COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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) 210 final 

COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE 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) 209 final} 

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COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE 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. 

PROBLEM DEFINITION 

What precisely is the problem?  

Trade  between the  EU  and  Japan, major global economic players, has  been in  decline for a 
number of years. Over  the period  2006/2010, EU exports to Japan fell by  0.6% per  annum, 
compared with a rise in global EU exports of 3.8%. Over the same period Japanese exports to 
the EU fell by 3.2% per annum, while global exports from Japan rose by 3.1%.  

This  underperformance  in  the  bilateral  trade  and  investment  relationship  between  two  such 
major developed economies leads to losses in competitiveness, productivity and welfare, both 
bilaterally  and  in  the  global  economic  context;  reduced  choice  and  higher  prices  for 
consumers; weak support for employment and depressed wages. 

Economic  studies  and  public  consultation  indicate  that  the  bilateral  EU/Japan  trade  and 
investment relationship is not fulfilling its potential. The main reasons are a combination of 
tariffs and non-tariff measures [NTMs], the latter being the major concern for EU exporters to 
and investors in Japan.  

Who is most affected? 

The  EU  and  Japanese  economies  are  negatively  affected,  as  is  EU  and  Japanese  business, 
employees  and  consumers,  the  worst  affected  EU  sectors  being  those  likely  to  benefit  from 
the  removal  of  NTMs:  e.g.  agro-food,  automotive,  pharmaceutical  and  medical  devices 
sectors. 

Why is public intervention necessary? 

Without negotiated responses to the problems depressing trade and investment, the situation is 
likely  to  worsen.  In  recognition  of  this  situation,  at  the  28  May  2011  Japan-EU  summit  the 
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 

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• 

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 

The summit leaders also decided to start a scoping exercise as soon as possible to define the 
scope and level of ambition of both negotiations.  

The problem drivers 

A number of factors depress or limit trade and investment potential between EU and Japan, 
some  of  which  could  be  addressed  by  trade  policy  or  domestic  reforms,  including  trade 
negotiations,  while  others  (such  as  geographical  distance,  communication  problems,  and 
consumer preferences) are less likely to be improved by such measures. 

Negotiations have potential to change tariffs, non-tariff measures and also discriminatory or 
burdensome  features  of  the  regulatory  environment,  affecting  trade  in  goods  and  services, 
investment and public procurement. 

Both the EU and Japan have low tariffs on goods.. However, Japan's tariffs remain high in the 
agricultural and processed food sectors and for beverages, in all of which sectors the EU is a 
major  global  exporter.  Average  Japanese  tariffs  applied  to  other  important  EU  exports  are 
generally low.  

EU tariffs on the main Japanese exports are higher. Japanese exports to the EU largely fall in 
a  small  number  of  manufacturing  sectors,  e.g.  motor  vehicles,  electronics  and  machinery. 
Thus  Japan's  offensive  interests  focus  on  tariff  elimination,  particularly  since  the  entry  into 
force of the EU-Korea FTA, given the competition between Japan and Korea in similar export 
sectors. 

Public  consultation  and  studies  stress  that  non-tariff  measures  are  major  barriers  to  EU 
exports  to  Japan.  Parts  of  the  Japanese  market,  e.g.  some  agricultural  products  and  some 
transport equipment and aeronautical products, are almost totally closed to EU exports. 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.  The  lack  of  transparency  in 
public procurement, and problems relating to IPR, have also been identified as important non-
tariff barriers that make the Japanese market effectively inaccessible for EU companies.  

2. 

ANALYSIS OF SUBSIDIARITY 

Trade policy and the negotiation of international trade agreements are areas of exclusive EU 
competence:  Article  207  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU). 
The principle of subsidiarity does not apply in this case. The proposal also fulfils the test of 
proportionality:  even  the  most  far  reaching  options  do  not  extend  beyond  fulfilment  of  the 
stated policy objectives.  

3. 

OBJECTIVES 

The overall objective of EU policy as regards economic and trade relations is to 

• 

enhance and further develop bilateral trade, 

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• 

abolish existing restrictions on trade and foreign investment, and  

lower customs and other barriers. .  

• 
The general objectives of European trade policy therefore include: 

• 

• 

• 

smart, sustainable and inclusive growth through the expansion of trade;  

the creation of job and labour opportunities and welfare gains; 

lower consumer prices and other consumer benefits; 

improved competitiveness in global markets. 

• 
In  respect  of  future  EU-Japan  economic  and  trade  relations,  the  EU’s  specific  policy 
objectives are: 

• 

• 

• 

increasing the volume of bilateral trade in goods and 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 parties. 

The  specific  objectives  under  each  of  these  four  topics  are  further  translated  into  more 
detailed operational objectives in the main report. 

4. 

POLICY OPTIONS 

With  a  view  to  attaining  these  objectives  various  different  policy  scenarios  have  been 
examined. These include 

(a)  continuing  the  current  framework  in  the  2001  Action  Plan,  with  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 
improvement of their functioning and effectiveness.  

(b)  a  comprehensive  EU-Japan  free  trade  agreement  (FTA)  with  elimination  of  tariffs, 
liberalization  of  trade  in  services  and  liberalization  and  facilitation  of  investment  flows  in 
both services and non-services sectors, together with the reduction of costs of NTMs. 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.  

The  conservative  and  ambitious  scenarios  concerning  cost  reductions  relating  to  NTMs  are 
intended  to  provide  a  range  of  possible  results.  The  20%  reduction  provides  a  minimum 
substantially below the results in fact achieved in the negotiation of the EU/Korea FTA, while 
the  50%  cost  reductions  assesses  the  potential  of  a  very  ambitious  outcome  concerning 
NTMs1.  Results  within  this  range  are  consistently  positive,  varying  only  in  the  degree  of 
overall gain. 

The symmetric and asymmetric scenarios provide a more complete view of the ambitions and 
objectives  of  both  parties.  The  symmetric  scenarios  provide  a  view  of  complete  parity.  The 

1 

Given that there are a number of legitimate reasons for national regulations, it is unrealistic to assume 
that  all  NTMs  can be  eliminated, or  even  that  any regulatory  divergence  can be  aligned. A 50%  cost 
reduction can therefore be considered as ambitious. 

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asymmetric scenarios recognize that while the reduction of the burden caused by NTMs is one 
main EU's main prioritiy, Japan's main priority is EU tariffs in key sectors for Japan. a degree 
of  asymmetry  may  well  be  required  to  achieve  an  acceptable  balance  of  the  eventual 
negotiated  outcome.  In  the  asymmetric  scenarios  examined,  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.  

The  ambitious  scenarios  envisage  an  agreement  in  line  with  the  new  generation  of  trade 
agreements  that  the  EU  is  currently  negotiating  with  trade  partners  such  as  Canada.  Recent 
EU trade agreements tend to go beyond Japanese FTAs in both scope and level of ambition. A 
comprehensive EU-Japan FTA would need to cover a high 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  and  cover  investment  protection,  competition  and 
intellectual property rights.  

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

Both the EU and Japan are likely to conclude a number of FTAs with third countries in the 
coming years. 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) have been taken into account.  

The  different  scenarios  are  analyzed  under  the  assumption  that  the  Doha  Development 
Agenda  in  the  World  Trade  Organization  will  be  successfully  concluded.  However  for 
comparison  purposes  available  data  on  bilateral  trade  liberalization  without  the  impact  of  a 
future DDA deal have also been included and considered. 

5. 

ASSESSMENT OF IMPACTS 

Option (a), continuing similar arrangements to those presently in force, given the extremely 
limited  results  achieved  to  date  over  many  years,  is  not  likely  to  produce  any  substantial 
growth  of  bilateral  trade  and  investment  volumes.  Thus,  no  significant  GDP  gains  could  be 
expected in either the EU or Japan.  

Option  (b),  a  comprehensive  FTA,  shows  substantial  gains  in  GDP  for  the  EU  by  2020: 
0.75%  in  the  case  of  the  conservative,  symmetric  scenario,  or  0.34%  for  the  conservative, 
asymmetric  scenario;  and  1.9%  in  the  ambitious,  symmetric  scenario,  or  0.8%  for  the 
ambitious, asymmetric scenario2. For Japan the GDP increase is estimated at 0.27% for both 
conservative scenarios and at 0.7% for both ambitious scenarios.  

Under both conservative and ambitious scenarios, EU global exports are projected to increase 
in  the  same  sectors  with  large  increases  in  the  processed  food,  electrical  machinery  and 
business  services  sectors.  Under  the  ambitious  scenarios,  EU  global  imports  would  rise 
substantially  in  the  processed  foods,  air  transport,  and  finance  and  business  services  sectors 

2 

NB. In the asymmetric scenario, the amount of reduction in the cost of NTMs on goods on the EU side

is foreseen as one-third of the reduction on the Japanese side. 

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and fall in the electrical machinery sector. The motor vehicle industry would see a rise in both 
the EU's global exports [6.73%/asymmetric] and imports [2.6%/asymmetric]. 

For  Japan,  global  exports  would  increase  notably  for  electrical  machinery,  motor  vehicles, 
other  machinery,  other  transport  equipment  and  other  manufactures  sectors.  Japan  would 
experience  a  substantial  rise  in  global  imports  in  the  processed  foods,  chemicals,  transport 
equipment, motor vehicles, metals, and business services sectors. 

EU SMEs can be expected to gain from an EU/Japan FTA since regulatory compliance costs 
are more burdensome for them and because SMEs are prominent in sectors likely to benefit 
such as processed foods. 

For the environment, negative impacts on waste, biodiversity and natural resources, are likely 
to  be  mitigated  to  some  extent  by  increased trade  in  environmentally  sustainable  goods  and 
services. In respect of global emissions any increase following an FTA is expected to be close 
to zero [1.5 million tonnes of CO2]. 

Increased trade between the EU and Japan would lead to an increased demand for labour, and 
raise  the  welfare  of  both  parties:  the  greater  liberalisation,  the  greater  the  welfare  gains. 
Employment  in  the  EU  is  projected  to  increase  considerably  e.g  in  the  electrical  machinery 
sector,  with  limited  losses  in  the  motor  vehicle  sector  [between  -0.40%  for  a  conservative, 
asymmetric FTA and -0.10% for an ambitious, asymmetric FTA] 

As  two  highly  developed  democracies,  an  EU/Japan  FTA  is  not  expected  to  have  direct 
impact on human rights. 

The EU and Japan and third countries will benefit from simplification effects resulting from a 
reduction of NTMs in both countries, reducing administrative costs when trading with the EU 
or Japan. 

6. 

COMPARISON OF OPTIONS 

Option (a), continuing with the status quo, does not achieve the operational objectives set out 
above.  Continuing  bilateral  economic  cooperation  programs  such  as  the  Regulatory  Reform 
Dialogue, with further cooperation in areas where agreements have already been signed, is not 
expected  to  produce  much  in  terms  of  results.  Its  effectiveness  in  achieving  the  operational 
objectives can be considered to be zero or even potentially negative.  

Option  (b),  with  its  various  scenarios,  calls  for  full-scale  FTA  negotiations,  with  different 
degrees  of  trade  liberalization,  and  reductions  in  the  costs  of  trade,  all  of  which  result  in 
considerable benefits in both the EU and Japan. 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. 

A comparison of the main results for the various options of an FTA is set out in the form of a 
table in Annex.1 

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7. 

MONITORING AND EVALUATION 

A  table  summarising  the  main  indicators  proposed  for  monitoring  progress  towards 
achievement of the stated general, specific and operational objectives is set out in Annex 2. 

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ANNEX 1 

Criterion 

Policy Options 

A 

0 

0 

0 

0 

0 

0 

0 

0/- 

0/- 

0 

0 

0 

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) 

B1 

+ 

B2 

+ 

B3 

+ 

B4 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

+++ 

+++ 

+++ 

++ 

++ 

+++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

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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 tariffs on industrial goods and 
agricultural products 
Reduce NTMs concerning trade in goods 

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 

ANNEX 2 

Indicators 

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

- 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 

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