sector, whereby the EU increases its bilateral exports while suffering from a 
decline in output, can be explained as an MFN effect: EU exports to Japan benefit from 
the  reduction  in  NTM  costs,  but  at  the  same  time  exports  from  third  countries  also  get 

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better access to the European market (via the NTM cost reduction in the EU). For Japan, 
the largest sectoral output increases are expected in: other machinery, motor vehicles and 
electrical  machinery.  The  largest  output  decreases  are  expected  in  processed  foods  and 
chemicals.  

The changes in sectoral output are expected to be bigger for Japan than for the EU as the 
EU is a more important trading partner for Japan than Japan is for the EU. It also reflects 
that in general sectors that are currently most protected by tariffs and non-tariff measures 
and  thus  the  least  competitive  on  global  markets  are  likely  to  experience  the  largest 
decrease in output and the highest increase in imports. Less protected sectors are generally 
more competitive, and will experience only a small increase in competitive pressures as a 
result of further trade opening.  

NTM cost reductions operate to a large extent on an MFN basis, which will enable other 
trading  partners  to  free-ride  on  these  reductions  in  trade  costs.  Where  the  change  in 
Japanese  imports  is  clearly  linked  to  tariff  reductions,  for  example  large  reductions  in 
tariffs on processed foods, other trading partners will not benefit from a 'free-rider' effect.  

5.3.2. Expected sectoral impact of an ambitious FTA 

The  patterns  of  change  between  the  conservative  and  the  ambitious  FTA  scenarios  are 
driven by variations in the level of NTM cost reductions and the impact will depend on the 
importance of the cost reductions of NTMs.  

In an ambitious FTA, the sectors most affected in the EU would largely be the same, but 
the expected increase in exports, or imports, would double or triple. The model forecasts 
significant  rises  in  EU  global  exports  for  the  processed  food,  electrical  machinery  and 
business  services  sectors.  The  EU's  global  imports  would  rise  substantially  for  the 
processed  foods,  air  transport,  finance,  and  business  services  sectors.  Imports  in  the 
electrical machinery sector would instead fall. The motor vehicle industry would see a rise 
in both exports and imports. In terms of bilateral trade, EU processed foods exports are 
expected  to  increase  by  200%,  and  chemicals  and  other  transport  equipment  exports  by 
around 50%.  

For  Japan,  the  ambitious  FTA  scenario  leads  to  increased  exports  especially  in  the 
electrical  machinery,  motor  vehicles,  other  machinery,  other  transport  equipment,  and 
other  manufactures  sectors.  Japan  would  experience  a  substantial  rise  in  imports  in  the 
processed  foods,  chemicals,  other  transport  equipment,  motor  vehicles  and  business 
services sectors. 

With an ambitious scenario (and in case of asymmetrical NTM cost reductions), we can 
expect an increase in output in the EU electrical machinery sector of 9%, whereas in Japan 
we  would  expect  an  increase  in  output  of  11%  in  the  other  machinery  sector,  and  a 
decrease of 11% in the chemicals sector.  

5.3.3. Sector specific analyses of the financial services, business services, and motor 
vehicles sectors 

Given their importance for bilateral trade, as shown above, and on the basis of available 
information  from  respondents  and  studies,  the  following  sectors  of  major  potential  trade 
value have been examined in greater detail. 

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5.3.3.1. Financial services sector 

The total exports of financial services from EU to Japan was about €1.2 billion in 2004, 
which  made  the  EU  the  largest  exporter  of  these  services  to  Japan.  Despite  Japan  being 
EU’s  second  largest  export  market  (in  2004),  the  business  survey  conducted  in 
Copenhagen Economics 2009 highlighted that major barriers affect cross-border financial 
services  trade  (see  chapter  2:  a  complex  regulatory  environment  and  excessive 
administrative  burdens).  The  study  estimated  their  trade  cost  equivalent  (TCE)  between 
12% and 15%. 

The Ecorys 2009 study suggested that 49% of the costs of barriers resulting from NTMs in 
the financial services sector could be reduced through trade policy negotiations. An FTA 
could thereby contribute to significantly reducing costs for EU financial firms that export 
to Japan.  

The Copenhagen Economics 2011 model estimates a conservative FTA (in its asymmetric, 
more conservative, option) could increase EU finance sector exports to Japan by 0.9%, an 
ambitious  FTA  by  1.3%,  whereas  the  insurance  sector  would  increase  exports  by  2.3% 
and  4.7%  respectively42.  Japan  finance  sector  exports  to  the  EU  would  increase  by 
2.6%(conservative)  /  7.7%(ambitious)  and  insurance  sector  exports  by  1.8%/5.7%, 
respectively.  

Overall,  the  EU  finance  sector  output  would  be  expected  to  increase  by  0.1%/0.1%  and 
insurance sector output by 0.2%/0.4%; the Japan finance sector output by 0.1%/0.3% and 
insurance sector output by 0.01%/0.1%. 

The barriers affecting trade of financial services between the EU and Japan being mainly 
regulatory, the reduction in the costs of NTMs (and its spill-over) is the primary driver in 
the estimated effects of the FTA on the financial sector.  

The EU financial sector would therefore clearly benefit from an ambitious FTA. 

5.3.3.2. Business services sector 

The  business  services  sector  accounts  for  30%  of  global  trade  in  services.  However, 
Japan's import penetration is particularly low in this sector: just 2.6% compared to 8% in 
the case of the EU.43  

Many of the trade barriers encountered by the business services sector result from specific 
features of the way of doing business in Japan, such as differences in culture or language. 
These  barriers  cannot  easily  be  addressed  by  trade  policy,  especially  in  the  short  or 
medium term.  

However, other issues that hamper FDI in the business services sector – for example, the 
complexity  of  administrative  procedures,  high  labour  costs  and  high  taxes  –  could  be 

42 

43 

The symmetrical or asymmetrical scenarios do not bear much difference for the financial sector as 
both envisage the same removal of NTM in services (the asymmetry applies goods) 
"Assessment  of  barriers  to  trade  and  investment  between  the  EU  and  Japan",  Copenhagen 
Economics, 2009. 

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addressed by the Japanese government and trade negotiations could provide the incentive 
to  do  so.  Overall,  the  Ecorys  2009  study  suggests  that  about  51%  of  non-tariff  barriers 
affecting  the  business  services  sector  in  Japan  can  be  addressed  by  trade  policy 
negotiations for an FTA. 

The Copenhagen Economics 2011 model estimates that a conservative FTA could increase 
EU business services exports to Japan by 9%, and an ambitious FTA increase it by 22% 
while Japan business services exports to the EU would increase by between 4% and 11%.  

Overall, the EU business services output would be expected to increase by between 0.2% 
and 0.3% in the asymmetric (more conservative) options, and the Japan business services 
output decrease by between 0.1% and 0.4%. 

As  in  the  case  of  the  financial  services  sector,  the  barriers  affecting  trade  in  business 
services  between  the  EU  and  Japan  are  mainly  regulatory;  thus,  the  reduction  of  NTMs 
costs  (and  its  spill-over)  is  the  primary  driver  in  the  estimated  effects  of  the  FTA  on 
business services. Accordingly, supposing the current status quo in respect of tariffs (i.e. 
the Doha multilateral negotiations are not concluded and implemented), the impact of an 
FTA on the financial sector would be as set out above. 

5.3.3.3. Motor vehicle sector 

The  results  of  the  models  at  sectoral  level  show  that  the  motor  vehicles  sector  –  where 
fears of a negative impact from an EU-Japan FTA are often strongest – would experience 
a mainly negative impact from the elimination of tariffs alone; but when tariff reductions 
are  combined  with  reductions  of  NTMs  costs,  the  impact  for  the  EU  is  broadly  neutral. 
This  indicates  that  Japan's  increased  presence  in  the  EU  motor  vehicle  market  would  be 
tempered by increased exports of EU motor vehicles to Japan.  

With 25% of global production, the EU is the largest motor vehicle producer in the world. 
Out of 78 million motor vehicles produced in 2010, 19.6 million were produced in the EU, 
compared  to  9.6  million  in  Japan.44  Import  penetration  in  the  motor  vehicle  market  in 
Japan is extremely low: in the passenger car market for example, only 7%, compared to 
28%  in  the  EU.  Nevertheless,  the  vast  majority  of  cars  exported  to  Japan  come  from 
Europe (almost 95%), and most are in the top price segment.  

The barriers encountered by the EU motor vehicle producers in Japan are mainly technical 
barriers to trade related to emission, safety and noise standards. These barriers cause extra 
conformity  assessment,  development  and  production  costs  for  EU  exporters  and  distort 
consumption of motor vehicles toward the domestic Japanese manufacturers who do not 
carry these costs. According to European motor vehicle exporters, NTMs in Japan result in 
an additional cost of 10% of the exported value of European motor vehicles sold in Japan. 
Expert studies estimate that the trade cost associated with these NTMs is equivalent to a 
tariff of 12.5%.  

On the other hand, while Japan has no tariffs applicable on imports of these products, the 
EU motor vehicles sector is protected by tariffs on imports from Japan around 8% (even 
though  these  top  rates  could  be  cut  in  half  by  a  successful  Doha  round).  Most  of  the 

44 

International Organisation of Motor Vehicle Manufacturers, 2010, available at: www.oica.net 

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studies referred to in this impact analysis estimated that the tariff component of an FTA 
with  Japan  would  have  a  negative  effect  on  the  output  of  the  European  automotive 
industries, with an increase in that of their Japanese counterparts.  

The Copenhagen Economics 2011 study estimated that the output of the motor vehicles is 
expected to expand by 2.5% in Japan in case of a conservative FTA and 3,4% in case of 
an ambitious FTA. But it also highlighted that in case of an ambitious FTA, where around 
half  of  the  costs  related  to  actionable  NTMs  would  have  been  tackled,  the  EU  motor 
vehicle  global  exports  would  increase  by  2%  (7%  in  case  of  symmetrical  reduction  of 
NTMs  costs),  while  bilateral  exports  would  increase  by  18%  to  25%)  and  output  would 
increase in the EU by up to 1%. In case of a conservative FTA, output of the EU motor 
vehicle industry would only slightly decrease (by 0.30%) or even remain stable (in case of 
symmetrical reduction of NTMs costs). If one were to consider, for reference purposes, a 
baseline  scenario  with  the  current  status  quo  in  respect  of  tariffs  (i.e.  where  the  Doha 
multilateral  negotiations  would  not  be  concluded  and  implemented),  an  FTA  (either 
conservative or ambitious) would, in comparison to that baseline, only lead to a moderate 
decrease in motor vehicle output (-0.9% to -0.6%). 

The impact on employment in the EU motor vehicle sector of an FTA would also be very 
limited,  (between  -0.40%  for  a  conservative,  asymmetric  FTA  and  -0,10%  for  an 
ambitious asymmetric FTA). 

5.4. Impact on small and medium enterprises (SMEs) 

SMEs should gain from an EU-Japan FTA on a number of levels. Japan is a key (the 4th) 
target market for European internationalised SMEs which also consider Japan as a strong 
launch  pad  and  testing  ground  for  the  Asian  market45.  The  public  consultation  clearly 
expressed the particular need of SMEs for greater advice and assistance on how to break 
into  export  markets,  and  into  Japan  in  particular.  An  FTA  between  the  EU  and  Japan 
would be an opportunity to strengthen existing cooperation and support programmes and 
create new programmes that focus on helping SMEs to increase their exports.  

The fixed costs of complying with regulations weigh against the SMEs more than against 
the larger firms. Therefore NTM cost reduction, increased regulatory cooperation between 
the  EU  and  Japan  as  well  as  further  convergence  towards  international  standards  would 
especially benefit SMEs, both in the EU and Japan.  

the 
A  study  contracted  by 
Internationalisation of SMEs (see footnote above) highlighted significant opportunities in 
Japan for EU SMEs in several sectors (chemical products, advanced engineering, luxury 
products, etc). 

the  European  Commission  on  Opportunities 

for 

Finally, SMEs are prominent in the sectors most benefiting from an EU-Japan FTA: SMEs 
make  up  more  than  50%  of  the  food  industry  enterprises  and  are  prominent  in  the 
electrical machinery sector.  

45 

EN 

SMEs" 
"Opportunities 
http://ec.europa.eu/enterprise/policies/sme/market-access/enterprise-europe-
network/intern_event_en.htm 

Internationalisation 

the 

for 

of 

August 

2011, 

41 

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5.5. Analysis of environmental impacts on the EU, Japan, and the world 

5.5.1. Introduction 

International  trade  and  economic  development  can  have  various  impacts  on  the 
environment.  This  section  examines  the  following  three  effects  of  trade  opening  on  the 
environment: 

The “scale effect”, that is the expansion of the economic activity through trade. 

The “composition effect” that arises from changes in production and consumption patterns 
triggered by tariff dismantling and reductions in the trade cost of NTMs.  

The “technique effect” that traces improvements in the emission efficiency of production 
induced by changes in the composition of inputs in the production process. 

It  is  the  combination  of  these  effects  that  determines  the  overall  impact  of  trade  on  the 
environment. The empirical results of studies that have examined the relationship between 
trade and the environment in the last few years are mixed.46 Perhaps the most interesting 
finding is that the income gains associated with increased trade are in principle sufficiently 
large  to  pay  for  the  necessary  costs  for  pollution  abatement  (i.e.  the  costs  of  additional 
measures and activities to negate any repercussions on the environment) and still leave an 
economic  surplus.  In  other  words,  by  combining  trade  with  environmental  reforms  one 
can find ways to raise consumption without compromising the natural environment.47  

It is also important to recognise that Japan accounted for only 3.3% of the EU’s exports 
and  4.7%  of  its  imports  in  2009.  In  consequence,  any  negative  environmental  effects 
resulting  from  even  an  ambitious  FTA  with  Japan  would  be  associated  with  what  is  in 
reality only a small part of the EU’s overall trade flows. 

The current EU and Japanese commitments to increase the share of renewable energy and 
to  decrease  overall  energy  consumption  are  ambitious.  Increased  economic  cooperation 
between  Japan  and  the  EU  should  facilitate  greater  cooperation  on  climate  protection  as 
well as on other environmental issues including biodiversity, natural resources and waste. 

A quantitative analysis of the effects of an FTA on climate and climate change through an 
analysis  of  CO2  emissions  is  conducted  in  5.2.2.  Assessments  of  the  environmental 
impacts  of  an  FTA  on  biodiversity,  natural  resources,  waste,  as  well  as  on  firms  and 
consumers, are included in section 5.2.3.  

5.5.2. Analysis of the impact of the policy options on the climate and climate change 
resulting from CO2 emissions 

This section analyses the possible impact of a reduction in trade barriers between the EU 
and Japan on climate change, measured here as changes in global CO2 emissions48 For the 
baseline  projection  of  CO2  emissions,  the  model  was  calibrated  to  the  medium-term 

46 

47 
48 

EN 

and 

Environment 

Trade 
Nordström 
http://www.wto.org/english/res_e/booksp_e/special_study_4_e.pdf. 
Idem at 4. 
This  presupposes  that  the  option  of  an  FTA  is  pursued  given  the  negligible  trade  benefit  effects 
expected from the baseline option will have correspondingly negligible effects. 

Vaughan 

Håkan 

Scott 

and 

by 

42 

   EN 

 
                                                 
projections from the IEA "World Energy Outlook" (2010), which is based on existing and 
operational  climate  change  policy  measures  –  including  the  emission  ceilings  under  the 
Kyoto Protocol, the EU emissions trading system (EU ETS) and other policy measures in 
the EU and in Japan – without assuming any further climate policy changes up to 2020. 
Both  the  EU  and  Japan  have  signed  up  to  the  Kyoto  Protocol  under  the  UNFCCC, 
pursuant to which both parties have ceilings on their CO2 emissions up to 2012 when the 
first  commitment  period  of  the  Protocol  expires.  The  EU  has  binding  domestic  legal 
ceilings  to  202049,  while  Japan  has  yet  to  adopt  binding  limits  beyond  2012.  The 
emissions  modelling  assumes  that  both  parties  will  in  fact  continue  to  implement 
commitments beyond 2012.  

Additional  production  in  these  economies  will  therefore  need  to  take  place  within  the 
existing  emission  ceilings  commitments,  through  a  combination  of  increased  emissions 
efficiency (energy-saving investments) and re-allocation of production from more to less 
emission-intensive  sectors.  It  may  also  lead  to  re-location  of  production  outside  the  EU 
and Japan (which may induce "leakage" of emissions). Within the energy intensive sectors 
covered by the EU ETS these re-allocations are driven by the emission price mechanism. 
For  sectors  outside  the  EU  ETS,  this  may  require  strengthening  of  climate  change 
regulatory policy measures. In Japan, it is assumed that the government will put in place 
the necessary measures to respect the emission ceiling commitments. As such, any scale 
effect (i.e. as a result of an increase in production) in the EU or Japan brought about by 
trade  opening  is  compensated  by  composition  and  technique  effects,  or  changes  in 
production patterns and production techniques. 

Outside the EU and Japan, emissions change mainly as a result of spill-over effects from 
the  lowering  of  NTMs,  trade  diversion  effects,  and  changes  in  production  patterns. 
Overall,  the  impact  on  global  emissions  is  close  to  zero  (+1.5m  tonnes  CO2).  The  main 
changes are expected in China (a reduction of 11m tonnes CO2 because of trade diversion) 
and ASEAN countries (an increase of 13m tonnes CO2 because of increased trade). 

5.5.3.  Assessment  of  the  potential  impact  of  the  policy  options  on  biodiversity, 
natural  resources  and  waste,  and  the  environmental  consequences  for  firms  and 
consumers 

Every  scenario  under  the  FTA  policy  option  increases  trade  and  thus  the  need  for 
resources for production50. This may increase waste and may pose dangers for both natural 
resources  and  the  preservation  of  biodiversity.  It  is  expected  that  the  negative  impact  of 
the  different  policy  options  on  waste,  biodiversity  and  natural  resources  would  be 
mitigated  to  some  extent  by  benefits  flowing  from  increased  trade  in  environmentally 
sustainable  goods  and  services,  and  increased  cooperation  between  the  two  partners.  An 
ambitious reduction of NTMs is expected to significantly improve trade in environmental 
goods and services. 

The  online  consultation  of  stakeholders  from  both  the  EU  and  Japan  indicated  that  an 
agreement  on  environmental  goods  and  services  (EGSA),  including  energy  efficient 

49 

50 

EN 

to 

Pursuant 
http://ec.europa.eu/clima/policies/package/index_en.htm 
This  presupposes  that  the  option  of  an  FTA  is  pursued  given  the  negligible  trade  benefit  effects 
expected from the baseline option will have correspondingly negligible effects. 

package: 

Climate 

Energy 

and 

the 

43 

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products,  would  be  an  effective  way  of  increasing  EU-Japan  cooperation  in  this  area.51 
Increased cooperation in this field should produce a shift towards sustainable production 
processes resulting in a tangible improvement of the environment, including a reduction of 
CO2 emissions.  

Clean  technologies  and  clean  industrial  processes,  energy  efficiency,  renewable  energy, 
water  and  waste  management,  a  new  generation  of  bio  fuels,  electric  vehicles,  and  ICT 
technologies, are all important areas for potential future cooperation in the context of EU-
Japan trade negotiations.  

For  example,  the  EU  has  invited  Japan,  as  a  major  timber  consuming  country,  to  join  it 
and  other  major  timber  consuming  countries  in  intensifying  policy  measures  against  the 
import of illegally harvested timber. A deeper trade agreement with Japan could provide 
further opportunities to develop a closer and more ambitious cooperation on illegal timber 
trade between the two partners.  

Another issue involving trade and the environment that might be fostered by an economic 
integration agreement is the economic valuation of biodiversity and ecosystems services, 
in  line  with  the  TEEB  report52.  A  better  understanding  of  the  economic  value  of 
biodiversity  and  of  ecosystem  services  will  promote  better  quantification  of  the 
environmental consequences of increased trade; and should lead to more effective policies 
for mitigating adverse environmental impacts and for protecting biodiversity.  

5.6. The social impact 

5.6.1. Overall increase of welfare for both the EU and Japan 

Increased trade between the EU and Japan would lead to an increased demand for labour, 
and raise the welfare of both parties. The greater the extent of liberalisation proposed in 
the various policy options, the greater are the welfare gains achieved.  

A conservative FTA  would  allow  for  an increase in EU GDP of 0.34%, i.e., in absolute 
numbers  an  increase  in  income  for  the  EU  of  €42  billion;  an  ambitious  FTA,  with 
symmetrical reductions of the cost of NTMs, would allow for increases by 1.9% and €320 
billion respectively. Welfare increases in Japan would also be significant, with an increase 
in Japan GDP of 0.27% to 0.67% in absolute numbers: between €5 b illion and €18 billion. 

Both the EU and Japan are expected to benefit from increases in the wages of both higher 
and lower skilled workers (between +0.3% and +1.8% in the EU and +0.4% and +0.8% in 
Japan) under each of the policy options, relative to the baseline scenario. Mutual benefits 
are  forecast  to  be  highest  in  the  event  of  concluding  an  ambitious  FTA  involving 
symmetric reductions of non-tariff barriers by both parties (+1.8% in the EU and +0.8% in 
Japan). 

51 

52 

Public  consultation  on  "The  future  of  EU  Japan  trade  and  economic  relations",  available  at: 
http://trade.ec.europa.eu/doclib/docs/2011/february/tradoc_147586.pdf 
"The Economics of Ecosystems and Biodiversity (TEEB) study is a major international initiative to 
draw  attention  to  the  global  economic  benefits  of  biodiversity,  to  highlight  the  growing  costs  of 
biodiversity  loss  and  ecosystem  degradation,  and  to  draw  together  expertise  from  the  fields  of 
science,  economics  and  policy 
forward",  See: 
http://www.teebweb.org/ 

to  enable  practical  actions  moving 

EN 

44 

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An analysis of the social impact of the different policy options also has to include effects 
on standards and rights related to job quality, social inclusion and protection of particular 
groups, gender equality, equal treatment and opportunities, non-discrimination, access to 
and  effects  on  social  protection,  health  and  educational  systems  as  well  as  public  health 
and  safety.  However,  the  social  impact  in  these  areas  of  an  FTA  between  developed 
countries  such  as  EU  and  Japan  in  these  areas  can  be  considered  as  broadly  neutral. 
However,  it  could  create  potential  synergies  vis-à-vis  third  countries.  Potential  positive 
social effects on health as well as mobility will be briefly analyzed in section 5.4. 

Even  though  trade  policies  may  be  considered  gender  neutral  by  design,  they  may  have 
gender effects. These effects, which will depend on which sectors are impacted, will also 
depend  on  the  economic  development  of  the  respective  countries.  As  in  other 
industrialised countries, Japan and the EU exhibit similar trends in the increased presence 
of women in higher education and in the labour market. Female employment rates in the 
EU  and  Japan  are  similar  (about  57-58%).  However,  the  gender  wage  gap  in  Japan  is 
almost twice that of the OECD average, and women's median income is two thirds of that 
received by their male counterparts53. The gender pay differences are related to the lack of 
women  in  supervisory  roles  and  women  being  underrepresented  in  management  track 
career positions ('sougou-shoku').  

At the same time, corporate culture is reportedly changing in Japan, due to greater trade 
and  investment  integration.  Many  highly  educated  Japanese  women  prefer  to  work  in 
foreign subsidiaries of multinational firms and there is some evidence that hiring practices 
of foreign firms have influenced those of local firms54. Gender equality was identified as 
an  important  goal  in  the  Action-Plan  for  EU-Japan  Cooperation.  An  FTA  should 
contribute to Japanese corporate culture further evolving towards gender equality. 

5.6.2. Sectoral analysis of the impact on employment 

In  the  EU,  for  both  lower  skilled  and  higher  skilled  workers  we  expect  a  substantial 
increase  in  jobs  (in  percentage  terms)  in  the  electrical  machinery  sector.  Under  the 
conservative  FTA  scenario  we  expect  jobs  in  this  sector  –  for  both  lower  and  higher 
skilled workers – to increase by about 3% in the case of asymmetric NTM cost reductions, 
and by more than 7% if the reductions in NTMs costs are symmetric. Under the ambitious 
FTA scenario, jobs are expected to increase by over 8% assuming asymmetric NTM cost 
reductions (no estimate is available for the change in employment under symmetric NTM 
cost reductions).  

We also expect small increases in jobs in 'agricultural, forestry, fisheries55', the processed 
food sector and the insurance and construction sectors, and a small reduction in jobs (in 
percentage terms) in the chemicals, motor vehicles, other transport equipment, metals and 
metal products, other manufactures, and air transport sectors.  

On  the  Japanese  side,  two  sectors  in  Japan  are  forecast  to  experience  large  percentage 
changes in employment. Under the conservative FTA scenario we expect jobs in the other 
machinery sector – for both lower and higher skilled workers – to increase by about 4.5% 

53 
54 
55 

Highlights Japan babies and bosses – Policies towards reconciling work and family life; OECD 
Trade and gender: issues and interactions; OECD 
The model did not allow for a breakdown between agriculture, forestry and fisheries 

EN 

45 

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the  asymmetric  and  symmetric  NTM  cost  reduction  assumptions). 
(under  both 
Employment in the chemicals sector – again, for both lower and higher skilled workers – 
is forecast to fall by more than 3%. Under the ambitious FTA scenario, employment in the 
other  machinery  sector  might  increase  by  as  much  as  10%,  while  employment  in  the 
chemicals sector might fall by more than 10%. 

For both lower skilled and higher skilled workers we expect a modest increase in jobs (in 
percentage  terms)  in  the  electrical  machinery,  motor  vehicles,  and  other  manufactures 
sectors;  and  modest  job  losses  (in  percentage  terms)  for  the  agricultural,  forestry, 
fisheries,  processed  foods,  metals  and  metal  products,  and  wood  and  paper  products 
sectors. 

Some European respondents to the public consultation feared an FTA could have negative 
effects  on  employment  in  the  EU,  in  particular  in  the  automotive  sector.  Such  potential 
effects  however  are  likely  to  be  mitigated  by  high  Japanese  FDI  in  the  EU,  and 
corresponding  job  creation,  in  Europe.  In  all,  3300  Japanese  companies  invested  €135 
billion in the EU in 2009, supporting 400,000 job opportunities. The Japanese automobile 
sector is a prime example. With 13 production plants in eight EU countries as well as 12 
research  centres  in  5  countries,  this  sector  alone  employs  136,000  persons  and  accounts 
for €21.5 billion of investment. 56. The Japanese industries responsible for this high rate of 
FDI  are  concerned  about  the  negative  impact  of  the  EU-Korea  FTA  on  their 
competitiveness, and argue that the agreement with Korea will undermine their ability to 
create or support jobs in Europe. The conclusion of an ambitious FTA would reduce the 
risk  of  diminishing  Japanese  FDI  in  Europe,  and  thus  contribute  to  the  protection  of 
employment in Europe. 

The  sectoral  analysis  done  under  5.3.3  also  highlighted  that  an  ambitious  FTA  which 
would reduce the cost of NTMs limiting the access to the Japanese market could allow for 
a significant increase (+25%) in EU motor vehicle exports to Japan. 

In Japan,  increased economic cooperation  should support employment in the  machinery, 
electrical  machinery,  and  motor  vehicle  sectors.  Employment  opportunities  would  also 
increase in the manufacturing sector. There may be a negative impact on employment in 
the food, chemicals, and agricultural sectors. 

5.7. Analysis of the impact on human rights 

Both  the  EU  and  Japan  are  committed  to  high  standards  of  protection  for  human  rights, 
and are signatories to all the main conventions. An EU-Japan FTA, exclusively focused on 
trade, will not have direct impact on these rights, as listed in the main UN conventions on 
human rights, the Charter of fundamental rights of the European Union and the European 
convention  on  human  rights.  It  is  also  expected  to  respect  fully  the  Charter  which  is  an 
integral part of the EU Treaties. 

An FTA between the EU and Japan would be accompanied by a framework agreement in 
which the parties commit themselves to respect and protect fundamental rights. The final 
report of the High Level Group process between the EU and Japan made specific mention 

56 

The Parliament Magazine, 7 March 2011. 

EN 

46 

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of a mutual commitment to promote human rights, and noted that both parties had decided 
to expand cooperation on human rights.  

An EU-Japan FTA is therefore expected to have a positive indirect effect on the right to 
enjoy the highest attainable standard of physical and mental health as consumers, both in 
the EU and Japan, would be able to profit from a wider choice in the supply of goods, for 
example, the latest technologies and treatments in the healthcare sector.  

Regulatory cooperation in a number of areas, including, for example, on the recognition of 
professional  qualifications,  and  on  the  validity  of  practice  permits,  could  also  have 
positive effects on rights such as the rights to work, free choice of employment, just and 
favourable  conditions  of  work,  protection  against  unemployment,  equal  pay  for  equal 
work, and the right to just and favourable remuneration. 

5.8. Impact on administrative costs and mutual simplification benefits 

Administrative  burden  (or  administrative  costs)  can  be  defined  as  the  costs  incurred  by 
enterprises  and  public  authorities  in  meeting  legal  obligations  to  provide  information  on 
their action or production, either to public authorities or to private parties. 

The  administrative  efforts  necessary  for  implementation  are  different  for  each  of  the 
policy  options.  The  baseline  scenario  does  not  require  or  assume  any  kind  of  additional 
administrative burden.  

The complexity of implementation depends mostly on the extent of elimination of the cost 
of NTMs. As a result, option B implies more complex procedures, especially for Japan. In 
the  EU,  the  conclusion  of  an  FTA  will  require  a  process  of  implementation  of  the  FTA 
provisions, including approval by the European Parliament. In Japan, a removal of NTMs 
– especially under the more ambitious scenarios of option B – will require a complex set 
of administrative and legislative procedures. 

However,  the  ambitious  scenarios  outlined  in  option  B  will  also  create  simplification 
benefits  and  reduce  administrative  costs  in  both  the  EU  and  Japan.  The  elimination  of 
NTMs,  and  cooperation  in  the  area  of  harmonizatio+n  of  standards,  can  greatly  reduce 
such administrative costs and create mutual benefits. 

5.9. Impact on the European Union's budget 

Entering  into  an  FTA  with  Japan  would  have  effects  on  the  budget  of  the  EU,  notably 
through  the  loss  of  own  resources  in  the  form  of  customs  duties.  The  loss  from  tariff 
revenue could be around Euro 1.9 billion, based only on the value of duty income in 2009. 
The actual figure is likely to be considerably lower, because this estimate does not factor 
in any possible benefits to the EU budget deriving from future gains in EU GDP. 

6. COMPARISON OF THE DIFFERENT POLICY OPTIONS 

This section links both the positive and negative impacts of each policy option explained 
in  chapter  5  directly  to  the  objectives  mentioned  in  chapter  3.  The  comparison  of  the 
different  policy  options  has  been  conducted  according  to  criteria  of  effectiveness  in 
achieving  the  operational  objectives,  efficiency,  and  coherence  with  overarching  EU 
policy  objectives.  The  analysis  has  taken  into  account  not  only  the  trade  and  economic 

EN 

47 

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impacts  of  each  alternative;  but  also  their  social  and  environmental  impacts,  as  well  as 
possible gains from simplification and synergy effects. Finally, the impacts of the different 
options  have  been  assessed  considering  the  background  of  past  and  potential  future 
conclusions of FTAs between the EU and third countries. 

As stated in section 3, the EU’s main operational objectives are: reducing and ultimately 
eliminating  tariffs  and  non-tariff  barriers  in  trade  in  goods  and  services;  removing 
regulatory  measures  that  pose  de  facto  barriers  for  EU  investment;  and  lowering  and 
ultimately  removing  trade  barriers  to  cross-border  public  procurement.  The  overarching 
policy goal of the EU is to capture the benefits of further trade liberalization in order to 
create  the  necessary  conditions  for  smart,  sustainable  and  inclusive  growth.57  Japan’s 
primary objective is the reduction and ultimately elimination of tariffs on industrial goods 
in  the  EU;  but  the  reduction  of  certain  NTMs,  and  enhanced  bilateral  cooperation  (for 
example in the areas of environment and energy) are also key Japanese objectives.  

6.1. Positive and negative effects of each option 

The baseline option does not achieve the operational objectives outlined above. The option 
calls  for  maintaining  and  increasing  the  efficiency  of  on-going  bilateral  economic 
cooperation programs such as the Regulatory Reform Dialogue and further cooperation in 
areas where agreements have already been signed. This continuing process of cooperation 
is projected to be a long-term commitment, and the reductions in tariffs or NTMs achieved 
are  expected  to  be  low.  The  efficiency  of  this  option  amounts  to  zero  given  that  its 
effectiveness in achieving the operational objectives can be considered to be zero or even 
potentially negative.  

This  is  due  to  the  fact  that  economic  cooperation  between  the  EU  and  Japan  must  be 
analyzed while taking into account the background of other FTA negotiations with third 
countries. As mentioned in section 4, examples of such negotiations include the recently 
concluded FTA between the EU and Korea, as well as the current negotiations with other 
trade partners such as Canada, India, Mercosur and ASEAN countries.  

In this context, the baseline option could effectively lead to a further overall reduction of 
bilateral  trade  between  the  EU  and  Japan.  Furthermore,  the  baseline  option  is  not 
consistent  with  overall  EU  policy  objectives  calling  for  further  trade  liberalization  as  an 
instrument of increasing economic growth.  

The baseline option will not have significant environmental or social effects, but neither 
side will be able to profit from synergy or simplification effects.  

The  second  option  calls  for  full-scale  FTA  negotiations,  with  different  degrees  of  trade 
liberalization  together  with  bilateral  cooperation  in  other  areas,  such  as  at  the  political 
level. The conservative scenarios for trade liberalization aim at the elimination of tariffs 
and a reduction of the costs NTMs by 20%. The more ambitious scenarios will lead to a 
reduction  of  the  costs  of  NTMs  by  50%.  These  scenarios  have  been  chosen  as 
corresponding to  the levels of  ambition appropriate for  conservative and ambitious FTA 

57 

See chapter 1 of Title V of the Treaty on European Union (TEU), in particular Article 21 paragraph 
2  (e), Article  206  (ex Article  131  TEC)  of  the  Treaty  on  the  Functioning of  the  European Union 
(TFEU), COM(2010) 2020 and COM(2010)612/4. 

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48 

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negotiations to allow a comparison of the trade related results that flow from them. Such 
reductions in the costs of trade, especially in the more substantial ambitious scenarios, is 
likely to allow both the EU and Japan to achieve considerable benefits deriving from trade 
liberalization. 

Such  benefits  include  increases  in  GDP,  increases  in  exports,  overall  increases  in 
employment,  increases  in  wages  for  both  semi-skilled  and  skilled  employees,  together 
with increases in competitiveness and an improved standing for both the EU and Japan in 
respect of other global competitors.  

This process of full-scale FTA negotiations will also allow both the EU and Japan to profit 
from synergy effects, for example in the area of trade-related environment issues through 
an exchange of expertise.  

The various options set out for negotiating a full-scale FTA may have potentially negative 
impacts  on  the  environment  arising  from  an  increase  in  trade  and  production.  However, 
overall  the  impact  on  global  emissions  is  close  to  zero  and  the  overall  environmental 
effects  will  be  limited  due  to  a  long-term  increase  in  trade  in  environmental  goods  and 
services as well as the possible synergy effects resulting from increased cooperation in this 
area.  Furthermore,  these  environmental  impacts  are  likely  to  be  contained  and 
accompanied by significant social gains linked to the increase in wealth and employment 
opportunities.  

Effects on human rights are likely to be indirect but positive, which is to be expected from 
partners sharing high commitments to these values.  

Finally,  the  EU  and  Japan  as  well  as  third  countries  will  be  able  to  profit  from 
simplification  effects  resulting  from  a  reduction  of  NTMs  in  both  countries,  which  will 
reduce the administrative costs when trading with the EU or Japan. 

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49 

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6.2. Summary of the effects of the different policy options in table form 

Criterion 

Policy Options 

Faster and more sustainable 
economic growth 

Improving labour opportunities 
and consumer and welfare gains 

Improving Europe's 
competitiveness in global 
markets 

Increasing the volume of 
bilateral trade in goods by 
reducing barriers 

Increasing the volume of 
bilateral trade in services by 
reducing barriers 

Increasing investment flows 
between the EU and Japan by 
reducing barriers 

Achieving access to the Japanese 
government procurement market 
comparable to that offered by the 
EU 
(Overall) Effectiveness  

Efficiency (Time and resources 
spent in relation to estimated 
effectiveness) 

Coherence with overarching EU 
policy objectives (for example, 
outlined in the EU 2020 
strategy) 
Ability to profit from synergy 
effects (for example, exchange 
of expertise) 

Gains from simplification effects 
(for example through a reduction 
of NTMs) 

A 
0 

0 

0 

0 

0 

0 

0 

0/- 

0/- 

0 

0 

0 

B1 
+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

B2 
++ 

+ 

+ 

++ 

+ 

+ 

+ 

+ 

+ 

+ 

++ 

++ 

+ 

+ 

B3 
++ 

++ 

++ 

++ 

++ 

++ 

++ 

B4 
+++ 

++ 

+++ 

+++ 

+++ 

++ 

++ 

++ 

+++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

+++ 

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50 

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6.3. Identification of a preferred option  

For the EU, the preferred option would be to enter into an FTA, provided that the scoping 
exercise can be assessed as giving positive results concerning the political will of Japan to 
tackle,  to  a  satisfactory  level,  the  key  areas  of  concern  to  the  EU,  notably  non-tariff 
measures,  government  procurement,  services  and  investment  and  tariffs,  and  as 
demonstrating an appropriate level of shared ambition concerning the agreement. 

Given that in any FTA negotiation Japan's primary objectives can be fulfilled to a much 
greater extent via tariff reductions, while the EU's objectives have broader ambitions, it is 
clear  that  the  EU  preference  for  a  comprehensive  FTA  is  heavily  dependent  on  Japan's 
willingness to tackle in negotiations those issues of concern to the EU. 

Thus, the European Council meeting of 25 March 2011, referred to the 'potential launch of 
negotiations for a free trade agreement on the basis that Japan is willing to tackle inter alia 
the issue of non tariff barriers and restrictions on public procurement'. 

The  conclusions  of  the  28  May  2011  Japan-EU  summit  equally  referred  to  the  possible 
negotiation of a deep and comprehensive Free Trade Agreement (FTA), which addressed 
all  issues  of  shared  interest  to  both  sides  including  tariffs,  non-tariff  measures,  services, 
investment, Intellectual Property Rights, competition and public procurement, on the basis 
of a successful scoping exercise. 

Subject  to  these  considerations,  the  preference  for  entering  into  an  FTA  becomes  clear 
when looking at the tabular presentation in Section 6.3. As illustrated in section 6.3 above, 
each of the different scenarios of option B would be preferable to the baseline scenario of 
Option A concerning the criteria of effectiveness, efficiency and coherence. Furthermore, 
each of the scenarios of option B would lead to more beneficial synergy and simplification 
effects than option A.  

When comparing the different scenarios of option B, the preferred scenario of the EU is 
that of an ambitious FTA. This is due to the fact that, as outlined in the analysis above and 
in  the  different  expert  studies58,  most  of  the  economic  gains  can  be  obtained  from  a 
reduction  of  NTMs.  A  higher  reduction  of  NTMs  facilitates  more  economic  growth  and 
thus leads to an increase in the resulting creation of job opportunities and welfare gains. 
Accordingly, the ambitious scenarios perform better when weighed against the criteria of 
effectiveness,  efficiency  and  coherence  mentioned  above  and  they  create  more  benefits 
from synergy and simplification effects. 

58 

See:  "Assessment  of  barriers  to  trade  and  investment  between  the  EU  and  Japan",  Copenhagen 
Economics,  2009,  or  "Economic  impact  assessment  of  an  FTA  between  the  EU  and  Japan", 
February 2011. 

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7. MONITORING AND EVALUATION:  

7.1. Core indicators of progress towards meeting the objectives 

General objectives 

Economic growth 

Creation of job opportunities and welfare gains 

Improving relative competitiveness of the EU 

Specific objectives 

Increase of bilateral trade in goods 

Increase of bilateral trade in services 

Increase of bilateral investment 

Increase  of  market  access,  especially  for  the  EU,  in 
the government procurement sector 
Operational objectives 
Elimination  of 
agricultural products 
Reduce NTMs concerning trade in goods 

industrial  goods  and 

tariffs  on 

Reduce NTMs and increase market access in trade in 
services 

Reduce NTMs concerning foreign direct investment 

Reduce  NTMs  and  increase  market  access  of  the 
Japanese government procurement market 

Indicators 

in  more  and 

- percent change in GDP 
- absolute change in national income 
-  percent  change 
employment 
- percent change in more and less skilled wages 
in  rankings 
placement  of  EU  member  states 
measuring  global  competitiveness,  such  as 
the 
"Global  Competitiveness  Report"  of  the  World 
Economic Forum 

less  skilled 

-  relative  and  absolute/percent  change  in  value  of 
bilateral exports and imports of goods by sector 
-  relative  and  absolute/percent  change  in  value  of 
bilateral exports and imports of services by sector 
-  relative  and  absolute/percent  change  of  bilateral 
investment flows 
Increase  of  number  of  tenders  secured  by  EU 
companies 

Japanese tariff schedules 

- convergence of standards/technical regulations 
- specific annexes  
- change in regulations/laws 
- increase of transparency/availability of information 
- business surveys 
- convergence of standards /technical regulations 
- change in regulations/laws 
- list of commitments and specific annexes 
- increase of transparency/availability of information 
- business surveys 
- convergence of standards/technical regulations 
- list of commitments and specific annexes 
- change in regulations/laws 
- increase of transparency/availability of information 
- business surveys  
- convergence of standards/technical regulations 
- change in regulations/laws 
- increase of transparency/availability of information 
- list of commitments and 
specific annex 
business surveys 

7.2. Monitoring and evaluation arrangements 

Monitoring requirements in respect of the specific objectives can be facilitated by short- 
and medium-term analysis of the measurable indicators mentioned above: changes in the 
relative value of bilateral exports and imports as well as the number of tenders secured by 

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52 

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EU  companies  in  Japan..  Concerning  the  operational  objectives,  the  same  is  valid  for 
monitoring of tariff reductions, as these become apparent in Japan's tariff schedules.  

A  more  complex  set  of  indicators  is  necessary  for  monitoring  reductions  in  the  cost  of 
NTMs. Convergence of standards and changes in regulations and law can be analyzed by 
gathering  information  on  the  legal  and  administrative  sources.  The  increase  of 
transparency  or  the  availability  of  information  as  well  as  the  general  perception  of  a 
reduction in the cost of NTMs could be analyzed by surveys among stakeholders operating 
in Japan. Such surveys could be combined, for example, with existing programmes such 
as  the  EU  Gateway  Programme  organizing  business  missions  to  Japan.59  However,  in 
order to obtain more extensive feedback, additional business surveys or surveys among the 
Japanese could be set up. 

In line with the commitments made in 2010 in Trade, Growth and World Affairs60, there 
will be a rigorous ex post evaluation of the effects of any fresh trade agreement concluded 
with Japan at an appropriate time interval after its implementation. 

59 
60 

See: http://www.eu-gateway.eu/ 
http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146955.pdf 

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53 

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ASEAN 

Association of Southeast Asian Nations 

Glossary of acronyms 

CGE 

CO2 

DDA 

DG 

Computable General Equilibrium 

Carbon Dioxide 

Doha Development Agenda 

Directorate-General 

EGSA 

Agreement on Environmental Goods and Services  

EPA 

ETS 

EU 

FDI 

FTA 

GATS 

GATT 

GDP 

IASG 

IEA 

IP 

IPR 

Economic Partnership Agreement 

Emissions Trading System 

European Union 

Foreign Direct Investment 

Free Trade Agreement 

General Agreement on Trade in Services 

General Agreement on Tariffs and Trade 

Gross Domestic Product 

Impact Assessment Steering Group 

International Energy Agency 

Intellectual Property 

Intellectual Property Rights 

JHLG 

Joint High Level Group 

MERCOSUR 

Mercado Común del Sur/Mercado Comum do Sul 

NTM 

NTM 

OECD 

SMEs 

TEC 

Non Tariff Measure 

Non Tariff Measure 

Organization for Economic Cooperation and Development 

Small and Medium Sized Enterprises 

Treaty establishing the European Community 

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54 

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TEEB 

TEU 

TFEU 

The Economics of Ecosystems and Biodiversity 

Treaty on European Union 

Treaty on the Functioning of the European Union  

UN-ECE 

United Nations Economic Commission for Europe 

UNFCCC 

United Nations Framework Convention on Climate Change 

US 

WTO 

United States 

World Trade Organization 

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ANNEX 1 

COMPLEMENTARY STUDY ASSESSING BARRIERS TO  
TRADE AND INVESTMENT BETWEEN THE EU AND JAPAN 

1.1 The study 

This  report  provides  an  updated,  CGE-based  integrated  assessment,  based  on  existing 
estimates of NTMs as reported in recent studies, for a range of scenarios. It examines both 
tariff  liberalization  and  liberalization  of  non-tariff  measures  (NTMs).  The  integrated 
update involves estimates of barriers from previous studies, but with more recent trade and 
production data. Given that the current level of tariffs in most sectors in both the EU and 
Japan  is  already  relatively  low,  reductions  of  non-tariff  barriers  is  an  important  issue  in 
defining scope for reducing barriers to commerce between the two economies.  

Non-Tariff Measures are defined as ‘all non-price and non-quantity restrictions on trade in 
goods,  services  and  investment,  at  federal  and  state  level’.  This  measure  thus  includes 
border measures (customs procedures, etc.) as well as behind-the border measures flowing 
from domestic laws, regulations and practices. However, regulations as a concept are not 
as  easily  removed  as  tariffs.  In  many  cases,  they  have  legitimate  purposes  and  in  some 
even  work  towards  facilitating  trade,  by  setting  common  rules  and  standards,  and 
enhancing  consumer  welfare,  by  protecting  against  health  and  safety  risks.  Meanwhile, 
some  rules  impose  higher  costs  on  foreign  producers  than  strictly  necessary  in  order  to 
comply with national standards and regulations. Since there are any number of underlying 
reasons  for  introducing  national  rules,  including  factors  such  as  geography,  language, 
preferences, culture or history, assuming that all NTMs and regulatory divergence can be 
aligned, is not very realistic. Thus, one has to acknowledge that a certain amount of trade 
costs related to those measures will always exist. This is the concept of ‘actionability’ as 
used in recent studies. 

1.2 Differences to previous studies 

The  report  also  reviews  existing  estimates  of  the  economy  wide  impact  of  trade 
liberalization between the EU and Japan. Concretely, three previous studies are analysed 
that  have  previously  looked  at  the  economy  wide  impact  of  trade  liberalization  between 
the EU and Japan: the Copenhagen Economics 2009 study, which focuses on the effects 
on the EU and Japan; the Ecorys 2009 study, which focuses on a number of other potential 
FTAs  as  well;  and  the  study  by  the  Swedish  National  Board  of  Trade,  which  includes 
separate calculations for the estimated effects on the Swedish economy. 

The  three  studies  differ  with  regards  to  underlying  assumptions,  sector  division  for  the 
CGE  model,  as  well  as  incorporated  trade  liberalization  scenarios.  While  the  Swedish 
study  assumes  that  only  tariffs  are  removed,  the  Ecorys  study  in  addition  assumes  a 
liberalization of services and some moderate lowering of trade costs. In the Copenhagen 
Economics study, the effects of a more substantial lowering of NTMs are also included. 
Although the studies differ somewhat across their set-ups, the sector impacts of a potential 
FTA between the EU and Japan are similar. The studies estimated negative effect on the 
output  of  the  European  automotive  industries,  with  a  corresponding  increase  in  their 
Japanese  counterparts.  Meanwhile,  the  studies  generally  estimate  the  effect  to  be  the 
opposite  effect  for  the  meat  industries,  i.e.  liberalizing  trade  is  expected  to  lead  to  an 

EN 

56 

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increase  the  output  of  European  meat  production,  while  their  corresponding  Japanese 
counterparts are expected to contract. One message that can be taken from these studies, 
collectively,  is  that  tariff  liberalization alone,  and  even  modest  NTM  reductions,  are  not 
going to bring substantive benefits to the EU. This requires ambitious NTM reductions on 
top of reductions in tariffs. 

In  contrast  to  existing  estimates,  in  the  complementary  study  there  is  an  integrated 
assessment  examining  both  tariff  liberalization  and  liberalization  of  NTMs  that  reflects 
possible  third-country  NTM  spillover  effects  (essentially  unintended  liberalization  vis-à-
vis third countries). It is based on this assessment that both the EU and Japan would gain 
from reducing barriers to trade. The decomposition of the different scenarios indicates that 
it is in fact this spill-over of the NTM reductions that is the primary driver in the estimated 
effects of the potential FTA. And since Japan is a smaller trading partner for the EU than 
the  EU  is  for  Japan,  the  non-discriminatory  NTM  reductions  imply  bigger  gains  for  the 
EU economy than for Japan. 

The integrated assessment  also  provides analysis of the impact of an FTA on social and 
sustainability indicators. In terms of the global profile of CO2 emissions for the EU (not 
analysed  in  earlier  studies  of  Japan-EU  liberalization),  Japan,  and  third  countries,  the 
estimated impact is negligible (approximately 0.1 to 0.07%) of global baseline emissions. 
Also, the effect on real wages is estimated to be relatively small (less than 0.7%) for both 
skilled and unskilled labour in both economies. 

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57 

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TABLE 1 OVERVIEW OF PREVIOUS STUDIES 

Study 

Incl. 
C’s 

Liberalization 
Scenarios 

EU, 
Japan 

Copenha
gen 
Economi
cs 

Ecorys 

NL, 
EU, 
Japan 

-Full bilateral 
tariff removal. 
-Two 
Scenarios, i.e. 
‘lower’ & 
‘upper’ bound 
regarding 
- reduction of 
NTMs  
-reduction of 
barriers on 
services trade. 

’Ambitious 
Scenario’ – 
Full bilateral 
tariff removal. 
-reduction of 
services 
barriers, 
-reduction of 
trade costs. 

Underlying 
Assumptions 
and Focus 

-Short and 
long run 
(2018) 
-ATC phase-
out,  
China in 
WTO,  
EU-10, 
-recent FTA 
agreements, 
-Estimation of 
country 
specific 
NTMs. 

ATC phase-
out,  
China in 
WTO,  
EU-10, 
-recent FTA 
agreements,  
-notional 2020 
economy. 

Swedish 
National 
Board of 
Trade 

Swed
en,  
EU, 
Japan 

-removal of 
tariffs. 

Short run 

Est. GDP 
Effects in 
Value and 
% 
EU:  
0.1-0.14% 

JAPAN: 
0.2-0.3% 

Most Affected 
Sectors 
(% change in 
output)  
EU: 
-Motor vehicles  
(-3%).  
+Transport services 
(1%) 

EU: 
(long run) 
€-14.000 
million/ 
-0.1% 

JAPAN 
(long run): 
€45,000 
million/ 
3.2% 

EU: 
-0.01% 

JAPAN: 
0.1% 

JAPAN: 
+Motor Vehicles 
(+12%) 
-Other Machinery  
(-6%) 

EU: 
+Meats (13%),  
Clothing,  
Textiles 
-Motor vehicles  
(-8%) 

JAPAN: 
+Motor Vehicles 
(53%), 
- Meats  
(-84.5%) 

EU: 
+ Pig & Poultry 
meat (3%),  
Iron & Steel prod 
(8%),  
-Motor Vehicles  
(-6%) 

JAPAN: 
+ Motor Vehicles 
(25%), 
-Meat (-18%), 
Textiles (-9%)  

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ANNEX 2 

MAIN ASPECTS OF THE CGE MODEL 

The  policy  assessment  uses  a  computable  general  equilibrium  model  (CGE)  of  global 
world  trade.  CGE  models  help  answering  what-if  questions  by  simulating  the  price, 
income  and  substitution  effects  in  equilibrium  on  markets  under  different  assumptions. 
The  “baseline”  for  the  model  is  the  equilibrium  before  the  policy  change,  and  the 
‘scenario’  is  the  equilibrium  after  the  policy  change.  The  effect  of  the  policy  change  is 
quantified as the difference between the two. 

1.1 The components of the model 

The CGE model employed is based on Francois, van Meijl, and van Tongeren (2005). The 
most important aspects of the model can be summarised as follows: 

– 

– 

– 

– 

it covers global world trade and production 

it allows for scale economies and imperfect competition 

it includes intermediate linkages between sectors 

it allows for trade to impact on capital stocks through investment effects 

In  the  model  there  is  a  single  representative  composite  household  in  each  region,  with 
expenditures allocated over personal consumption and savings. The composite household 
owns  endowments  of  the  factors  of  production  and  receives  income  by  selling  these 
factors  to  firms.  It  also  receives  income  from  tariff  revenue  and  rents  accruing  from 
import/export  quota  licenses.  Part  of  the  income  is  distributed  as  subsidy  payments  to 
some sectors, primarily in agriculture.  

Taxes  are  included  at  several  levels.  Production  taxes  are  placed  on  intermediate  or 
primary inputs, or on output. Tariffs are levied at the border. Additional internal taxes are 
placed  on  domestic  or  imported  intermediate  inputs,  and  may  be  applied  at  differential 
rates that discriminate against imports. Where relevant, taxes are also placed on exports, 
and on primary factor income. Finally, where relevant (as indicated by social accounting 
data)  taxes  are  placed  on  final  consumption,  and  can  be  applied  differentially  to 
consumption of domestic and imported goods. 

On the production side, in all sectors, firms employ domestic production factors (capital, 
labour  and  land)  and  intermediate  inputs  from  domestic  and  foreign  sources  to  produce 
outputs  in  the  most  cost-efficient  way  that  technology  allow.  Perfect  competition  is 
assumed in the agricultural sectors (but the processed food products sector is characterised 
by  increasing  returns  to  scale).  In  these  sectors,  products  from  different  regions  are 
assumed to be imperfect substitutes.  

Manufacturing sectors are modelled as involving imperfect or monopolistic competition. 
Monopolistic  competition  involves  scale  economies  that  are  internal  to  each  firm, 
depending  on  its  own  production  level.  An  important  property  of  the  monopolistic 
competition  model  is  that  increased  specialisation  at  intermediate  stages  of  production 

EN 

59 

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yields returns due to specialisation, where the sector as a whole becomes more productive 
the broader the range of specialised inputs. These gains spill over through two-way trade 
in specialised intermediate goods. With these ‘spillovers’, trade liberalisation can lead to 
global  scale  effects  related  to  specialisation.  Similar  gains  follow  from  consumer  good 
specialisation.  

While  the  model  covers  changes  in  gross  trade  flows,  it  does  not  model  changes  in  net 
international  capital  flows.  Rather  the  capital  market  closure  involves  fixed  net  capital 
inflows and outflows. This precludes the model from giving any indications of changes in 
international investment flows. 

1.2 Other features summarized  

The inclusion of scale economies and imperfect competition implies agglomeration effects 
like  those  emphasized  in  the  recent  economic  literature.  Potential  provisions  in  areas  of 
competition and regulatory policy are not explicitly taken into account. Regulatory policy 
is  implicitly  dealt  with  in  the  choice  of  the  different  degrees  of  NTM  reduction  in  the 
different scenarios. To the extent that anticompetitive practices are private practices which 
are  subject  to  regulation,  these  are  as  well  indirectly  implicated  in  the  choice  of  NTM 
reduction levels. This can be understood to make our approach conservative; if we were to 
factor  in  competition  provisions  (beyond  the  degree  implicated  by  the  current  choice  of 
NTM reduction levels), the gains would likely be higher. It is also worth noticing that the 
estimation of the impact of NTMs on trade costs originates from a business survey which 
focused  on  many  competition  aspects.  These  were  latter  incorporated  in  econometric 
models that estimated the NTM ad valorem equivalents used in the CGE model and that 
allowed the estimation of the effects of NTM reduction. 

The model gives short-run and long-run results. Long-run effects, which include those of 
the  short-run,  also  incorporate  further  effects  such  as  those  resulting  from  capital 
accumulation.  Thus  the  results  of  the  long-run,  dynamic  scenarios  involve  a  mix  of 
induced  investment,  and  also  productivity  effects  flowing  from  the  interaction  between 
investment and variety/specialization gains. As a rule of thumb, the long run can be taken 
to  represent  the  steady  state  some  10  years  after  the  FTA  implementation,  whereas  the 
short-run would represent the most immediate future, up to 5 years after implementation. 

In the model, sectors are linked through intermediate input coefficients (based on national 
social accounts data) as well as competition in primary factor markets. The model includes 
imperfect competition, short-run and long-run macroeconomic closure options, as well as 
the  standard  static,  perfect  competition,  Armington-type  of  model  as  a  subset.  It  also 
allows  alternative  labour  market  closures.  On  the  policy  side,  it  offers  the  option  to 
implement tariff reductions, export tax and subsidy reduction, trade quota expansion, input 
subsidies, output subsidies, and reductions in trade costs. International trade costs include 
shipping and logistic services (the source of fob-cif margins) but can also be modelled as 
Samuelson-type  deadweight  costs.  This  can  be  used  to  capture  higher  costs  when 
producing  for  export  markets,  due  to  regulatory  barriers  or  NTBs  that  do  not  generate 
rents (or where the rents are dissipated through rent-seeking).  

1.3 Data used for the baseline 

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60 

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The  model  runs  on  the  GTAP  database,  version 8. It provides the data for the empirical 
implementation  of  the  model.  The  database  is  the  most  up-to-date  source  of  internally 
consistent data on production, consumption and international trade by country and sector. 
The database for the model is benchmarked for 2007,then projected to 2020, and serves as 
baseline against all experiments. 

The GTAP data on protection incorporate the Macmaps data set, which includes a set of 
ad  valorem  equivalents  (AVEs)  of  border  protection  across  the  world.  The  source 
information  concerns  various  instruments,  such  as  specific  tariffs,  mixed  tariffs  and 
quotas,  which  cannot  be  directly  compared  or  summed.  In  order  to  be  of  use  in  a  CGE 
model, these were converted into an AVE per sector, per country and per trading partner.  

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1.4 Sector aggregation 

For the purpose of this study, the GTAP database is aggregated into 20 sectors, as shown 
in Table below. 

Sectors in the model 

Sectors 

Market structure 

Agriculture, forestry, fisheries 

Armington 

Other primary sectors 

Armington 

Processed foods 

Chemicals 

Monop Comp 

Monop Comp 

Electrical machinery 

Monop Comp 

Motor vehicles 

Armington 

Other transport equipment 

Armington 

Other machinery 

Monop Comp 

Metals and metal products 

Armington 

Wood and paper products 

Armington 

Other manufactures 

Monop Comp 

Water transport 

Air transport 

Finance 

Insurance 

Business services 

Communications 

Construction 

Personal services 

Other services 

Armington 

Armington 

Armington 

Armington 

Armington 

Armington 

Armington 

Armington 

Armington 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

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1.5 Market structure  

From  the  sectors  listed  in  Table  6.1,  industrial  sectors  and  most  service  sectors  (except 
public services, utilities, and transport) are specified with monopolistic competition while 
all other sectors have perfect competition. Econometrically-based substitution elasticities 
for  goods  originate  from  Ecorys  (2009)  while  elasticities  for  the  services  sectors  were 
obtained from Dee (2010).  

1.6 Country aggregation 

The country aggregation used for the model is presented in Table below.  

List of regions in the model 

Region name 

European Union 27 

United States 

Canada 

Mexico 

Japan 

Korea 

Other OECD 

China 

ASEAN 

Brazil 

India 

Russia 

Rest of World 

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NTM estimates61 

ANNEX 3 

While  trade  policy  makers  have  made  significant  progress  in  lowering  barriers  to 
international  trade  linked  to  tariffs,  the  policy  relevance  of  non-tariff  measures  (NTMs) 
has increased. The reason for the greater attention to NTMs is three-fold. First, as the level 
of  tariffs  has  decreased,  the  relative  importance  of  NTMs  has  increased.  In  addition, 
during this time, significant progress has been made in terms of quantifying the effects of 
NTMs, leading to a better understanding of the costs these barriers impose on the cost of 
doing business. And finally, there is some evidence of NTMs being used  as substitution 
for  the  tariffs  that  have  been  reduced.  Thus  in  this  study,  we  include  the  modeling  of 
lowering NTMs in addition to the lowering of tariffs.  In this subsection  we describe the 
process of obtaining the estimated NTMs employed in the analysis.  

The EC NTM project led by ECORYS (2009b) had the stated goal of trying to “shed light 
on  the  existence  of  nontariff  measures  (NTMs)  and  regulatory  divergence  at  the  sector 
level  of  EU-US  trade”.  Furthermore,  the  study  aimed  to  estimate  the  magnitude  of  this 
divergence  as  well  as  calculating  the  potential  economic  impacts  of  reducing  or 
harmonizing NTMs.  

The basis for the estimation of the impact of NTMs on cost in the study originates from a 
business survey, which incorporated firms originating in the EU, US and third countries, 
operating in the EU and/or US (the survey is further described below). The results from 
the  survey  were  incorporated  in  a  set  of  econometric  models,  using  the  Anderson  et  al 
methodology to estimate current levels of NTMs impacting on US-EU trade. The use of a 
gravity  model  allowed  for  calculation  of  ad  valorem  equivalents  of  NTMs.  These  were 
then  used  as  basis  for  further  analysis  with  a  Computable  General  Equilibrium  (CGE) 
model in order to estimate potential effects of lowering current levels on NTMs. 

The business survey was based on the following question: “Consider exporting to the US 
(EU),  keeping  in  mind  your  domestic  market.  If  0  represents  a  completely  ‘free  trade’ 
environment,  and  100  represents  an  entirely  closed  market  due  to  NTMs,  what  value 
between 0 – 100 would you use to describe the overall level of restrictiveness of the US 
(EU) market to you report product (service) in this sector?” 

Thus, the finished product of the business survey generated bilateral NTM index numbers 
(between 0 and 100) based on the answers from 5,500 companies, which then were cross-
checked against other indicators. These index numbers were then transformed into” levels 
of  trade  restrictions”  which  in  turn  were  used  as  inputs  to  gravity  regressions.  The 
coefficients  emerging  from  the  gravity  equation  estimates  were  then  used  to  infer  trade 
cost equivalents resulting from current levels of NTMs (using methodology presented in 
Anderson,  Bergstrand,  Eggers  and  Francois  (2009),  which  were  incorporated  into  the 
studies  as  basis  for  liberalizing  trade.  In  the  NTM  survey,  the  firms  were  also  asked 
whether  the  NTMs  had  a  discriminatory  element-  i.e.  whether  they  were  being  treated 
differently  in  the  market  place  than  domestic-  and  other  foreign  firms  operating  in  the 
third  market.  These  survey  answers  were  also  scaled  from  0-100,  where  50  meant  they 
were  treated  equally,  0  much  better  and  100  much  worse  than  their  international 

61 

Taken from the complementary study. 

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competitors. Using the same approach as above, ad valorem equivalents for third countries 
could be obtained as well. 

The subsequent study by Copenhagen Economic set out to estimate specific levels of EU-
Japanese  NTMs.  These  estimates  were  then  used  to  calculate  trade  cost  equivalents, 
expressing the cost impact on cross-border trade of the identified NTMs. The process of 
calculating levels of NTMs in manufacturing entailed a very similar process to that in the 
Ecorys  study  described above,  albeit here in a three stage process.  Step one  contained a 
complementing  business  survey  aimed  at  European  businesses  operating  in  Japan.  The 
two  subsequent  steps  were  based  on  gravity  modeling  (one  using  a  country  specific 
dummy  and  the  other  the  Ecorys  NTM  survey  index)  according  to  the  Anderson  et  al. 
(above) methodology.  

In  the  Copenhagen  Economics  business  survey,  business  managers  were  asked  to 
’quantify the costs of accessing the Japanese market in comparison to other markets’, with 
answers  ranging  from  1  (much  easier)  to  5  (much  more  difficult),  where  average 
restrictiveness  was  calculated  to  4.1.  This  input  was  then  fed  into  the  gravity  models, 
yielding trade cost equivalents for Japan. 

Actionability 

Non-Tariff Measures are defined as ‘all non-price and non-quantity restrictions on trade in 
goods,  services  and  investment,  at  federal  and  state  level’.  This  measure  thus  includes 
border measures (customs procedures, etc.) as well as behind-the border measures flowing 
from domestic laws, regulations and practices. 

However, regulations as a concept are not as easily removed as tariffs. In many cases, they 
have legitimate purposes and may even work towards facilitating trade by setting common 
rules and standards and enhancing consumer welfare, or by protecting against health and 
safety risks. Some rules may also impose higher costs on foreign producers than strictly 
necessary in order to comply with national standards and regulations.  

Since  there  are  any  number  of  underlying  reasons  for  national  regulations,  including 
factors  such  as  geography,  language,  preferences,  culture  or  history,  assuming  that  all 
NTMs and regulatory divergence can be aligned is not realistic. One has to acknowledge 
that a certain amount of trade costs related to those measures will always exist. This is the 
concept of ‘actionability’ as used in this study, and it has no legal connotation. 

Secondly,  the  internal  market  of  the  European  Union  provides  the  most  far-reaching 
attempt  to  date  to  reduce  trade  costs  by  harmonization  and  mutual  recognition  of 
regulations across EU member states. This implies that EU can be seen as a benchmark of 
what is achievable in terms of reduction in NTM-related trade costs. The estimated levels 
of current NTMs in EU-Japan are summarized in the tables 2 and 3for Japan and the EU 
respectively.  As  can  be  seen  from  the  Tables,  the  estimated  levels  of  NTMs  are  often 
higher  and  thus  more  important  than  tariffs.  This  is  true  even  for  the  more  protected 
industrial goods sectors. In addition, because they tend to involve deadweight costs rather 
than tariff revenues (meaning the trade costs are not collected as government revenue in 
the case of NTMs) the welfare costs are much higher than for a comparable tariff. 

TABLE 2 NTMS IN JAPAN 

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Source: ECORYS (2009) and Copenhagen Economics (2009). 

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TABLE 3 NTMS IN THE EU 

Source: ECORYS (2009) and Copenhagen Economics (2009). 

countries, while 35% of any reduction is strictly bilateral. 

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The current institutional framework 

ANNEX 4 

Japan and the EU conduct their relations by way of non-binding dialogue, notably by way 
of  ministerial  meetings  and  Government  level  yearly  Summits,  covering  both  trade  and 
political matters. A "Joint Declaration on Relations between the European Community and 
its Member States and Japan" was signed on 18 July 1991. In addition they have created 
informal "dialogues" in a number of areas 

At the 10th EU-Japan Summit held in Brussels in December 2001 a ten-year Action Plan, 
to  reinforce  EU-Japan  partnership  and  move  it  from  consultation  to  joint  action,  was 
adopted. 

One  of  the  four  objectives  of  the  Action  Plan  for  a  stronger  partnership  is  "the 
strengthening  of  the  Economic  and  Trade  Partnership"  in  bilateral  relations  and  on  the 
international  scene,  including  the  WTO.  Since  the  adoption  of  the  Action  Plan, 
opportunities  for  dialogue  and  exchange  of  ideas  with  the  Japanese  counterpart  have 
multiplied. 

Following the EU-Japan Summit in Tokyo, on 22 June 2004, Japan and the EU endorsed a 
Cooperation Framework aimed at promoting two-way investment via concrete actions in 
areas  such  as  establishment  of  new  regulations;  regulatory  transparency;  standards  and 
conformity assessment; facilitation of conditions for foreign residents. Additionally, they 
recognized  the  value  of  continuing  the  current  Intellectual  Property  Rights  dialogue, 
including  in  the  area  of  Geographical  Indications,  and  presented  a  joint  initiative  to 
promote  protection  and  encourage  enforcement  of  Intellectual  Property  Rights  in  Asia. 
They  also  noted  the  importance  of  continuing  the  cooperative  dialogue  on  government 
procurement and on Private Finance Initiatives and Public Private Partnerships. 

Another major feature of bilateral EU-Japan relations is the two-way Regulatory Reform 
Dialogue aimed at reducing the number of unnecessary and obstructive regulations which 
hamper  trade  and  foreign  investment.  Since  1995,  the  EU  and  Japan  have  participated 
actively in each other's regulatory reform efforts through dialogue and exchange of reform 
proposals. Over the last ten years, the EU has submitted a wide-range of regulatory reform 
proposals  aiming  at  improving  the  climate  for  doing  business  and  helping  increase 
economic growth in Japan.  

Since  1979  the  European  Commission  has  encouraged  European  enterprises'  efforts  to 
penetrate the Japanese market and given them concrete assistance through the EXPROM 
programme (Relex promotion programmes). 

Bilateral agreements 

Four important agreements have been finalized between the EU and Japan. 

1. 

The  EU-Japan  Mutual  Recognition  Agreement  which  entered  into  force  on  1 
January  2002,  permits  acceptance  of  conformity  assessment  conducted  in  one 
Party  according  to  the  regulations  of  the  other  in  four  product  areas 
terminal  equipment  and  radio  equipment,  electrical 
(telecommunications 
products,  Good  Laboratory  Practices  for  chemicals  and  Good  Manufacturing 
Practices for pharmaceutical), an important step in facilitating market access.  

EN 

68 

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2. 

3. 

3. 

An  Agreement  on  Co-operation  on  Anti-competitive  Activities  was  adopted  by 
the EU Council on 16 June 2003. This agreement should facilitate both trade and 
investment by securing a level-playing field between in- and outsiders.  

A Science and Technology Agreement between the EU and Japan was signed on 
30 November 2009.  

The  Agreement  on  Co-operation  and  Mutual  Administrative  Assistance 
(CCMAA) between the EU and Japan entered into force on 1 February 2008.  

Despite  the  degree  of  intensive  cooperation  and  dialogue  between  the  EU  and  Japan, 
concrete results have been minimal, with items remaining on the agenda, for example, of 
the  Regulatory  Reform  Dialogue,  without  any  change  of  substance  on  the  part  of  Japan 
since it was created. 

Likewise,  notwithstanding  Japanese  attempts  to  improve  the  investment  climate  for 
foreign investors in Japan, foreign direct investment has remained at lower levels than for 
any other OECD member country.  

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ANNEX 5 

Tables providing statistical information concerning aspects of Chapter 5 (Using 2020 baseline with Doha) 

Table 1. Percent change i 

n GDP 

For reference 

Tariff 

only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

GDP,  millions 
of 2007 euros 

0.06 
0.04 
-0.01 
-0.01 
-0.01 
0.01 
-0.02 
0.02 
0.01 
-0.01 
-0.01 
-0.03 
-0.02 

0.04
0.02
0.00
-0.01
0.00
0.02
-0.02
0.00
-0.01
-0.01
-0.01
-0.02
-0.02

0.34
0.27
0.00
-0.03
0.01
0.07
0.07
-0.05
0.02
0.00
-0.02
-0.02
-0.02

0.75
0.27
0.01
-0.04
0.01
0.04
0.20
-0.08
0.02
0.01
-0.03
0.00
-0.02

0.79
0.67
0.01
-0.07
0.02
0.15
0.20
-0.14
0.08
0.00
-0.05
-0.02
-0.04

1.88 
0.67 
0.02 
-0.08 
0.02 
0.08 
0.54 
-0.23 
0.06 
0.03 
-0.07 
0.02 
-0.03 

17,642,509
3,845,622
13,830,495
1,537,228
1,248,779
1,286,784
4,448,912
7,785,691
2,130,930
2,027,176
2,659,034
1,732,134
16,721,947

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

Table 2: Absolute change 

in national income (million euros 2007 prices) 

For reference 

Tariff 

only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

GDP,  millions 
of 2007 euros 

5,850 
612 
-851 
-122 
-80 
69 
0 
992 
-6 
-69 
-112 
-215 
-2,327 

4,651
167
-346
-69
-19
109
1
233
-106
-59
-63
-169
-1,712

42005.88
5069.03
1027.24
-138.75
113.33
498.05
2337.87
-564.67
984.26
125.98
-113.61
77.50
-901.88

92805.11
5137.41
1911.11
-64.19
188.60
233.11
6195.11
-1027.09
1209.74
420.40
-48.58
638.26
1391.80

99774.41
13172.69
3288.89
-262.24
316.64
1182.44
6532.01
-2263.17
2694.55
413.76
-217.91
420.20
145.01

319291.88 
18321.45 
7364.25 
-125.82 
658.85 
714.87 
21246.13 
-4973.53 
4356.91 
1606.79 
-97.56 
2412.45 
7821.33 

17,642,509
3,845,622
13,830,495
1,537,228
1,248,779
1,286,784
4,448,912
7,785,691
2,130,930
2,027,176
2,659,034
1,732,134
16,721,947

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

Table 3: Percent change ¡ 

n value of global exports by country f.o.b. 

For reference 

Tariff 

only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

exports, 
millions 
2007 euros 

of 

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

0.17 
2.64 
-0.02 
0.01 
-0.02 
-0.01 
-0.02 
0.01 
0.07 
0.00 
0.04 
0.02 
-0.02 

0.13
1.68
-0.01
0.00
-0.01
0.02
0.00
0.00
-0.02
-0.01
0.02
0.00
-0.02

2.72
3.88
0.34
0.07
0.06
0.41
0.26
0.03
0.01
0.22
0.29
0.25
0.32

2.84
7.29
0.57
0.08
0.07
0.64
0.38
0.08
-0.19
0.25
0.28
0.25
0.35

6.72 
7.39 
0.86 
0.17 
0.15 
1.02 
0.76 
0.04 
0.01 
0.57 
0.69 
0.61 
0.82 

5,334,549
720,175
1,516,441
405,837
304,036
435,022
1,280,238
2,672,273
1,155,211
282,030
355,136
391,408
3,079,555

1.20
3.84
0.22
0.03
0.02
0.26
0.14
0.04
-0.07
0.10
0.12
0.10
0.13

70 

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Table 4: Percent change 1 

n value of glob  al imports by country c.i.f. 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

For reference 

only: 
Tariff 
elimination 
without Doha 
0.18 
3.05 
-0.02 
0.01 
-0.02 
-0.01 
-0.02 
0.04 
0.08 
0.00 
0.03 
0.02 
-0.02 

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

Tariff 
elimination 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

0.13
1.94
-0.01
0.00
-0.01
0.02
0.00
0.02
-0.02
-0.01
0.01
0.00
-0.01

1.21
4.50
0.15
0.03
0.03
0.29
0.15
0.07
-0.09
0.12
0.09
0.10
0.11

2.76
4.54
0.23
0.07
0.06
0.47
0.26
0.06
0.01
0.27
0.21
0.24
0.28

2.87
8.57
0.39
0.07
0.08
0.71
0.40
0.12
-0.23
0.31
0.19
0.24
0.30

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

imports, 
millions of 

2007 euros 

5,611,441
684,535
2,307,464
424,079
274,773
425,569
1,196,472
2,116,003
1,027,592
235,166
478,482
413,598
3,515,771

Table 5: Percent change ¡ 

n value of global EU exports by sector f.o.b. 

For reference 

Tariff 

only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

exports, 
millions 
2007 euros 

of 

-0.24 
0.05 
3.27 
-0.10 
-0.25 
-0.87 
0.10 
-0.09 
0.00 
0.10 
0.51 
0.27 
0.06 
0.07 
0.08 
0.08 
0.04 
0.15 
0.06 
0.09 

-0.21
0.01
2.41
-0.02
-0.28
-0.40
0.02
-0.20
-0.02
0.07
0.21
0.18
0.03
0.04
0.04
0.04
0.02
0.08
0.03
0.05

-0.13
0.02
4.44
1.05
4.08
0.55
0.89
1.11
1.26
0.87
0.27
0.41
0.93
1.57
0.79
2.30
0.87
0.97
1.61
0.23

0.09
0.09
8.10
2.22
10.06
2.45
2.72
3.53
3.73
2.39
0.74
0.63
1.13
1.71
0.91
2.55
1.10
1.30
1.82
0.55

-0.02
0.02
7.56
2.70
10.94
1.99
2.13
3.07
3.18
2.10
0.34
0.76
2.27
3.93
1.93
5.82
2.15
2.33
4.07
0.50

0.56 
0.19 
17.13 
5.42 
26.76 
6.73 
6.73 
9.31 
9.43 
5.96 
1.46 
1.33 
2.80 
4.30 
2.21 
6.50 
2.75 
3.17 
4.59 
1.32 

311,630
151,788
446,015
704,094
153,252
624,427
166,916
825,372
336,098
235,562
386,563
43,569
74,628
63,253
58,354
337,260
31,055
32,158
70,258
282,297

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

EN 

71 

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Table 6: Percent change 1 

n value of global EU imports by sector c.i.f. 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

For reference 

only: 
Tariff 
elimination 
without Doha 
0.73 
0.02 
-0.13 
0.12 
0.10 
0.81 
0.68 
0.22 
-0.17 
0.05 
0.24 
0.07 
0.01 
-0.04 
-0.02 
-0.05 
-0.05 
-0.06 
-0.03 
-0.03 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

Tariff 
elimination 
with Doha 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

0.60
0.01
-0.12
0.08
0.08
0.44
0.44
0.24
-0.10
0.06
0.14
0.06
0.01
0.00
0.01
0.00
0.00
0.00
0.01
0.01

0.63
-0.02
3.30
1.35
-0.14
1.32
1.64
1.20
1.03
1.00
0.62
0.66
2.05
2.51
1.85
3.79
1.12
1.59
3.19
0.13

0.39
0.00
10.47
3.83
-0.24
2.98
3.77
3.04
3.15
2.85
1.26
0.79
2.25
2.71
2.05
3.89
1.25
1.74
3.38
0.29

0.67
-0.08
8.56
3.23
-0.44
2.65
3.47
2.66
2.72
2.42
1.38
1.54
5.10
6.38
4.66
9.71
2.84
4.03
8.12
0.32

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

imports, 
millions of 

2007 euros 

164,663
297,195
312,616
715,632
329,282
554,381
131,372
790,229
490,395
214,509
743,998
36,809
74,206
61,039
26,555
270,168
36,319
23,825
51,946
286,304

Table 7: Percent change i 

n value of global Japan exports by sector f.o 

.b. 

Option B: Conservative FTA 

Option B: Ambitious FTA 

Baseline 

For reference 

only: 
Tariff 
elimination 
without Doha 
4.26 
-0.05 
-1.58 
3.81 
2.14 
6.42 
6.06 
1.80 
-0.29 
-0.64 
2.45 
0.26 
-0.23 
-0.90 
-0.96 
-0.88 
-0.89 
-0.82 
-0.84 
-0.85 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

Tariff 
elimination 
with Doha 

Asymmetric 

Symmmetric 

Asymmetric 

Symmetric 

3.27
-0.06
-1.51
2.16
0.99
2.88
3.80
2.52
-0.18
-0.28
1.05
0.18
-0.13
-0.49
-0.54
-0.49
-0.51
-0.47
-0.48
-0.48

4.49
-0.02
-0.96
-1.10
4.91
3.98
11.56
8.64
2.20
0.85
4.45
0.39
0.61
1.41
0.37
1.22
0.39
0.66
0.47
0.17

4.64
0.12
-0.88
-1.16
5.57
3.92
11.83
8.52
2.30
0.98
4.57
0.60
0.76
1.48
0.45
1.24
0.49
0.65
0.52
0.26

6.39
-0.10
-0.18
-7.34
11.06
5.61
24.63
18.97
5.87
2.45
10.73
0.72
1.75
4.29
1.69
3.82
1.71
2.34
1.87
1.11

6.78 
0.22 
0.05 
-7.52 
12.91 
5.41 
25.44 
18.61 
6.14 
2.82 
11.12 
1.27 
2.15 
4.57 
1.94 
3.94 
2.00 
2.36 
2.03 
1.37 

exports, 
millions of 

2007 euros 

9,541
9,320
12,791
89,892
47,841
189,026
22,671
183,417
45,339
8,321
28,713
2,997
8,059
3,600
1,657
13,774
816
8,332
3,782
30,285

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Table 8: Percent change i 

n value of glob 

al Japan imports by sector ci 

.f. 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline c.i.f. 
imports, 
millions 
2007 euros 

of 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

-5.06 
0.02 
51.87 
0.77 
1.32 
3.52 
2.95 
1.05 
2.13 
1.77 
2.63 
0.33 
0.61 
1.13 
1.28 
1.38 
1.22 
1.33 
1.08 
1.18 

-4.30
0.03
36.04
0.62
0.78
1.76
1.73
0.17
1.33
1.11
1.17
0.20
0.35
0.64
0.71
0.77
0.70
0.74
0.61
0.67

-6.05
0.18
41.52
15.42
1.12
6.49
16.96
1.34
7.04
2.32
-0.42
0.36
1.69
0.61
1.95
8.78
0.88
2.21
3.79
-0.05

-6.10
0.23
41.83
15.96
0.57
7.12
17.13
1.54
7.11
2.39
-0.44
0.54
1.70
0.62
1.95
8.85
0.91
2.39
3.80
-0.06

-8.73
0.65
50.10
40.68
1.69
13.95
37.32
2.98
15.93
4.29
-3.37
0.61
3.70
0.65
3.93
21.81
1.25
4.51
8.75
-1.04

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

8,606
108,114
25,051
54,083
92,039
20,686
12,172
87,764
61,719
16,803
107,502
10,136
10,972
4,281
3,213
20,697
1,556
5,123
5,911
28,109

Table 9: Percent change i 

n volume of bilateral exports of EU by sector 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline f.o.b. 
exports, 
millions 
2007 euros 

of 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

17.95 
1.11 
276.40 
6.64 
1.12 
4.16 
3.43 
1.91 
8.41 
7.51 
63.69 
0.38 
0.58 
1.20 
1.34 
1.48 
1.33 
1.37 
1.17 
1.24 

10.72
0.69
170.10
4.55
0.51
2.05
1.94
0.47
5.94
5.70
22.20
0.22
0.33
0.65
0.73
0.81
0.73
0.75
0.64
0.68

9.14
0.80
183.24
22.21
16.26
10.59
22.76
5.62
15.42
8.52
19.97
0.88
2.25
0.95
2.34
9.33
1.48
2.67
4.45
0.18

5.76
1.31
202.20
51.75
20.76
18.10
47.26
7.60
25.13
11.12
15.55
0.93
4.73
1.27
4.74
22.18
2.07
4.41
9.91
-0.76

6.71 
1.21 
203.59 
52.63 
43.76 
24.56 
53.64 
13.79 
30.71 
12.89 
15.67 
1.86 
5.07 
1.37 
4.81 
23.21 
2.59 
5.60 
10.34 
-0.60 

488
155
5,243
10,160
1,199
7,664
1,183
7,706
2,900
2,056
5,390
3,684
2,366
2,076
1,622
6,728
296
2,510
1,054
4,073

8.77
0.83
182.58
21.90
8.12
8.22
20.62
3.27
13.37
7.80
19.83
0.50
2.09
0.87
2.27
8.93
1.23
2.17
4.25
0.08

73 

   EN 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
Table 10: Percent change 

in volume of Japan bilateral exports f.o.b. 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline f.o.b. 
exports, 
millions 
2007 euros 

of 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

29.00 
1.82 
61.31 
20.37 
19.38 
52.60 
34.64 
14.74 
14.03 
3.93 
21.62 
-0.85 
-0.89 
-1.21 
-1.34 
-1.24 
-1.27 
-1.10 
-1.19 
-1.19 

Table 11: Percent change 

in output in EU 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

0.14 
0.01 
0.85 
-0.15 
-0.30 
-1.08 
-0.19 
-0.16 
-0.08 
0.07 
0.00 
0.27 
0.02 
0.04 
0.05 
0.04 
0.04 
0.07 
0.04 
0.03 

16.87
1.67
30.74
12.57
10.13
22.24
19.86
12.69
9.15
3.75
11.36
-0.48
-0.52
-0.66
-0.73
-0.68
-0.69
-0.59
-0.65
-0.64

0.10
0.00
0.68
-0.06
-0.30
-0.52
-0.15
-0.23
-0.07
0.05
-0.01
0.18
0.01
0.03
0.03
0.03
0.03
0.06
0.03
0.02

18.40
1.51
36.67
9.73
13.77
24.64
31.07
20.69
13.93
5.94
16.38
1.04
2.47
2.63
1.85
4.01
1.42
1.69
3.60
0.25

17.91
1.55
47.95
12.16
13.00
25.79
33.26
21.13
16.58
7.69
17.02
1.06
2.62
2.81
2.03
3.93
1.46
1.63
3.73
0.39

20.79
1.09
45.80
3.45
19.41
28.22
50.38
34.37
21.57
9.20
25.73
3.36
7.04
7.67
5.73
11.32
4.61
5.20
10.22
1.55

19.42 
1.18 
76.26 
8.52 
17.47 
30.95 
56.64 
35.46 
28.58 
13.84 
27.67 
3.48 
7.55 
8.29 
6.35 
11.25 
4.84 
5.17 
10.69 
2.06 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

0.13
0.01
0.63
-0.27
3.46
-0.31
-0.10
0.12
-0.16
0.15
-0.10
0.34
-0.36
0.07
0.19
0.15
0.17
0.34
0.15
0.20

0.13
0.03
0.25
-1.40
8.25
0.05
0.15
0.59
-0.51
0.22
-0.10
0.63
-0.09
0.31
0.41
0.45
0.44
0.77
0.44
0.45

0.17
0.02
0.55
-0.52
9.33
0.03
-0.08
0.64
-0.30
0.32
-0.25
0.61
-0.93
0.14
0.43
0.32
0.39
0.78
0.33
0.48

0.15 
0.06 
-0.50 
-3.30 
21.75 
0.99 
0.52 
1.93 
-1.12 
0.50 
-0.27 
1.32 
-0.25 
0.75 
1.01 
1.11 
1.10 
1.93 
1.09 
1.12 

207
97
289
11,894
7,350
29,893
5,530
28,878
2,272
417
3,632
859
2,099
1,892
313
3,708
120
2,746
296
6,708

baseline 
value 
added 
shares, 
2020 

4.69
1.35
3.19
2.73
0.48
1.72
0.75
4.02
2.21
2.32
2.31
0.54
0.39
3.11
1.00
21.37
2.25
8.00
3.44
34.13

EN 

74 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
baseline 
value 
added 
shares, 
2020 

2.24
0.41
2.44
2.47
1.76
2.75
0.41
3.25
1.95
1.85
1.50
1.08
0.25
3.81
1.46
9.96
2.29
6.82
3.31
49.98

Table 12: Percent change 

in output in Japan 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

-0.93 
-0.08 
-3.66 
1.45 
0.54 
4.14 
2.72 
0.89 
0.20 
-0.31 
-0.32 
0.04 
-0.37 
0.06 
-0.09 
0.08 
0.04 
0.17 
-0.05 
0.03 

Table 13: Percent chanae in C02 emissions 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

0.01 
0.00 
0.01 
-0.01 
-0.01 
0.03 
0.03 
0.01 
-0.01 
0.00 
0.01 
-0.03 
-0.01 

-0.70
-0.05
-2.80
0.78
0.29
1.88
1.72
1.58
0.18
-0.23
-0.17
0.04
-0.22
0.04
-0.06
0.05
0.02
0.09
-0.03
0.01

0.01
0.00
0.00
0.01
0.00
0.02
-0.02
0.00
0.04
0.00
0.01
-0.01
-0.01

-0.72
0.07
-3.27
-3.47
1.62
2.52
0.75
5.21
-0.62
-0.39
0.81
0.45
-0.25
0.14
0.01
-0.13
0.09
0.25
0.00
0.13

-0.72
0.08
-3.30
-3.61
2.12
2.42
0.87
5.06
-0.63
-0.38
0.84
0.62
-0.17
0.15
0.01
-0.12
0.10
0.25
0.01
0.13

-0.75
0.25
-4.00
-11.04
3.79
3.43
0.83
11.50
-1.73
-0.64
2.71
1.10
-0.26
0.31
0.12
-0.41
0.21
0.51
0.07
0.32

-0.75 
0.30 
-4.07 
-11.44 
5.13 
3.14 
1.20 
11.09 
-1.76 
-0.63 
2.79 
1.54 
-0.03 
0.33 
0.14 
-0.40 
0.22 
0.53 
0.08 
0.33 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

0.02
0.00
-0.01
-0.13
0.02
0.05
0.34
-0.04
0.34
-0.01
-0.01
-0.03
-0.02

0.04
0.00
-0.04
-0.19
0.03
-0.22
1.01
-0.05
0.28
-0.01
0.01
-0.02
0.01

0.04
0.00
-0.05
-0.34
0.04
0.11
0.86
-0.11
0.88
-0.01
-0.03
-0.07
-0.03

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

EN 

75 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 14: Percent change in wages of the lower skilled 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

0.05 
0.24 
-0.01 
-0.02 
-0.01 
0.02 
-0.02 
0.02 
0.01 
-0.01 
-0.02 
-0.04 
-0.03 

Table 15: Percent change in wages of the higher skilled 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

European Union 
Japan 
United States 
Canada 
Mexico 
Korea 
Other high income 
China 
ASEAN 
Brazil 
India 
Russia 
ROW 

0.04 
0.28 
-0.01 
-0.01 
-0.01 
0.02 
-0.02 
0.02 
0.01 
-0.01 
-0.02 
-0.04 
-0.03 

0.04
0.14
0.00
-0.01
0.00
0.02
-0.02
0.00
-0.01
-0.01
-0.01
-0.02
-0.02

0.03
0.18
0.00
-0.01
0.00
0.02
-0.02
0.00
0.00
-0.01
-0.01
-0.02
-0.02

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

0.32
0.35
0.00
-0.02
0.01
0.06
0.07
-0.05
0.03
0.00
-0.03
-0.05
-0.03

0.68
0.35
0.01
-0.02
0.02
0.03
0.21
-0.08
0.04
0.01
-0.04
-0.05
-0.03

0.75
0.71
0.01
-0.04
0.03
0.13
0.21
-0.14
0.09
0.00
-0.06
-0.09
-0.04

1.71 
0.72 
0.02 
-0.04 
0.04 
0.05 
0.56 
-0.22 
0.10 
0.03 
-0.09 
-0.12 
-0.04 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

0.31
0.38
0.01
-0.02
0.01
0.07
0.07
-0.04
0.04
0.00
-0.02
-0.03
-0.02

0.70
0.39
0.02
-0.02
0.02
0.04
0.21
-0.07
0.05
0.02
-0.03
-0.02
-0.02

0.74
0.75
0.03
-0.04
0.04
0.15
0.21
-0.13
0.10
0.01
-0.04
-0.05
-0.03

1.78 
0.76 
0.05 
-0.04 
0.05 
0.08 
0.56 
-0.21 
0.13 
0.05 
-0.06 
-0.03 
-0.03 

EN 

76 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
Table 16: Percent change in employment of the lower skilled in EU by sector 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline 
employmen 
t shares 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

0.18 
0.02 
0.76 
-0.16 
-0.31 
-1.04 
-0.20 
-0.18 
-0.09 
0.04 
0.01 
0.20 
-0.01 
0.01 
0.02 
0.00 
0.00 
0.04 
0.01 
0.00 

0.13
0.00
0.61
-0.08
-0.30
-0.51
-0.16
-0.24
-0.08
0.02
-0.02
0.11
-0.01
0.00
0.01
-0.01
0.00
0.03
0.00
0.00

0.13
0.00
0.42
-0.45
3.05
-0.40
-0.18
0.00
-0.32
-0.03
-0.22
0.03
-0.53
-0.10
0.04
-0.11
-0.03
0.09
-0.04
0.04

0.07
0.00
-0.10
-1.74
7.28
-0.19
-0.05
0.32
-0.85
-0.17
-0.38
-0.02
-0.51
-0.06
0.11
-0.11
0.01
0.24
0.03
0.10

0.12
-0.01
0.14
-0.97
8.23
-0.24
-0.28
0.34
-0.68
-0.12
-0.55
-0.10
-1.31
-0.26
0.09
-0.28
-0.08
0.20
-0.11
0.09

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

6.12
0.50
3.98
3.01
0.55
2.71
1.29
5.52
3.47
3.17
3.55
0.53
0.54
2.50
0.94
9.98
1.61
10.02
2.59
37.42

Table 17: Percent change 

in employmei 

it of the higher skilled in EU t 

y sector 
Option B: Conservative FTA 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline 
employmen 
t shares 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

0.18 
0.02 
0.77 
-0.15 
-0.30 
-1.03 
-0.19 
-0.17 
-0.08 
0.06 
0.02 
0.21 
0.01 
0.02 
0.03 
0.01 
0.01 
0.05 
0.02 
0.02 

0.14
0.00
0.62
-0.07
-0.29
-0.50
-0.15
-0.22
-0.07
0.03
-0.01
0.13
0.00
0.01
0.02
0.01
0.01
0.04
0.01
0.01

0.13
0.00
0.43
-0.45
3.05
-0.39
-0.18
0.00
-0.31
-0.02
-0.21
0.04
-0.52
-0.09
0.05
-0.10
-0.02
0.10
-0.04
0.05

0.07
0.00
-0.12
-1.76
7.26
-0.21
-0.07
0.30
-0.87
-0.19
-0.40
-0.05
-0.53
-0.08
0.09
-0.13
-0.01
0.22
0.01
0.08

0.12
-0.01
0.15
-0.97
8.24
-0.23
-0.28
0.34
-0.68
-0.11
-0.54
-0.09
-1.30
-0.25
0.10
-0.28
-0.07
0.21
-0.11
0.10

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

0.55
0.31
1.77
2.40
0.44
1.48
0.70
4.59
1.60
1.62
1.43
0.27
0.28
4.07
1.53
16.30
2.60
4.38
4.22
49.44

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Table 18: Percent change in employment of the lower skilled in Japa 

n by sector 
Option B: Conservative FTA 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline 
employmen 
t shares 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

-1.23 
-0.15 
-3.61 
1.11 
0.36 
3.72 
2.46 
0.70 
0.04 
-0.42 
-0.47 
-0.11 
-0.45 
-0.10 
-0.17 
-0.06 
-0.10 
0.08 
-0.18 
-0.11 

-0.91
-0.09
-2.74
0.59
0.19
1.68
1.56
1.39
0.09
-0.30
-0.25
-0.05
-0.26
-0.06
-0.11
-0.03
-0.06
0.04
-0.11
-0.07

-0.98
0.02
-3.30
-3.42
1.26
2.14
0.35
4.59
-0.82
-0.55
0.48
0.15
-0.41
-0.11
-0.14
-0.32
-0.13
0.09
-0.21
-0.09

-0.98
0.04
-3.33
-3.55
1.71
2.04
0.46
4.45
-0.83
-0.55
0.50
0.30
-0.34
-0.11
-0.14
-0.32
-0.13
0.09
-0.21
-0.09

-1.11
0.18
-4.20
-10.56
2.99
2.75
-0.07
10.09
-2.12
-0.97
1.91
0.45
-0.64
-0.21
-0.20
-0.80
-0.26
0.18
-0.38
-0.14

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

2.15
0.12
2.03
2.25
1.85
3.10
0.53
3.74
2.14
1.89
1.85
1.20
0.34
2.63
1.62
8.96
1.88
8.95
2.75
50.04

Table 19: Percent change 

in employmei  it of the higher skilled in Japan by sector 

Option B: Conservative FTA 

Asymmetric 

Symmmetric 

Option B: Ambitious FTA 
Symmetric 

Asymmetric 

Baseline 
employmen 
t shares 

reference 
Tariff 

For 
only: 
elimination 
without Doha 

Tariff 
elimination 
with Doha 

Agr forestry fisheries 
Other primary sectors 
Processed foods 
Chemicals 
Electrical machinery 
Motor vehicles 
Other transport equipment 
Other machinery 
Metals and metal products 
Wood and paper products 
Other manufactures 
Water transport 
Air transport 
Finance 
Insurance 
Business services 
Communications 
Construction 
Personal services 
Other services 

-1.24 
-0.15 
-3.65 
1.06 
0.31 
3.67 
2.41 
0.65 
0.00 
-0.47 
-0.52 
-0.18 
-0.51 
-0.15 
-0.22 
-0.11 
-0.15 
0.03 
-0.23 
-0.16 

-0.92
-0.10
-2.77
0.55
0.15
1.64
1.53
1.36
0.05
-0.33
-0.29
-0.10
-0.31
-0.09
-0.14
-0.07
-0.10
0.00
-0.15
-0.11

-0.99
0.01
-3.33
-3.45
1.22
2.10
0.31
4.55
-0.86
-0.59
0.44
0.10
-0.46
-0.15
-0.18
-0.36
-0.17
0.05
-0.25
-0.13

-0.99
0.03
-3.36
-3.59
1.67
2.00
0.42
4.41
-0.87
-0.59
0.46
0.25
-0.39
-0.14
-0.18
-0.36
-0.17
0.05
-0.25
-0.13

-1.12
0.17
-4.24
-10.60
2.95
2.70
-0.12
10.04
-2.16
-1.02
1.86
0.39
-0.70
-0.25
-0.25
-0.84
-0.30
0.13
-0.43
-0.19

N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 

0.05
0.13
1.62
2.15
1.86
3.38
0.57
3.78
2.01
2.11
1.35
1.24
0.35
2.94
1.81
10.04
2.10
10.62
3.08
48.80

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ANNEX 6 

.

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EN 

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EU27-Japan Trade in goods 

EU27 Trade in services (excluding 'government services') 

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ANNEX 7 

DIRECTORATE GENERAL FOR TRADE 

EUROPEAN COMMISSION 

Brussels, 17 February 2011 

Summaries of contributions to the Public Consultation on: 
‘The future of EU Japan trade and economic relations’ 

This  document  does  not  present  the  official  position  of  DG  Trade  or  of  the  European 
Commission. It is designed to summarise the views of interested parties who gave comments 
on the future of EU Japan trade and economic relations. 

The suggestions in this document in no way prejudge either the nature or the form or content 
of any future action by the European Commission. 

1. 

INTRODUCTION 

At the 19th Japan-EU Summit of 28 April 2010, the EU and Japan decided to establish a joint 
High  Level  Group  (HLG)  to  identify  options  for  strengthening  all  aspects  of  Japan-EU 
relations – including trade and economic aspects.  

The purpose of this consultation was to gather views from all relevant stakeholders regarding 
the future EU-Japan trade and economic relationship.  

This report summarizes the responses received during the consultation. These responses will 
contribute to shaping the Commission's position ahead of the next EU-Japan Summit foreseen 
for spring 2011. 

2. 

THE PUBLIC CONSULTATION AND THE QUESTIONNAIRE 

The public consultation ran from 9 September to 5 November 2010. The exercise was open to 
all stakeholders, both within the EU and in third countries. An on-line questionnaire, hosted 
by  the  European  Union's  Europa  web  site,  was  open  to  all  stakeholders  interested.  The 
questionnaire  had  23  questions  covering  a  broad  range.  The  written  version  of  the  on-line 
consultation is to be found at: 

http://trade.ec.europa.eu/doclib/html/147585.htm 

In all, 87 exploitable answers were received from a wide range of respondents. Submissions 
came from the authorities of Japan and a from a number of EU Member States, representative 
organizations,  both  general  and  sectoral,  at  EU,  Japan  and  Member  State  level,  and  from 
private companies and other organizations.  

According to the stakeholders own self-classification, around 66% are from the private sector, 
7%  are  from  government  or  public  bodies,  and  around  27%  from  NGOs  and  others.  The 
classification was chosen by the respondents themselves and does not always correspond with 
the  usual  use  of  these  terms.  Considering  EU  subsidiaries  of  Japanese  corporations  as 
'Japanese'  and  representative  bodies  as  Japanese  or  EU  depending  on  the  interests  they 
represent  rather  than  their  location,  the  breakdown  was  of  66.6%  (58)  EU  respondents  and 
33.3% (29) Japanese respondents. 

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The full list of contributors can be found at: http://trade.ec.europa.eu/doclib/html/147583.htm 

The on-line consultation exercise made clear that all contributions would be published unless 
respondents  indicated  that  they  did  not  wish  their  contribution  to  be  made  public.  Those 
contributions which respondents intended to be available for publication can be found at: 

http://trade.ec.europa.eu/doclib/html/147584.htm 

3. 

EXECUTIVE SUMMARY AND CONCLUSION 

On the overall future nature of the economic relationship between the European Union 
and  Japan,  the  vast  majority  of  respondents  favour  strengthened  trade  ties.  Most  favour 
greater cooperation and economic integration by way of an agreement between the European 
Union  and  Japan  in  the  form  of  an  ambitious  FTA,  also  called  Economic  Integration 
Agreement.  Respondents  on  the  EU  side  enter  the  major  qualification  that,  before  entering 
into negotiations, the  Japanese  side  should show  goodwill  in  respect  of  making  progress  on 
existing trade barriers. 

On  the  EU-Japan  bilateral  economic,  trade  and  regulatory  dialogues,  views  vary  but 
include a widely perceived need to reinvigorate and streamline the process.  

On tariffs and non tariff measures (NTMs), EU respondents are concerned about standards, 
procedures,  testing  and  certification,  and  particularly  concerned  on  SPS  issues.  Both  the 
application of international standards and mutual recognition are put forward to alleviate the 
difficulties  in  this  field.  Respondents'  estimates  of  the  size  of  potential  increases  in  exports 
following the removal of NTMs varied, but in all cases were substantial. Cultural differences 
were recognized as creating additional hurdles, which could nonetheless usually be overcome 
with persistence and effort.  

On  tariffs,  certain  sectors  such  as  agriculture  (meat,  dairy,  food  and  drink)  and  leather  and 
sports  goods,  cited  concerns  but,  overall,  tariffs  are  minor  compared  to  NTMs.  Japanese 
respondents  are  concerned  about  Japanese  inward  investment  in  the  EU  and  the  potentially 
negative effects that the EU/Korea FTA will have. Japanese respondents cited the EU/Korea 
FTA as the main reason in favour of an EU/Japan FTA.  

On the Mutual Recognition Agreement, responses are varied but generally positive. Some 
respondents favour extension of the MRA to cover other sectors.  

On  customs  procedures,  border  enforcement  and  trade  facilitation,  respondents  support 
the moves already taken and favour increased EU/Japan cooperation to further simplify and 
accelerate customs procedures 

On Intellectual Property Rights, Japan is generally perceived as having relatively good IPR 
but  slow,  complicated  procedures  (patents  &  trade  marks),  comments  echoed  in  Japanese 
submissions  about  the  EU  system.  A  large  majority  of  respondents  favour  increased 
cooperation to protect innovation and sustain competitiveness.  

On  services,  many  examples  of  perceived  discriminatory  practices  are  cited  by  EU 
respondents.  Anti-competitive  practices  are  also  cited,  with  the  telecoms  sector  given  as  an 
example. On the means to achieve progress, some respondents consider that ongoing work on 
services in the WTO is an appropriate forum, i.e. to address these questions under the GATS, 
while others favour further bilateral cooperation and possible work within an FTA. 

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On investment, EU respondents express concerns about the difficulties of investing in Japan, 
citing  problems,  inter  alia,  of  corporate  governance,  anti-competitive  practices,  distribution 
chains  and  procurement.  The  low  level  of  FDI  in  Japan  is  perceived  as  a  direct  result  of 
dissuasive  policies.  Some  Japanese  respondents  echoed  the  need  for  change  in  the  business 
climate  in  Japan.  EU  respondents  hold  expectations  that  the  EU  should  act  to  change  this 
situation and encourage Japan to be more in line with international practice. 

On  public  procurement,  market  access  via  public  procurement  is  seen  as  the  key  aim  for 
EU-Japan  trade  relations  for  a  number  of  EU  respondents.  Complex  procedures,  an  overall 
lack  of  transparency  and  the  application  of  derogations  from  the  WTO  Government 
Procurement  Agreement  (e.g.  on  operational  safety  for  the  rail  sector)  are  cited  by  EU 
respondents as  the more  important  areas where  they want change.  EU respondents voice an 
expectation that the EU will ensure improvement in the current situation. 

On  competition,  EU  respondents  evince  some  scepticism  about  the  willingness  of  Japan  to 
ensure  a  'level  playing  field'.  EU  respondents  cite  difficulties  concerning  mergers,  anti-
competitive practices, and the de facto need to take a Japanese partner to tackle the business 
culture successfully. 

On  multilateral  cooperation,  respondents  remain  concerned  about  lack  of  progress  in  the 
DDA and call for a push by both the EU and Japan to secure an advantageous agreement, with 
greater cooperation between both sides. 

On  sustainability,  a  number  of  respondents  favour  greater  coordination  to  integrate 
sustainable development into trade and economic policies but with varying ideas on how to do 
so.  

On the environment the shared concerns in both the EU and Japan (of government, business 
and citizens) offer possibilities for cooperation and for common approaches to development 
of technology, etc. A number of respondents, both EU and Japanese, favour an agreement on 
environmental  goods  and  services.  Overall,  increased  cooperation  in  this  area  is  considered 
desirable.  

On  the  possible  effect  on  employment,  most  EU  respondents,  but  with  some  sectoral 
exceptions, most notably the rail and automobile sectors, consider an EU/Japan FTA would 
increase EU employment. Japanese respondents voice concerns about the EU/Korea FTA, and 
its effects on competitiveness for their industries.  

On  labour  and  the  environment,  responses  broadly  highlight  the  need  for  cooperation  in 
international bodies (ILO, WTO, G8, G20, etc). 

On  the  question  of  other  issues  (Question  23),  respondents  evoke  a  number  of  eclectic 
responses, including the need to develop foreign language skills, a regional cluster approach 
for business organizations, and the possibility that Japan accelerate the introduction of trams 
to open a market for EU producers. 

Conclusion 

The  consultation  exercise  has  provided  invaluable  results  concerning  the  views  of  the 
stakeholders  which  responded,  both  in  terms  of  overall  policy  options  and  in  respect  of  the 
detailed positions concerning a number of important sectors and issues.  

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As  such,  the  results  provide  a  wealth  of  information  to  illuminate  and  give  more  focussed 
impetus to the considerations of the EU side of the EU/Japan High Level Group, which was 
charged with examining the question of improving economic and trade relations between the 
EU and Japan at their 2009 annual Summit.  

4. 

RESPONSES TO THE QUESTIONNAIRE 

Priorities for a forward-looking trade relationship with Japan  

Question 1: What should be the objectives and priorities of the future EU- Japan trade and 
economic relationship? How should the EU pursue these objectives? 

The majority of respondents felt that the EU and Japan should strengthen their trade ties and 
cooperate further on global matters following changes in the global economy and trade flows. 
Although  cultural  differences  were  raised  in  submissions,  a  number  of  respondents  stressed 
the  common  values  and  mutual  interests  which  are  shared  between  the  EU  and  Japan.  In 
particular,  both  are  highly  developed  economies  with  a  strong  focus  on  technology. 
Approximately 80% of the respondents to this question and nearly all Japanese respondents 
call  for  closer  and  enhanced  cooperation  or  economic  integration  through  an  Economic 
Integration  Agreement  (EIA)  which  corresponds  to  an  ambitious  deep  and  balanced  Free 
Trade Agreement. Several respondents stated that an FTA between the EU and Japan should 
not be seen as a threat but rather as an opportunity, which, through a binding legal agreement, 
could  eliminate  the  many  existing  tariff  and  non-tariff  trade  barriers  (NTBs)  and  as  well  as 
contributing to the Europe 2020 goals. 

This  broadly  shared  conclusion  came  with  the  significant  qualification  that  the  majority  of 
European  respondents  considered  that,  before  entering  into  negotiations,  the  Japanese 
authorities  should  demonstrate  their  good  intentions  by  way  of  substantial  progress  on 
eliminating  existing  trade  barriers,  such  as  regulatory  and  behind  the  border  barriers, 
problems  with  mutual  recognition  and  transparent  access  to  public  procurement  and  lack  of 
harmonisation  of  standards,  which  were  all  considered  very  important.  Eliminating  these 
barriers  –  together  with  'red  tape'  –  offered  scope  for  a  more  open  and  understandable 
business  environment  where  EU  companies  would  have  better  market  access  and  could  be 
more competitive in the Japanese market.  

EU  respondents  from  the  agro-food,  dairy,  meat,  electronic  communication  services  sectors 
and chemical industries were clearly positive about strengthened bilateral cooperation which 
could  boost  export.  The  agro-food,  dairy  and  meat  sector  was  of  the  opinion  that  through 
removal of minimum import prices, the reduction of import tariffs for dairy products and the 
extension of tariff-rate quotas, EU exporters would be able to increase their market share. A 
respondent of the networked IT services mentioned that despite many entry hurdles the large 
size of the market is attractive for them. Some respondents also mentioned the importance of 
EU and Japan working together on high technology to capture a share of the growing global 
market.  

On  the  other  hand  the  EU  automotive  sector  did  not  expect  any  positive  effects  in  terms  of 
volume and growth for EU exports to Japan in the event of an EIA. A leading EU business 
federation  was  sceptical  about  Japan's  willingness  to  tackle  NTBs  and  Japanese  consumer 
attitudes.  They  advocated  the  creation  of  a  high-level  EU-Japan  Economic  Partnership 
Council to strengthen and deepen EU-Japan relations. 

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EU-Japan bilateral economic, trade and regulatory dialogues  

Question  2:  How  could  the  effectiveness  of  regulatory  and  trade  dialogue/cooperation 
between EU and Japan be improved?  

Respondents views diverged on the effectiveness of regulatory and trade dialogue/cooperation 
and  on  how  it  could  be  improved,  varying  from  a  perception  that  structures  are  broadly 
appropriate  and  do  not  need  to  be  extended  to  the  view  that  new  areas  of  cooperation  and 
initiatives are needed. On balance, the weight of responses is slightly toward the need for new 
incentives for cooperation in order to reinvigorate the process, which has so far only delivered 
limited commitments from the Japanese side. The main criticism from respondents was that 
the  dialogue  lacks  real  engagement  and  has  delivered  very  limited  concrete  results.  Several 
respondents  suggested  that  its  effectiveness  could  be  improved  by  involving  high  level 
political and business representatives in the preparation of meetings. The latter could assist by 
identification  of  issues  and  giving  feedback.  Several  replies  called  for  less  involvement  of 
officials in the existing dialogues. One business organisation suggested that the establishment 
of a comprehensive and well informed network could substantially improve the effectiveness 
of  dialogue.  Several  respondents  stressed  that  the  lack  of  tangible  results  is  related  to  the 
absence of binding mechanisms, noting for example, the lack of progress in EU-Japan High 
Level Transport Dialogue on the main issue of public procurement.  

Many  Japanese  respondents  called  for  a  wide  ranging  and  binding  EIA  /FTA  and  political 
leadership  to  tackle  the  vested  interests  that  currently  hamper  the  conclusion  of  binding 
regulatory  results.  In  this  respect,  European  respondents  called  first  and  foremost  for  the 
achievement of measurable targets within the EU-Japan Regulatory Dialogue before the EU 
embarks on an FTA; an alternative, suggested by a few EU business organisations, was for the 
establishment of a high level EU Japan Economic Partnership Council that could streamline 
the existing dialogues and cooperation. 

A number of respondents also referred to cooperation in international standards bodies such as 
UNECE  as  providing  appropriate  mechanisms  to  achieve  regulatory  convergence  on  certain 
standards. 

Question 3: Are there any priority sectors on which regulatory cooperation should focus? If 
yes, please explain, including specific areas or issues to be addressed. 

A large number of sectors on which regulatory cooperation should focus were put forward as 
"priority", reflecting the considerable number of responses by sectoral bodies promoting the 
interests of their own particular sector. This renders any conclusion about priorities difficult 
without further assessment. The main areas are covered below. 

Several respondents proposed that food and food safety (SPS) is a high priority, with a clear 
focus on removing both tariff barriers and NTBs. From an EU perspective, food safety issues 
needing to be addressed in this way included, amongst others: the use of food additives, either 
added  or  occurring  naturally,  the  ban  on  beef  exports  (BSE),  the  positive  list  for  maximum 
residue  levels  (MRL)  in  the  dairy  sector,  Japanese  requirements  for  listeria  monocytogenes 
and the use of gelatine for food products, for which the Japanese requirements are not in line 
with those of the World Health Organization. The general conclusion from the sector was that 
exports to Japan were burdened by food standards not in line with international standards with 
high conformity costs. 

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Cooperation  in  the  automotive  sector  was  also  called  for  by  both  European  and  Japanese 
respondents, with a particular focus on high technology and the need to work together in the 
relevant  international  bodies  such  as  UNECE  WP  29,  to  encourage  the  acceleration  of  the 
adoption  of  a  system  of  international  Whole  Vehicle  Type  Approval.  Furthermore  one 
European  automotive  sector  organisation  considered  the  UNECE  1958  Agreement,  with  its 
mutual recognition principle and approach, as being key for international harmonisation and 
Japan  should  be  encouraged,  in  the  long  term,  to  subscribe  to  this  approach.  It  was  also 
suggested that both parties should develop a strategy to promote the 'better regulation' agenda. 

Cooperation  on  renewable  energy/energy  efficiency  measures/high  technology  and 
innovation,  including  smart  grids  technology,  in  the  wider  context  of  climate  change  and 
carbon dioxide mitigation also figured prominently on the list of priorities. The development 
of such next-generation technologies  could be stimulated by  the creation of shared systems, 
standards and benchmarks between both parties.  

For pharmaceuticals and medical devices complex regulatory hurdles in Japan were noted 
by respondents. These included the lack of recognition of international standards for medical 
devices,  which  could  eliminate  costly  and  time  consuming  duplicate  inspections,  currently 
preventing easy market access. Japan's drug approval procedures are viewed as far too slow 
with safety measures not harmonised with international standards.  

EU respondents felt that regulatory cooperation in the area of Japanese public procurement 
practices should continue as current processes were too complex and opaque, benefitting local 
companies  to  the  detriment  of  EU  competitors.  The  rail  sector  was  cited  as  one  specific 
example. 

Other priority sectors, specific areas or issues mentioned included: high duties and tariff 
quotas  for  leather  goods/shoes;  the  need  for  simplification  of  pork  quotas;  the  complex 
regulatory  hurdles  in  the  chemical  sector;  IPR  issues;  life  science  and  healthcare; 
harmonisation and mutual recognition in the areas of consumer protection and safety; the ICT 
sector; and the need for regulatory dialogue on existing and upcoming regulations and a pro-
active  approach  to  tackling  barriers  by  binding  regulatory  guidelines,  which  should  take 
account of the views of business. 

Tariffs and non tariff measures (NTBs) 

Question 4a: Are you concerned about regulatory hurdles in your field of activity in Japan? If 
yes, please specify whether they arise from, including a short description of the barrier: 

a) 

b) 

c) 

d) 

e) 

f) 

Divergent standards 

Technical regulations 

Conformity  assessment  procedures  (including  technical  specifications,  texting  and 
certifications) 

SPS related barriers 

Others (please specify) 

If yes,how should the EU address these specific non tariff barriers with Japan? 

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The great majority of respondents stressed that they were concerned about regulatory hurdles 
in  their  field  of  activity.  Divergent  standards  and  technical  regulations  were  the  biggest 
concern,  followed  by  conformity  assessment  procedures,  including  technical  specifications, 
testing  and  certifications.  SPS  related  barriers  were  also  deemed  to  be  a  concern  by  a 
significant  number  of  respondents.  The  broad  sentiment  of  EU  respondents  was  that  Japan 
needed to demonstrate its goodwill by effectively addressing NTBs in the existing dialogues. 

Many  respondents  thought  the  EU  needed,  through  its  existing  dialogues,  to  promote  the 
acceptance by Japan of internationally recognised standards, thereby ensuring Japan refrained 
from maintaining, and creating new, NTBs, while also to strive towards mutual recognition of 
each others standards and conformity assessment procedures. Currently Japan does not accept 
EU standards on SPS, as a result requiring expensive additional tests which result in a heavy 
additional burden on foreign companies.  

respondents  explicitly  mentioned 

Several 
to 
language/communication, cultural problems, consumer attitudes and the lack of transparency 
in Japan compared to the mainstream international style of corporate governance. Addressing 
these behavioural differences was not considered an easy task and would require a long term 
perspective. 

that  major  NTB  problems 

related 

In addressing specific barriers respondents favoured the use of a wide variety of tools by the 
EU, from making better use of existing dialogues – where Japan could show its goodwill in 
tackling NTBs – to a more confrontational approach.  

Other specific comments not mentioned above included that:  

• 

• 

• 

• 

• 

• 

• 

Japan  and  the  EU  should  (mutually)  recognise  products  certified  under  similar 
product standards and harmonize regulations.  

The Commission and Member States should tackle NTMs by way of Market Access 
partnership/bilateral activities.  

SMEs  need  EU  support  and  the  EU  Gateway  Programme  to  Japan  was  highly 
appreciated.  

There  should  be  a  push  for  a  collaborative  approach  between  government  and 
industry  (including  relevant  specialists)  both  in  the  EU  and  Japan  with  a  view  to 
stimulating  changes 
in  areas  of  regulation,  market  policies  and  economic 
cooperation. 

On SPS, Japan should provide scientific evidence to support its position.  

The EU should enhance market potential for agricultural and agri-food exporters by 
negotiating  an  agreement  to  increase  list of  permitted  additives  through  its  existing 
dialogues and harmonisation of legislation with respect to food.  

On  public  procurement,  Japan  should  adopt  a  system  in  which  non  Japanese  firms 
would  be  authorized  to  participate  in  public  tenders,  the  EU  industry  should  be 
provided with a definition of operational safety requirements and the EU should not 
accept the removal of Japanese Rail from the Government Procurement Agreement 
without conditions.  

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• 

• 

On  automobiles,  it  was  suggested  that  EU  and  Japan  should  accelerate  the 
International Whole Vehicle Type approval and the EU should take steps to convince 
Japan that it should refrain from adopting new, unique, technical requirements.  

Regulatory  dialogue  is  a  good  tool  to  support  the  ongoing  international  regulatory 
reform discussions being conducted within the G20. 

Question  4b:  If  removed,  do  you  think  that  there  would  be  a  significant  increase  of  market 
access. If yes, could you estimate the market value of achieving better access? 

A large majority of respondents considered that the removal of tariff and non-tariff measures 
would result in a significant improvement in access to the Japanese market. Many respondents 
were  not  in  a  position  to  give  clear  estimates  of  the  increase  of  market  value.  A  few 
respondents  referred  to  the  Copenhagen  Economics  study  of  2010  (commissioned  by  the 
European  Commission),  which  suggested  that  by  removing  current  tariff  and  non-tariff 
measures EU exports to Japan could increase by more than 70%, with welfare gains for the 
EU of € 33 billion. Respondents from the EU ra ilway, the food and drink and the agricultural 
products  sectors  all  expected  significant  gains.  Other  respondents  from  individual  Member 
States mentioned relatively smaller amounts to be gained from increased market access for the 
leather and gelatine industries. One EU based Japanese car producer estimated a 10% increase 
of current sales of Japanese exports to the EU due to reduced EU duties. 

Question  5:  In  your  field  of  activity,  how  significant  would  the  remaining  barriers  be,  for 
instance  those  related  to  cultural  preferences  and  behavioural  patterns  (for  example  long-
term relationship in business) that cannot be easily changed by law on a scale of 1-10? 

A  significant  number  of  respondents  recognized  that  cultural  differences  influenced  the 
behaviour  of  consumers  and  the  way  of  doing  business  in  Japan.  The  extent  to  which  such 
differences  created  significant  barriers  was,  however,  not  overstressed  and  was  generally 
placed in a broader context. Of those respondents which graded the issue on a scale of 1 to 10, 
the  lowest  cited  was  2  and  the  highest  8.  Japanese  consumers  were  considered  rather 
conservative vis-à-vis new products. They also usually demand high quality and good after-
sales services (bearing additional costs) and often have strong preferences for traditional local 
food products.  

A few respondents, however, pointed to evolving consumer preferences, and to the possibility 
of  influencing  them  by  a  careful  and  patient  approach.  The  successes  of  IKEA,  Zara  and 
H&M in Japan were cited as examples. One respondent felt that the relative new ‘openness’ 
of  Japanese  consumers  is  creating  new  opportunities  for  the  export  of  EU  food  and  drink 
products  to  Japan.  The  conduct  of  business  is  also  strongly  related  to  behavioural  patterns, 
with  reliance,  trust  and  informal  contacts  considered  prerequisites  for  long-term  business 
relations. A respondent from the pharmaceutical sector mentioned that loyalty, patience and 
continuous cooperation are key elements for success in their sector.  

The inherent complexity of government procurement is considered to favour local suppliers. 
Moreover, it was felt that smooth communication is difficult with Japanese authorities. One 
EU  business  organisation  considered  that  a  change  of  societal  mindset  and  openness  rather 
than  a  legal  agreement  were  key  factors  in  addressing  cultural  and  behavioural  barriers  to 
doing business in Japan. 

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Question  6:  Are  you  concerned  by  tariffs  or  measures  of  equivalent  effect  in  your  field  of 
activity? If yes, do the tariffs affect your ability to export?  

Two-thirds  of  EU  respondents  to  the  question  were  concerned  by  tariffs  or  measures  of 
equivalent  effect  in  their  field  of  activity;  while  one-third  were  not.  The  overwhelming 
majority of Japanese respondents did express concerns.  

Many European respondents who explained their concerns in greater detail, complained about  

• 

• 

• 

the loss of market share (e.g. agricultural products),  

a risk  of  future  market loss where  market access derived  from  temporary  measures 
(e.g. the tobacco industry),  

Japan’s  import  duties  on  industrial  raw  materials  which  eventually  result  in  cost 
advantages  for  Japanese  operators  and  deprive  EU  operators  of  valuable  export 
possibilities.  

The  agricultural,  dairy  and  food  and  beverage  sectors  noted  that  they  would  profit  from 
further  liberalisation  of  trade  (decrease  of  import  tariffs  and  expansion  of  tariff-rate  quotas) 
between  the  parties.  Japanese  citizens  show  strong  interest  in  European  food  but  import 
tariffs, transport costs and red tape often make imports of these products into Japan expensive 
and  complex.  Of  specific  concern  in  the  meat  sector  is  the  minimum  import  price  system 
operated  by  the  Japanese  which  stimulates  exports  of  top  products  to  the  detriment  of  less 
expensive  products.  Duties  for  the  leather  sector  remain  high,  which  makes  the  Japanese 
market  unattractive  to  investors.  Furthermore,  sports  articles  were  mentioned  as  potential 
beneficiaries from tariff reductions.  

Whilst  some  respondents  were  concerned  by  tariffs  and  called  for  elimination  of  the 
remaining tariff barriers, their major concern remained NTMs. This was particularly the case 
of respondents from the chemical and pharmaceutical sectors. 

Most of the input from Japanese companies and business organisations points in the same 
direction.  Most  respondents  highlight  the  importance  of  inbound  Japanese  FDI  in  the  EU 
which  has  resulted  in  many  leading  Japanese  companies  operating  in  Europe  with 
corresponding  creation  of  employment  for  European  citizens.  Many  Japanese  respondents 
were  afraid  that  the  recently  signed  FTA  between  the  EU  and  Korea  would,  through 
comparatively  lower  tariffs  for  Korean  imports,  place  Japanese  companies  at  a  competitive 
disadvantages vis-à-vis their Korean counterparts. This development might ultimately lead to 
a decrease of Japanese investments and the scaling down of their production facilities, or even 
a retreat from the EU market. Japanese respondents considered that it was crucial to have an 
FTA in place to avoid such a scenario. 

Japanese  respondents  also  commented  that  some  specific  EU  tariffs  should  be  eliminated, 
such  as  those  on  passenger  cars  and  home  appliances,  certain  agrochemical  products,  parts 
and components. 

Mutual Recognition Agreement  

Question  7:  Do  you  consider  that  this  Agreement  has  been  successful  in  facilitating  market 
access  and  promoting  trade  between  the  EU  and  Japan  in  the  sectors  covered: 

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Ttelecommunicationss  terminal  and  radio  equipment,  Electrical  products,  Good  Laboratory 
Practices for chemicals and Good Manufacturing Practices for pharmaceuticals? 

This  question  received  a  number  of  varied  responses.  The  majority  of  these  respondents 
(including  one  Japanese  and  an  EU/Japanese  company)  considered  the  agreement  as  being 
successful in facilitating market access and promoting trade between the EU and Japan in all 
sectors which were mentioned. On the other hand, two EU business organisations and one EU 
company  were  broadly  negative  about  the  agreement;  one  respondent  (a  ministry  of  an  EU 
Member State) was negative about the electrical products and Good Laboratory Practices for 
chemicals sectors; and a technology company was negative about the scope of coverage for 
electrical equipment.  

Question 8: Should the scope of the agreement be extended to other sectors? If so, to which 
sectors? 

A  large  majority  of  responses  to  this  question  wanted  the  scope  of  the  agreement  to  be 
extended to other sectors. The sectors expressing major interest in extension of the scope of 
the agreement put forward a number of issues which included:  

• 

• 

• 

• 

food products /food additives,  

SPS issues (including meat and the animal heath sector),  

professional  qualifications  (universities  and  schools,  culture,  rules  in  the  field  of 
internal control and corporate responsibility), 

pharmaceuticals.  

Respondents  in  others  sectors  in  favour  of  extension  of  scope  included:  high  technology 
products,  toys  and  children  products,  cosmetics,  leather,  agricultural  products,  healthcare, 
whisky & EU spirit drinks with GIs and tests necessary for chemical registration. 

Some EU and Japanese respondents called for a better use of the existing MRAs by involving 
both governments in a review process, with a view to identifying ways to improve the use of 
the  current  agreement.  A  leading  EU  chemical  company  mentioned  the  need  for  greater 
mutual  recognition  of  tests  necessary  for  the  registration  of  products/substances.  A  leading 
pharmaceutical  company  called  for  regulatory  harmonization  and  extension  of  the  MRA,  to 
avoid  double  inspections  of  manufacturing  facilities,  and  for  the  establishment  of  more 
competitive pricing systems to promote innovation.  

In  the  area  of  professional  qualifications,  a  joint  EU/Japanese  company  suggested  the 
establishment of a program to develop procedures and management organisation models, with 
a view to improving business relationships. 

Customs procedures, border enforcement and trade facilitation 

Question 9: Should the EU increase cooperation with Japan with a view to further simplifying 
and accelerating customs procedures? If yes, what should be the EU priorities for the years to 
come? 

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A large majority of respondents favour increasing the cooperation between the EU and Japan, 
with a view to further simplifying and accelerating customs procedures.  

Equally, a large majority of respondents were positive about recent steps taken to simplify and 
facilitate  custom  procedures.  Particular  mention  was  made  of  the  cost-saving  mutual 
recognition  of  Authorised  Economic  Operators  (AEO)  and  the  secure  shipper  programme. 
These  were  welcomed  as  steps  forward,  which  should  be  followed  by  swift  implementation 
and  adequate  reviews  when  appropriate.  Many  respondents  also  saw  scope  for  enhanced 
cooperation  and  further  simplified  custom  procedures,  where  the  complex  administrative 
burden  for  businesses  (documentation  and  information)  could  be  substantially  reduced 
between  both  parties.  Thus  respondents  felt  that  the  EU  and  Japan  should  introduce 
transparent and equivalent customs classifications and procedures. It was noted that the agro-
food sector is hampered by complex border procedures (customs valuation, classification and 
clearance)  unnecessary  product  specific  custom  procedures  and  (SPS)  controls  and  testing 
requirements which impede trade and imposes costs and delays on food exporters.  

On the question of how to enhance cooperation between the EU and Japan, several Japanese 
respondents  called  for  better  and  more  efficient  cooperation  between  customs  authorities 
through  consultation  mechanisms  in  which  changes  in  the  respective  legislation  could  be 
discussed,  or  the  establishment  of  a  Joint  Customs  Committee  which  should  for  example 
involve ICT business organisations in the EU.  

Another  Japanese  respondent  called  for  the  creation  of  an  environment  for  customs 
procedures that is in accordance with the Customs Guideline on Advance Cargo Information. 
The classification of IT products appeared to be a major concern for several respondents. In 
this regard an EU respondent from the IT sector suggested that trade should be facilitated by 
introducing  a  system  of  advance  ruling  by  both  customs  authorities  prior  to  the  import  of 
goods  into  its  territory.  An  EU  business  organisation  called  for  more  action  to  counter  the 
import of counterfeit goods and for IPR right holders to be exempt from inspection of goods 
in  person,  proposing  instead  the  use  of  electronic  means.  A  few  EU  respondents  mentioned 
difficulties  encountered  for  imports  into  the  EU,  for  instance  discrepancy  of  views  with 
custom authorities about the definition of goods and the inconsistency in implementation of 
EU Member States' procedures. 

Protection of Intellectual Property Rights (IPR)  

Question 10: Are you concerned by problems of protection and enforcement of IPR in Japan 
in  your  field  of  activity?  If  yes,  please  explain,  including  specific  areas  or  issues  to  be 
addressed. 

Just  over  half  of  the  respondents  were  not  concerned  by  problems  of  protection  and 
enforcement of IPR in Japan in their field of activity. Of those who did raise concerns several 
called  for  increased  cooperation  and  improvement,  including  harmonization,  of  the  patent 
application  and  examination  system,  which  is  considered  far  too  lengthy.  The  current 
examination  period  of  6-10  years  should  be  substantially  reduced.  A  leading  EU 
pharmaceutical  company  mentioned  that  Japanese  Patent  Law  makes  strict  requirements 
regarding  disclosure  in  order  to  ensure  the  implementation  of  patents.  They  further 
complained  that  claims  by  the  complainant  are  not  sufficiently  heard  in  courts,  and  that  the 
Japanese  sub-classification  system  for  trademarks  is  rather  complex,  and  the  grounds  for 
refusal by the Japanese Trade Mark Office are difficult to understand for foreign applicants. 

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Furthermore, the practice concerning the co-existence of similar, pre-existing trade marks in 
Japan was raised as a cause for concern. 

On  the  other  hand,  a  Japanese  business  organisation  called  for  improvement  of  the  patent 
application  systems  in  the  EU;  the  European  Patent  Office  (EPO)  was  considered  as  being 
slow.  This  business  organisation  expressed  its  hope  that  the  Patent  Prosecution  Highway, 
launched  by  EPO  and  its  Japanese  counterpart,  will  reduce  examination  times,  improve 
examination quality and ensure the stability of rights which can be obtained. 

A few EU business organisations mentioned the importance they attach to design protection 
(even  before  the  official  registration).  However,  the  procedures  for  applying  IPR  protection 
for  their  designs  were  viewed  as  being  too  complex  and  expensive  and  it  was  felt  that  EU 
companies do not enjoy the same level of protection as in the EU and other markets. An EU 
government respondent argued for the longer protection for certain drugs: the current limit of 
8 years should be extended by an additional year. A respondent from the audiovisual sector 
pleaded  strongly  for  action  to  address  piracy  issues.  The  needs  of  right  holders  must  be 
addressed in order to maintain high levels of investment in the production of original content, 
as well as the level of employment. 

Some  respondents  underlined  the  need  to  protect  and  enforce  IPR  across  the  EU  and  in 
'BRICs' countries in order to remain competitive in global markets. In this respect a joint EU- 
Japan Legal Defence Force could act together in areas of chemicals, fashion and design. 

Question  11:  Should  the  EU  increase  cooperation  with  Japan  with  a  view  to  improving  the 
protection and enforcement of certain intellectual property rights? If yes, what should be the 
EU priorities for the years to come? 

A large majority responded that the EU should increase its cooperation with Japan to protect 
innovative capacity and maintaining competitiveness. The priorities identified for the years to 
come included strong and effective cooperation on patents and a new common international 
framework for IPR enforcement and protection in third countries ('BRIC'). Implementation of 
the recently concluded ACTA agreements was mentioned by several respondents as a tool for 
cooperation in the fight against global counterfeiting, IPR infringements and piracy.  

Since  at  national  levels  both  the  EU  and  Japan  have  similar  system  for  protection  and 
enforcement  of  IPR,  they  should  aim  for  the  adoption  of  the  highest  standards  in  their 
domestic  legislation.  EU  business  organisations  called  for  a  specific  EU-Japan  agreement 
which should cover identical protection for IP right-owners in both markets, the guarantee of 
mutual recognition of GIs, copyrights and patent protection and licensing systems. Moreover, 
they  call  for  the  creation  of  common  rules  and  principles  for  penalties  applying  to 
counterfeiting and patent infringements on the Internet and mobile auction sites, the fostering 
of an enhanced cooperation between patent offices, and the establishment of improvements to 
the functioning of the Patent Cooperation Treaty.  

One  business  organisation  from  the  ICT  sector  was  concerned  about  counterfeiting  and 
security problems related to ICT products. An EU producers' organization called for a strong 
policy against piracy through a whole range of measures such as raising awareness, enhancing 
cooperation and increasing responsibility of Internet Service providers, as well as through the 
creation of new business models.  

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Japanese  business  organisations  broadly  shared  the  same  priorities  but  thought  in  addition 
that: 

• 

• 

• 

the  EU  should  review  its  private  copying  system  in  the  light  of  progress  made  in 
digital rights management technologies (DRM),  

a single language and window system for patent applications should be introduced; 
and, 

both  parties  should  mutually  recognize  patents  and  conduct  faster  patent 
examinations, and improve methods for copyright utilization and levy reduction and 
elimination.  

Trade in services 

Question 12: Are you concerned by barriers to trade in services in your field of activity? If 
yes, which ones? Please clarify whether:  

a) 

b) 

c) 

d) 

They  affect  your  ability  to  establish  physical  outlets  in  the  country  and  supply 
services through these outlets 

They discriminate in favour of domestic service suppliers 

They affect the price of the services you provide  

They have other restrictive impacts (please specify) 

Responses to this question were almost equally divided between 'yes' and 'no'. Most of the EU 
respondents concerned by barriers to trade in their field of activity felt discriminated against 
in  favour  of  domestic  service  suppliers.  Providing  services  in  Japan  were  seen  as  generally 
fraught  with  restrictions,  inefficiencies,  delays  and  procedures.  Local  authorities  were 
considered  as  imposing  further  procedures  and/or  their  own  interpretation  of  regulations. 
Discriminatory  rules  vis-à-vis  foreigners  and/or  the  preferential  treatment  of  local  service 
providers  were  perceived  as  in  being  in  breach  of  WTO  commitments  under  the  General 
Agreement on Trade in Services (GATS). Attractive markets  such as the Japanese telecoms 
market  were  seen  as  remaining  closed  to  EU  investors  because  of  the  anti-competitive 
behaviour  of  dominant  players.  For  electronic  communications  services,  the  key  areas  of 
concern  were  the  definition  of  electronic  communication  services,  the  inclusion  of  virtual 
private  networks,  and  the  independence  of  the  regulator.  The  air  services  sector  was 
considered to be heavily regulated with more liberalisation required. 

Examples of discriminatory behaviour cited included: 

• 

• 

Japanese  law  firms  control  access  to  their  organisations  and  have  in  the  past 
obstructed or delayed applications to them, restricting the provision of legal services; 

Opening  of  retail  outlets  by  foreign  companies  is  discouraged  by  local  authority 
regulations  as  far  as  possible.  Opportunities  to  streamline  the  Large  Scale  Retail 
Location  Law,  together  with  the  Building  Permit  and  Environmental  Impact 
Assessment  procedures  have  not  been  taken.  As  a  result  local  governments  had 

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imposed  their  own  procedures,  adding  to  investment  costs  and  increasing 
uncertainties and risks for foreign companies; 

A technology company  raised  the need to provide all  promotional material in clear 
Japanese with concrete examples following all rules and restrictions; 

A few Japanese companies control the distribution channels, so that working closely 
together with a local operator is a prerequisite for success; 

Japan Post, which is also the biggest bank and life-insurance company, controls 40% 
of the market and receives a wide range of advantages; 

• 

• 

• 

Among  barriers  that  have  other  restrictive  impacts,  an  EU  business  organisation  referred  to 
the  problems  service  providers  encounter  in  obtaining  work  permits.  These  administrative 
burdens impose substantial limitations on the timely delivery of the right services by the most 
qualified  staff,  with  potential  loss  of  market  share.  Furthermore,  it  is  not  possible  to  offer 
export  services  in  Japan  without  a  physical  presence  in  the  country.  A  Japanese  business 
organisation  mentioned,  with  regard  to  this  barrier, that the Personal Information Protection 
Law  is  not  recognised  as  equivalent  to  the  EU  Directive  on  protection  of  personal  data. 
Therefore  companies  operating  in  the  EU  and  Japan  have  to  comply  with  both  sets  of  laws 
and regulations or refrain from sending personal data from the EU to Japan. 

Question 13: How should the EU address these restrictions to trade in services with Japan? 

Several EU respondents wanted to address the barriers to trade in services within the existing 
multilateral WTO negotiations, insisting that Japan should adhere to its GATS commitments. 
An  EU  business  organisation,  recognizing  that  Japan  had  made  a  revised  offer  in  the  Doha 
Services  negotiations,  considered  that  Japan  was  willing  to  make  more  ambitious 
commitments.  Other  respondents  incited  the  EU  to  exercise  pressure  in  the  various  existing 
dialogues, or through a free trade agreement. One EU Member State respondent made it clear 
that  any  further  integration  of  the  two  economies  was  bound  to  include  progress  in  the 
services sector. 

Finally, a few EU respondents offered practical ways to address restrictions, for example by:  

• 

• 

• 

promoting English language skills;  

increasing EU knowledge of Japanese consumer attitudes and preferences;  

providing  EU  companies  interested  in  investing  in  Japan  (and  in  particular  SMEs) 
with market opening advice and assistance.  

Investment  

Question 14a: Are you concerned by barriers to direct investment in your field of activity? If 
yes, what are the barriers to investment?  

A majority of respondents indicated concerns about barriers to direct investment in their field 
of activity. 

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Many EU respondents raised the Japanese way of doing business, with its style of corporate 
governance  substantially  divergent  from  international  standards,  language  barriers,  and  in 
particular the absence of any substantial encouragement for foreign investors. EU respondents 
cited  anti-competitive  behaviour  by  dominant  players,  strict  employment  regulations  and 
competition  rules,  a  high  overall  cost  structure  for  market  entry/exit  and  exclusive  buyer-
supplier  networks,  as  among  the  factors  hindering  FDI.  EU  respondents  were  critical  of  a 
business  culture  with  so  many  institutional  as  well  as  informal  barriers,  e.g.  excessive 
administrative  and  regulatory  practices  and  policies,  applying  to  investment,  foreign 
takeovers,  mergers  and  acquisitions,  and  concerning  public  procurement.  The  low  level  of 
inbound FDI was seen as the direct result of a de facto policy to discourage foreign investors. 

EU  respondents  mentioned  a  number  of  other  barriers,  such  as  high  establishment  costs, 
derived in part from the strict application of rules for inward investors, as compared to their 
Japanese  competitors.  One  Member  State  thought  that  an  important  formal  restriction  is  the 
high number of sectors which are subject to national scrutiny and which require notification. 
An EU business organisation called for either the negotiation of an Investment Agreement, as 
opposed to an FTA, or for strong bilateral investment rules as part of any future framework. It 
was felt in particular that the Japanese triangular merger and acquisition rules remain complex 
and should be  revised  in order to  provide greater legal  certainty  for companies operating in 
the EU and Japan.  

With regard to labour rights one NGO called for the reduction of investments barriers which 
would facilitate the sustained development of important markets in order to create jobs, and 
suggested that in any discussion about FDI workers rights and the protection of existing terms 
and conditions should be considered.  

Another business organisation stressed that the complex business environment, and the costs 
related to completing transactions, encourages investors to invest in emerging markets rather 
than in Japan. Public markets – such as the rail sector – are also considered to be relatively 
closed to EU competitors.  

The  few  Japanese  respondents  to  this  question  recognised  that  changes  are  needed  to  the 
current Japanese business climate and that facilitation is required to help foreign companies 
investing in Japan, especially as regards clarifying the restrictions on foreign ownership. They 
called  for  an  EIA  to  provide  legally  binding  common  rules,  and  transparency  as  a  way  to 
resolve many of the outstanding problems. Finally, a Europe-based Japanese company voiced 
the  perception  that  frequent  changes  in  regulations  in  several  EU  countries  create  a  lot  of 
confusion for Japanese companies. 

Question 14b: Do you consider that there is a need for the EU to contribute to facilitating EU 
direct investment in Japan? If yes which avenues should the EU pursue? 

A  large  majority  of  EU  respondents  confirmed  that  they  expect  the  EU  to  facilitate  direct 
investment  in  Japan,  while  a  minority  saw  no  specific  need  for  the  EU  to  be  proactive.  In 
terms  of  how  to  foster  the  investment  climate,  the  views  expressed  were  rather  divergent. 
Several  respondents  called  for  Japan  to  move  in  the  direction  of  the  mainstream  of  the 
international business environment and thus be more open transparent and predictable. 

One avenue to facilitate the investment climate mentioned several times by respondents was 
to negotiate a bilateral investment agreement, covering all sectors of business; it was felt that 
this would provide legal certainty on both sides with a view to promoting cooperation on trade 

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and  investment.  Similar  mention  was  given  to  the  conclusion  of  an  FTA  –  covering  also 
bilateral investment – whereby investors could  benefit  from  commitments  on  market  access 
and investment on a transparent and non-discriminatory basis.  

Respondents also mentioned: the use of the Market Access Partnership, the sharing of success 
stories  on  inbound  investments  into  Japan  and  the  setting-up  of  joint  ventures  in  certain 
sectors (such as the rail market) as the only opportunity to enter the Japanese market. Finally, 
one NGO called for the removal of laws which are not enforced and the easing of laws which 
are too favourable to employees and which make the labour market rather rigid. 

Public procurement 

Question  15:  Are  you  concerned  by  restrictions  in  public  procurement  in  your  field  of 
activity? If yes, what strategy should the EU develop to open up Japan's public procurement 
market? 

A  number  of  EU  respondents  were  not  concerned  by  restrictions  in  public  procurement  in 
their  field  of  activity.  However,  for  the  majority,  access  to  Japanese  market  in  the  area  of 
public procurement was a key element. These EU respondents urged the EU to take steps to 
ensure  an  appropriate  enabling  environment  for  reciprocal  market  access  for  procurement, 
where equal treatment of foreign and domestic suppliers is guaranteed. Currently, access for 
European  companies  to  government  procurement  in  Japan  was  considered  greatly  restricted 
by  

• 

• 

• 

a significant number of complex procedures,  

derogations  of  WTO  Government  Procurement  Agreement  (such  as  the  specific 
‘operational safety’ clause which allows Japan to close its lucrative rail sector to EU 
competitors); and, 

lack of transparency and information. 

Respondents also highlighted the need for standardisation and harmonisation of procurement 
procedures,  and  to  avoid  perceived  abuse  of  technical  specifications  to  benefit  Japanese 
suppliers. 

Among more general concerns about the public procurement market in Japan, one respondent 
stressed that the EU should make effective use of trade instruments and reciprocity measures 
in order to convince Japan to open its lucrative rail transport market. 

Japanese respondents also called for more transparency, including by the creation of a virtual 
single access point, and the adoption of provisions exceeding those of the WTO GPA, such as 
lowering  the  threshold  for  the  contracts  to  which  the  agreement  applied  and  for  simplified 
procedures. 

In  sum,  the  responses  of  many  business  organisations  and  companies  militated  in  favour  of 
the  EU  fostering  a  policy  aimed  at  increasing  transparency,  and  openness,  simplifying 
procedures and promoting a better information exchange. 

EN 

97 

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Competition issues 

Question 16a: Are there fields (anti-trust / mergers / liberalisation / state aid) where the EU 
should  seek  to  increase  cooperation  with  Japan  with  a  view  to  pushing  for  the  removal  of 
non-tariff barriers in Japan?  

Of  the  responses,  increased  cooperation  in  the  field  of  mergers  was  the  most  highlighted, 
followed by liberalisation, state aid and finally anti-trust, although a number of respondents 
were against increased cooperation on anti-trust issues. 

Question 16b: What should the EU priorities be for the years to come? 

Broadly speaking, a significant proportion of EU respondents doubted Japan's willingness to 
ensure  a  level  playing  field  for  EU  business  through  enforcement  of  agreements,  equal 
treatment in the development and implementation of competition law, and in the opening of 
markets  to  allow  EU  companies  the  same  opportunities  to  gain  market  share  as  domestic 
competitors. In particular, the EU was urged to give special attention to difficulties related to 
mergers  and  acquisitions  that  EU  companies  encounter.  Japanese  exclusive  buyer-supplier 
networks,  together  with  alliances  by  some  business  groups,  limit  competition  from  foreign 
firms  and  prevent  competitive  best  practices  advocated  by  non-domestic  companies.  It  was 
considered very difficult to enter the Japanese market without support from a Japanese partner 
with the necessary proper understanding both of the market and of the business culture.  

The  EU  was  called  upon  by  several  respondents to foster a common  understanding on both 
sides  on  anti-trust  issues,  by  cooperation  between  the  antitrust  authorities  of  the  EU  and 
Japan. One respondent strongly called on the EU to press the Japanese government to remove 
measures that protect their domestic rail market, a policy that was considered as equivalent to 
state aid. 

Multilateral cooperation 

Question 17: Do you find the results of the EU-Japan multilateral cooperation in these policy 
areas to be: very good; satisfactory or insufficient. If insufficient please indicate why. 

Nearly  two-thirds  of  respondents  deemed  EU-Japan  cooperation  in  these  policy  areas  as 
insufficient,  although  not  all  gave  reasons.  Around  one-third  of  respondents  deemed  the 
multilateral cooperation as satisfactory. 

Of those who found co-operation insufficient, several were disappointed and/or concerned by 
the  lack  of  progress  on  the  DDA  to  date,  although  respondents  still  hope  that  a  positive 
outcome is feasible. Respondents perceived the progress made in multilateral cooperation by 
both  parties  as  too  little  and  possibly  too  late,  in  view  of  the  shift  in  focus  in  the  global 
economy towards emerging countries. The rise of the latter – at least in part – explained the 
decline  of  mutual  interest  in  improving  multilateral  cooperation.  Nevertheless,  a  few 
respondents  encouraged  both  parties,  which  share  common  views  on  a  number  of  issues,  to 
take a more active role in the DDA negotiations and to find a compromise, which could incite 
the USA, emerging and developing countries to move forward. 

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98 

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Question  18:  In  which  ways  could  EU-Japan  multilateral  cooperation  be  enhanced  in  the 
coming years?  

A large number of respondents (both EU and Japanese) encouraged the EU and Japan, in the 
context  of  current  global  downturn,  to  cooperate  and  push  for  an  ambitious  outcome  of  the 
DDA negotiations, in which key emerging countries would make market access concessions, 
according  to  their  level  of  economic  development.  Both  parties  should  strive  towards  the 
successful  conclusion  of  negotiations.  It  was  suggested  that  such  a  multilateral  cooperation 
initiative could strengthen the influence of the two parties in international fora. In the context 
of  NAMA,  respondents  felt  it  important  that  the  EU  and  Japan  should  cooperate  for  a 
successful  outcome  in  the  electronics  sector  negotiations  and  conclude  an  environmental 
goods and services agreement (EGSA). In the context of the WTO, some respondents called 
for restricting or prohibiting the use of export taxes, and for barriers to access to raw materials 
also to be addressed. 

Japanese  respondents,  in  particular,  suggested  the  reduction  and/or  elimination  of  tariffs  on 
environmental  goods  in  the  context  of  the  WTO/DDA;  this  was  considered  essential  for 
promoting  trade  and  investment  in  environmental  goods,  including  goods  with  high  energy 
efficiency  and  high  energy  saving  characteristics.  The  two  sides  should  work  together  and 
with  other  countries  in  order  to  promote  a  sustainable  society.  In  the  context  of  the  WTO, 
cooperation for the enhancement of existing Dispute Settlement system was favoured. 

Japanese  respondents  also  favoured  a  possible  review  of  the  Information  Technology 
Agreement  (ITA),  cooperation  on  a  common  classification  for  information  technology 
products,  and  called  for  a  bilateral  effort  to  secure  global  supply–chains  and  production 
networks  free  from  trade  and  investment  barriers.  Furthermore,  a  Japanese  automotive 
company and a business organisation stressed the importance of common action in support of 
the  International  Whole  Vehicle  Type  Approval  (IWVTA)  which  would  foster  international 
harmonisation  efforts  with  regard  to  automotive  technical  regulations,  as  well  as  enhance 
vehicle safety and environmental performance.  

Finally, several respondents favoured an EIA as a stepping stone for scrutinizing issues shared 
in  common  and,  as  a  next  step,  exploring  the  possibility  of  joint  actions.  Others  perceived 
enhanced cooperation (or an EIA) as a possible driving force to push for the completion of the 
Doha round.  

Sustainability  

Question 19: How could the EU and Japan seek to better integrate sustainable development 
considerations in their discussions on the various topics relevant to their trade and economic 
relations,  from  trade  in  natural  resources  to  technical  regulations  and  standards  for  goods 
and from investment to government procurement, among other issues?  

A  number  of  respondents  thought  it  important  that  the  EU  and  Japan  should  integrate 
sustainable  development  considerations  in  their  discussions  of  trade  and  economic  topics. 
Several respondents commented that more could be done to determine a common approach. 
Some  respondents  found  it  equally  important  to  encourage  such  co-operation  toward  the 
conclusion of an agreement on environmental goods and services (EGSA). Many respondents 
felt  that  increased  cooperation  in  this  field  should  produce  a  shift  towards  sustainable 
production  processes  resulting  in  a  tangible  environmental  improvement,  including  a 
reduction of CO2 emissions.  

EN 

99 

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On  how  the  two  parties  should  co-operate,  the  views  of  the  respondents  diverged.  The 
chemical sector considered itself a key driver in the process of sustainable development and 
called  for  further  support  of  the  sector  to  achieve  its  environmental  goals.  Business 
organisations called for an enhanced cooperation aimed at removing NTMs and the remaining 
tariffs to produce a more liberal business climate for goods and services, thus contributing to 
environmental  improvements  worldwide.  A  few  respondents  sought  the  negotiation  of 
harmonised  environmental  regulations  and  standards,  including  alignment  of  recycling 
regulations and energy efficiency standards. 

Respondents  also  called  on  the  EU  and  Japan  to  cooperate  in  providing  necessary 
technological  support  to  countries  which  export  raw  materials  in  order  to  promote  greater 
efficiency and redress environmental problems related to the extraction of raw materials. One 
EU  NGO  suggested  the  incorporation  of  environmental  considerations  in  procurement 
contracts. 

Clean technologies and clean industrial processes, energy efficiency, renewable energy, water 
and waste management, new generation of bio fuels, electric  vehicles and ICT technologies 
were all cited as areas for potential future cooperation. 

Question 20: What are the likely environmental effects – both positive and negative – that you 
expect to emerge in the context of an enhanced EU-Japan Trade Cooperation? Which issues 
would require specific attention?  

Responses showed that the EU and Japan, at the level of government, citizens and business, 
shared  common  concerns  about  regional  and  global  environmental  issues.  This  wide  public 
support  for  sustainable  development  has  incited  both  governments  and  business  to  tackle 
mounting  environmental  problems.  The  widespread  acceptance  and  use  of  advanced 
environment-friendly  technologies  (green  technologies)  increased  energy  efficiency  and 
dissemination  of  good  practices  has  made  the  two  parties  global  leaders  in  this  important 
business segment. Nearly all respondents thought that the two parties should work together on 
the subject of innovative capacity building. A harmonized approach to tackling environmental 
problems and joint research and cooperation to develop and share state of the art technology 
could  offer  attractive  opportunities  for  EU  and  Japanese  business  and  contribute  to  the 
achievement of environmental goals. A majority of Japanese respondents called for expanded 
cooperation  targeted  at  saving  resources  and  the  efficient  disposal  of  waste.  Enhanced 
cooperation  was  seen  as  potentially  offering  consumers  a  wide  choice  of  environmental 
products, such as next-generation vehicles, at competitive prices. 

Several  suggestions  were  made  as  to  how  to  achieve  these  goals.  Most  Japanese  and  some 
European respondents called for the conclusion of an agreement on environmental goods and 
services  (EGSA),  including  energy  efficient  products,  which  would  liberalize  trade  in  these 
goods and services. The legally binding nature of an EU-Japan EIA was seen as providing an 
opportunity for regulatory cooperation on environmental impact assessment standards, aimed 
at  reducing  carbon  dioxide  emissions.  Some  EU  business  organisations  suggested  common 
standards and industry cooperation to advance these technologies and to create bigger markets 
for them.  No negative environmental  effects in the context of an enhanced EU-Japan Trade 
Cooperation were mentioned. 

With  regard  to  which  issues  would  require  specific  attention,  the  following  were  brought 
forward: 

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• 

• 

• 

• 

Dissemination of good practices and development of innovative technology to reduce 
greenhouse gases. 

Building  systems  with  an  eco-friendly  focus  and  faster  implementation  of  eco-
friendly measures and technologies. 

Research on renewable source energy. 

Efficient use of energy in business and transport. 

Question 21: In your field of activity, do you think that the employment situation in the EU 
could  be  affected,  positively  or  negatively  in  the  context  of  an  enhanced  EU-Japan  Trade 
Cooperation?  

The majority of respondents who either provided services or produced goods considered that 
enhanced  EU-Japan  trade  cooperation  would  have  a  positive  impact  on  employment  in  the 
EU.  Several  respondents  mentioned  that  better cooperation  on  trade  matters  would  result  in 
more open and competitive markets, creating new opportunities for EU business. Public and 
cultural  organisations  predicted  an  increase  in  collaboration  and  flows  of  students,  teachers 
and staff between universities and new working areas for experts. A respondent in the legal 
advice  sector  expected  that  an  increase  in  mergers  could  improve  efficiency  in  Japanese 
companies  and  lead  to  higher  growth  and  employment  rates,  and  also  foster  the  use  of 
Japanese IP and services abroad. 

On  trade  in  goods  a  few  distinctions  among  the  groups  of  respondents  could  be  made.  The 
EU agriculture-food sector and the food and drink manufacturing industries, which are 
among  the  biggest  EU’s  employers,  had  high  expectations  of  a  future  FTA,  in  particular  if 
such  an  agreement  would  be  similar  to  the  FTA  concluded  between  the  EU  and  Korea.  An 
FTA would ensure that European farmers could profit from a level playing field in relation to 
equivalent  production  standards.  One  respondent  called  for  the  lifting  of  the  ban  on  certain 
raw  materials  which  affects  the  competitiveness  of  the  EU  gelatine  industry.  The  food  and 
drink sector was very positive about the likely impact across Europe on employment. An EU 
business  organization  was  positive  about  enhanced  cooperation  between  the  information 
technology,  consumer  electronics  and  telecommunication  sectors,  in  that  it  could  mean 
that parts  and  components imported for EU manufacture would be available at lower prices 
increasing the competitiveness of this sector; on the other hand market access would also be 
facilitated.  Both  factors  should  lead  to  a  positive  increase  in  employment.  The  EU  textile 
sector was equally positive. Enhanced cooperation was judged as being positive in terms of 
better  market  access  and  the  elimination  of  trade  and  investment  hurdles  which  could  then 
lead to increased employment in the EU.  

However,  not  all  sectors  were  positive.  The  business  organisation  for  railway  suppliers 
voiced its concerns that the current imbalance in EU-Japan trade relations results in job losses 
in the EU rail industry. Even more outspoken was the EU automotive business organisation, 
which commented that an EIA/FTA would have negative effects on employment in the EU's 
automotive industry. 

All Japanese respondents, and in particular those in the automobile sector and the IT and 
electronics sectors,  voiced  concern  about  the  recently  concluded  FTA  between  the  EU  and 
Korea.  Members  of  a  Japanese  business  organisation  were  seriously  concerned  about  the 
negative  impact  the  EU-Korea  FTA  would  have  on  the  competitiveness  of  their  members. 

EN 

101 

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Furthermore, business organisations stressed the role Japan has played in the EU in creating 
jobs and in respect of inbound FDI. High tariffs on car parts and components will influence 
the competitiveness of Japanese producers and in due course could have a negative impact on 
local production and employment. However, this situation could be reversed, also in terms of 
positive  development  of  employment  in  the  EU,  through  the  conclusion  of  an  EIA.  Such  a 
conclusion would create a level playing field for Japanese companies. 

Question  22:  Given  the  importance  of  commitments  on  labour  rights  and  environmental 
protection as underlying elements for international economic relations, how could the EU and 
Japan cooperate to further promote adherence to internationally recognised principles, rights 
and agreements on labour and environment?  

Several  respondents  mentioned  that  both  parties  should  cooperate  in  the  framework  of 
existing  international  organizations  such  as  the  ILO,  WTO,  G8  and  G20  and  also  exchange 
information in bilateral meetings on a regular basis. Where Japan is not yet a member of an 
international institution, the EU should promote participation. Other respondents called for the 
inclusion  of  a  mechanism  to  address  environmental  issues  in  negotiations  for  a  bilateral 
agreement (EIA), based on the example of the EU-Korea FTA agreement. Such negotiations 
could further enhance understanding and encourage both parties to move forward their current 
cooperation  on  these  issues.  One  NGO  stressed  that  the  focus  should  be  more  on 
environmental issues than on labour (as they felt that labour rights had gone too far in the EU 
and  Japan).  The  respondent  mentioned  that  both  countries  have  the  right  attitude  and  track 
record on environmental issues and should be able to co-operate and share best practices with 
each other.  

Finally,  a  number  of  respondents  put  forward  the  need  for  a  less  restrictive  application  of 
immigration rules and the easing of visa restrictions. 

Other issues  

Question 23: If there any other issues that are not mentioned in this questionnaire that you 
would like to address, please use the space below to set them out? 

Many  respondents  took  the  opportunity  to  underline  their  responses  to  earlier  questions.  A 
number also raised self standing issues which are set out below.  

Firstly,  one  NGO  emphasized  the  need  for  Japanese  to  invest  in  learning  foreign  languages 
with a focus on further developing their English communication skills.  

Secondly,  an  EU  respondent  mentioned  the  impact  of  exchange  rate  fluctuations  on  trade 
relations  as  well  as  the  current  state  of  Japan‘s  economy.  Its  economic  stagnation  and 
deflation restricts internal demand and the EU’s perspective to export to Japan.  

Thirdly,  a  Japanese  business  organisation  called  on  both  parties  to  invest  in  forming 
international  regional  clusters,  as  already  applied  in  several  business  sectors  with  positive 
results. Best practices should be collected and disseminated to achieve cooperation on other 
fronts.  

Fourthly,  an  EU  company  stressed  that  from  a  safety  point  of  view,  trade  restrictions  for 
processed agricultural products should be treated differently according to their risk status and 
trade policy should take this difference in risk assessment into account.  

EN 

102 

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Fifthly,  an  EU  company  mentioned  that  Japan  should  accelerate  its  programme  of  tramway 
development, with the possibility for EU manufacturers to have access to this market.  

An EU business organisation in the automotive sector raised its concern about the coming into 
effect  of  the  Japan-ASEAN  FTA  in  2015  and  its  possible  negative  effects  on  the  EU’s 
competitiveness in the automotive sector.  

Finally, a few EU business organisations reiterated the importance they attach to addressing, 
at international level, worldwide barriers hampering the liberalisation of trade. In particular, 
mention was made of issues relating to the supply of raw materials and the removal of export 
taxes and other forms of trade or investment restrictions imposed by foreign governments. 

EN 

103 

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