EU-Japan : advanced economies shaping the next stage of inclusive globalisation.
Date: 2017-12-08
Institutions: European Political Strategy Centre
Subjects: European Union, Japan, economic growth, economic policy, foreign policy, globalisation, international trade

EPSC Brief

06 July 2017

EU-Japan:
Advanced Economies Shaping the Next Stage 
of Inclusive Globalisation

The new EU-Japan Economic Partnership is part of a joint effort to shape globalisation, drive 
inclusive growth and enshrine high standards in international trade. The timing of its conclusion 
is not coincidental. The world is at a tipping point, with some leading powers touting protectionism as the 
answer to the uneven distribution of benefits stemming from globalisation and trade. Others seek a global 
realignment around the interests of illiberal, authoritarian states. In short, there is existential pressure on 
the rules-based, international order that guided the decades following World War II.  

In this state of intense geopolitical uncertainty, an economic partnership like the one concluded between 
the EU and Japan surpasses mere business interests. It is a vow of collaboration between democracies and 
advanced economies that have among the world’s highest environmental, regulatory and social standards. By 
strengthening economic and trade ties, the deal will also provide increased political clout when defending these high 
standards vis-à-vis other powers which might want to challenge them or undercut multilateralism going forward.

Above all, the new EU-Japan partnership demonstrates to the world at large that mature economies do 
not have to be at the mercy of broader forces shaping the global economy and international 
governance system. There are many challenges that responsible global players can only tackle together, 
ranging from protecting the environment and tackling climate change to ensuring regional stability and 
reaffirming the rules-based, international order. Against this backdrop, the EU-Japan agreement is a 
forceful and timely joint statement of intent in acting for multilateralism and choosing strategic 
cooperation at a time when confrontation is all too prevalent.

The EU and Japan: one third 
of the world economy

The EU and Japan are natural trading partners: 
both similarly wealthy, developed economies and 
mature democracies. Japan is the world’s fourth 
largest national economy in the world; the EU is the 
world’s largest trading bloc. They jointly represent over 
a third of the world’s GDP (Figure 1).1 

Bilateral ties have strengthened between the two 
economic powerhouses since the 1990s, after a series 
of European treaty reforms made it clear that Europe 
was heading toward deeper economic and political 
integration. The EU and Japanese economies are 
already very closely inter-linked: the EU is Japan’s 
third most important trading partner (after China 
and the US). Japan is the EU’s second most important 
Asian trade partner, behind China and ahead of South 
Korea. The EU absorbs over 11% of all Japan’s exports, 
while Japan accounts for slightly more than 3% of the 
EU’s total exports (Figure 2). 

1

EPSC Briefs are papers on topics chosen by the President of the European Commission. They are produced by the European Political Strategy Centre (EPSC), the European Commission’s in-house think tank. DisclaimerThe views expressed in the EPSC Briefs are those of the authors and do not necessarily correspond to those of the European Commission.35
30
25
20
15
10
5
0

Figure 1: Share of global nominal GDP
Percentage

EU28

Japan

Figure 2: Share of respective total 
exports to the EU and Japan
Percentage

0
0
0
2

1
0
0
2

2
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2

3
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2

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5
1
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2

6
1
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2

18
16
14
12
10
8
6
4
2
0

Share of Japan in EU's exports

Share of EU in Japan’s exports

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
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6
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Source: International Monetary Fund

Source: Eurostat and International Monetary Fund

This difference largely reflects the fact that the EU market 
is over three times the size of that of Japan. In absolute 
terms, EU imports from Japan totalled around 82.9 
billion euro in 2016 (of which 66.6 billion euro in goods 
and 16.3 billion in services), while EU exports to Japan 
totalled 87.5 billion euro (of which 58.1 billion euro 
in goods and 29.4 billion euro in services). The main 
sectors of export were chemical products, machinery and 
appliances, transport equipment, optical and photographic 
instruments, and foodstuffs. The main sectors of import 
were machinery and appliances, transport equipment, 
chemical products, optical and photographic instruments 
and plastics and rubber. 

Japanese import tariffs for some types of EU goods 
are often significant. Import levies for meat and cheese 
can be as high as 40%. Additionally, Japan applies a 
range of ‘non-tariff measures’ that further hinder the 
export of European goods and services. These include, 
for example, complex and national-specific approval 
processes for EU food and agricultural products, 
restrictions on EU firms bidding for public contracts in 
Japan, and many sector-specific limitations on their 
capacity to provide services for Japanese customers. 
Altogether, they add up and result in high trade costs 
to EU exports, making them less competitive in the 
Japanese market (Table 1).

Table 1: Trade cost estimates linked to non-tariff measures for EU goods and services in Japan
(in percentage of trade value)

Goods

Food and beverages

Transport equipment (other than motor vehicles)

Other machinery (medical)

Pharmaceuticals/chemicals

Metals and metal products

Electrical machinery

Wood and paper products

Motor vehicles

Source: Copenhagen Economics

Estimated 
average

Services

Estimated 
average

Communications

Finance

Insurance

Personal, cultural & other services

Business and ICT

Construction

24.7

15.8

6.5

6.5

2.5

 2.5

36.3

35.0

30.0

26.0

25.5

25.5

23.0

10.0

Different studies estimate that the combined potential 
gains from reducing tariffs and non-tariff barriers 
through an EU-Japan economic partnership could be 
substantial – with European exports to Japan increasing 
by as much as 70% – or 43 billion euro – per year. 
Japan would also benefit significantly, with its exports 
to the EU increasing by up to 60% in the most far-

reaching scenario (Table 2). This estimate is in line with 
assessments of the EU and South Korea free trade 
agreement five years after its entry into force. Whereas 
the EU registered a trade deficit with Korea in 2010, 
by 2015 the EU experienced a trade surplus of nearly 
6 billion euro, owing to a 55% increase in European 
exports to South Korea (Box 1).2 

2

EPSC BriefTable 2: Estimated gains from an EU-Japan economic partnership 
(in billion euro)

EU

Japan

 Exports 
increases (%)

Exports 
increases (€ bil)

Exports 
increases (%)

Exports 
increases (€ bil)

Bertelsmann Stiftung, 2017

European Commission, 2012

Copenhagen Economics, 2009

Min

Max

Min

Max

Min

Max

12.5

146.0

22.6

32.7

46.0

71.0

n.a

n.a

15.5

22.4

27.8

43.4

4.0

162.0

17.1

23.5

39.8

60.7

n.a

n.a

18.6

25.6

35.3

53.8

Sources: Bertelsmann Stiftung, 2017; European Commission Impact Assessment Report, 2012; Copenhagen Economics, 2009

Box 1: Trade openness driving innovation, productivity and growth in the car sector
Similarly to the negotiation of the EU-South Korea free trade agreement, which took effect six years ago in July 
2011, cars feature among some of the trickiest issues that had to be settled in the talks between 
the EU and Japan. 

Indeed, the Japanese car industry suffered from the Korean cost advantage created by the EU-Korea trade 
agreement, and Japan is very keen for the EU to remove its tariffs on imports of Japanese cars and components, 
making Japanese cars and components more competitive. This is of course contentious for EU car manufacturing 
countries, which fear that this could result in a flood of Japanese car imports to Europe.

However, the deal with South Korea suggests that this need not be the case. In fact, since the agreement was 
signed, there has been a sharp rise in EU car exports to South Korea (EU exports soared from a mere 2 billion 
euro in 2006 to over 8 billion euro in 2015, with most of this 400% increase corresponding to the post-free 
trade agreement period3), turning what used to be a trade deficit into a surplus.4 What is more, the increased 
competition on EU markets has driven innovation and productivity gains in the European automotive sector, 
making it more competitive worldwide. 

At the same time, more than two-thirds of all Japanese-brand vehicles sold in the EU are actually manufactured 
in the EU, and many of these are exported to third countries. Japanese car-makers have 14 production plants 
and 16 research and development centres in the EU, employing 34,000 people and a further 127,000 indirectly. 
Therefore, removing tariffs could also provide a significant boost to production and jobs in Japanese-owned car 
plants in Europe.

A partnership to address some 
of the 21st century’s most 
profound societal challenges

In spite of their different journeys, the EU and Japan 
have striking similarities when it comes to the 
challenges they face in the medium to long term (Figure 
3). Deepening the partnership can help both economies 
to find workable and sustainable solutions that are of 
mutual interest.  

Need for new sources of growth
Japan and the EU are the super-ageing regions of the 
world. With population size in Japan already shrinking, 
and populations across EU Member States set to 
decline, both regions will represent ever smaller shares 
of the global population in relative terms. In both cases, 
populations will not only be smaller, but also much 
older, with more than one quarter of the Japanese 
population and almost a fifth of all Europeans already 
aged over 65. This represents an almost fivefold 
increase since 1960 for Japan, and a doubling for the 
EU (Figure 4). 

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EPSC Brief 
 
 
 
 
 
Figure 3: The EU and Japan have a lot in common

Average life expectancy at birth, in years
Happiness index (10 is happiest)
Minimum days of paid annual leave

Percentage of jobs with high risk 
of automation (2016)
Nominal GDP per capita, in euro (2015)

Degree of urbanisation (2014)
Percentage of population above 
the age of 65 (2015)

Life expectancy
Happiness
 Paid vacation
High risk of automation
GDP per capita
Degree of urbanisation
People over 65 years

EU28
81
6.7
22
10
36,000
74.8
19

Guadeloupe
Martinique

Canarias

Açores

Guyane

Mayotte

Réunion

Madeira

Life expectancy
Happiness
 Paid vacation
High risk of automation
GDP per capita
Degree of urbanisation
People over 65 years

Japan
84
5.9
10
7
43,000
93.5
26

Source: Organisation for Economic Cooperation and Development (OECD), United Nations, European Commission

Figure 4: Super-ageing regions
Percentage of the populations 65 years or older

Japan

EU

30

25

20

15

10

5

0
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9
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5
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Source: World Bank

These demographic trends are putting pressure on 
healthcare and welfare systems, and threatening the 
sustainability of public finances in both regions. By 2060, 
there will be only 1.3 working age Japanese (15-64) for 
every person over 655. In the EU, the number of workers 
per pensioner will be halved, from four in 2015 to just 2 
in 2060. The near absence of immigration makes Japan’s 
situation significantly more demanding. This reality 
means that both Europe and Japan will need to 
maximise their growth potential while ensuring that it 
benefits a broad cross-section of their population.

The new EU-Japan economic partnership will 
open opportunities for growth in key sectors 
relating to healthcare and welfare provision, such as 
pharmaceuticals, medical devices, or the ‘silver economy’, 
but also in many other areas, such as agri-food, motor 
vehicles and transport equipment. The agreement will 
also open up Japan’s services market to EU firms, while 

4

a dedicated chapter will be devoted to helping small and 
medium-sized enterprises that are disproportionately 
affected by unnecessary barriers to trade. Altogether, 
these key market openings on both sides could increase 
EU GDP growth by 0.76%, which is likely to have 
positive spillover effects on the job market. Already 
today more than 600,000 jobs are linked to exports to 
Japan, while Japanese companies employ more than half 
a million people in the EU. 

Sustaining high labour, environmental, 
consumer standards
The EU often sets the global standards when 
it comes to labour, environment and consumer 
safety, but Japan is not far behind (Figures 5 and 
6). Of the eight International Labour Organisation (ILO) 
Fundamental Conventions that make up core labour 
standards, Japan has ratified all but two (among them 
the convention on non-discrimination, pointing to the 
continued challenge for Japanese women to advance in 
the labour market). 

When it comes to the environment, Japan is improving 
its record. In the latest Environmental Performance 
Index (EPI), the country moved up to 39th place, slightly 
behind Germany and the Netherlands (ranked 30 and 
36 respectively) but ahead of Belgium (which ranks 41). 
Within East Asia and the Pacific, Japan is one of the top 
environmental performers, ranking only behind New 
Zealand, Australia and Singapore. Finally, on consumer 
standards, Japan is largely on par with the EU, with both 
sides having the highest consumer protection standards 
in the world. The EU-Japan Economic Partnership should 
reinforce these standards, not only for the territories it 
covers but potentially also outside, as both are committed 
to working more closely with each other in international 

EPSC Briefstandard-setting bodies. This means that rather than 
lowering standards, this kind of economic partnership can 
spearhead a race to the top and thereby not only help 
sustain high European standards but also bring these 
benefits to others.6

Figure 5: Japan shares European high 
standards on employment…
Indicator of Employment Protection Legislation

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Notes: This is a composite indicator that takes into account four areas of 
labour protection.
Figures are represented on a scale of 0 (least restrictions) to 6 (most 
restrictions). The EU average only includes 18 EU Member States. Data 
is from 2013. Data for UK and Slovenia from 2014. Data for Croatia and 
Lithuania from 2015. 
Source: Organisation for Economic Cooperation and Development (OECD) 

Figure 6: …and on food safety
2014 World Ranking of Food Safety Performance

2.75

2.55

2.35

2.15

1.95

1.75

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Note: The EU average only includes the average of EU Member States 
present in the study 
Source: The Conference Board of Canada

Shaping technology standards, 
especially in industry and manufacturing
The world is on the cusp of a new wave of technological 
change that is transforming the way people live, work 
and interact. Digitisation is reshaping entire industries 
and spreading to sectors that for a long time seemed 
unlikely to digitise, like the healthcare industry or 
transport. With the United States and China now leading 

5

the world’s most valuable digital technology companies, 
it is important for Japan and Europe to find ways to 
collaborate and find their own niche. By teaming up, 
they have a unique opportunity to shape the next 
phase of digital disruption that may accompany the 
spread of the Internet of Things. Operating at the 
intersection of world-class manufacturing, big data 
and ubiquitous connectivity – and combining this with 
the world’s highest privacy standards and set of digital 
rights – can give this partnership a competitive edge 
over other players. It is not without reason that Japan 
has expressed interest in adopting a similar regulatory 
approach to data as the European Union. 

Together – and against the backdrop of the EU-
Japan Economic Partnership – the two territories 
now have an opportunity to shape the next 
production revolution, ensuring that the ‘things’ 
that connect via the Internet do so safely and 
in full respect of the fundamental right of data 
protection. In the absence of a solid joint EU-Japan 
approach to digital standards for manufacturing, it is 
very likely that either the United States or China – as 
the world’s largest industrial players (Figure 7) – will set 
the tone and enforce their approach towards data and 
privacy on others. By acting first, the EU and Japan can 
both set higher standards and reap important economic 
opportunities from their first-mover-advantage. This is 
subject to continued talks on the future of data flows 
between our two economies.

Figure 7: Top ten manufacturers now and 
in 2020 

2016

2016 
vs. 2020

2020

China

100.0

United States

99.5

Germany

93.9

Japan

80.4

South Korea

76.7

United Kingdom

75.8

Taiwan

72.9

Mexico

69.5

Canada

68.7

Singapore

68.4

India

67.2

+1

-1

+6

-1

+1

-2

-2

-1

-1

100.0

United States

93.5

China

90.8

Germany

78.0

Japan

77.5

India

77.0

South Korea

75.9

Mexico

73.8

United Kingdom

72.1

Taiwan

68.1

Canada

67.6

Singapore

Source: Deloitte, Global CEO survey: 2016 Global Manufacturing 
Competitiveness Index

EPSC Brief 
 
 
 
 
 
 
 
presence in the South Chinese Sea and North Korea’s 
nuclear and ballistic missile programme – which create 
new challenges both in the European and Japanese 
neighbourhoods. The sky-rocketing numbers of daily 
cyberattacks on public and private infrastructure are 
equally harmful to advanced and open societies. The 
EU and Japan are in the process of strengthening 
their respective internal and external response 
capacities. In parallel, multilateral teaming-up 
is much needed. The scope for reinforcing EU-Japan 
security cooperation is considerable, from jointly 
building cyberattack resilience to aligning economic 
sanctions regimes and cooperating on counter-terrorism, 
maritime security, the rule of law, human rights and 
regional dispute-resolution.

Political dialogue and policy coordination are in 
the centre of the EU-Japan partnership, but also 
cooperation on regional and global challenges, including 
environment and climate change, development policy, 
disaster relief and security policy. Regular dialogues are 
held on information society, cyberspace, science and 
technology, trade, financial services and industrial policy. 
Additionally, the EU and Japan have a regular dialogue 
on human rights and cooperate in various forums, 
such as the UN Human Rights Council and in the UN 3rd 
Committee. These political collaborations now hold the 
promise of being reinforced by stronger economic ties, 
leading to a virtuous circle in which the many shared 
interests will not only provide tangible benefits to both 
sides but will also enable more resonance on the global 
scale. 

Conclusion: The strengthened 
EU-Japan partnership is 
about much more than trade 

The EU-Japan Economic Partnership is a mission 
statement about the willingness of two of the world’s 
major economic powerhouses to continue to develop 
close ties based on trade openness, fairness and a 
strong commitment to multilateralism. It will make 
economic exchanges easier for European and Japanese 
firms but it will also bring the EU and Japan 
together in an active campaign for the world of 
rules and shared interests, rather than protectionism 
and go-it-alone solutions to pressing problems. 

Working together to better 
harness globalisation and 
uphold the multilateral 
world order

As modern, open and industrialised democracies, the EU 
and Japan share common values and cooperate 
closely with one another in international and 
multilateral fora such as the United Nations, the 
World Trade Organisation (WTO), and the G7 and G20. 
The scope of their relationship has broadened in recent 
years, going far beyond the earlier trade-related focus 
of the 1970s and 1980s. Building on a far-reaching 
basis of shared interests, the EU established a Strategic 
Partnership with Japan in 2001, and top leaders 
have been meeting at the annual EU-Japan Summit 
since 1991. Over time, EU-Japan relations have also 
deepened, due to a strong convergence of interests and 
mutual trust. The same cannot be said for all of the EU’s 
strategic relationships – and, in this particular time of 
global uncertainty, trusted friends are more valuable 
than ever. 

Combatting climate change is for instance one area 
where both regions have a strategic joint interest and 
can achieve more together than apart. Following the 
US announcement that it is withdrawing from the 
Paris Agreement, Japan7 and EU both reaffirmed their 
unflinching ambition and commitment to the global 
institutions set up to tackle climate change. In fact, 
Japanese industry is already a key global actor in the 
global value chains of clean technologies, including 
being the host of the largest production capacities for 
lithium-ion battery cells, a key enabling technology 
for electric cars. Already in 2016, Japan had the third 
largest electric vehicle fleet on its roads, only after China 
and the United States,8 and Japanese car producers 
Toyota and Honda dominate the global market for 
Hydrogen Fuel Cell Vehicles, together with Korean 
producer Hyundai.

Shared security and regional 
strategic interests 

While seemingly unrelated, trade and economic 
relationships between territories do matter and have 
spill-over effects on security and regional stability. This 
is particularly true with regard to new security risks 
– such as the proliferation of international terrorism, 
Russia’s annexation of Crimea, China’s assertive military 

6

EPSC BriefNotes and References

1.  European Commission, 2017 ‘Countries and Regions – Japan’  
http://ec.europa.eu/trade/policy/countries-and-regions/countries/
japan/ 

4.  European Commission, ‘The EU-Japan agreement explained’, http://
ec.europa.eu/trade/policy/in-focus/eu-japan-free-trade-agreement/
agreement-explained/ 

2.  As a comparison, a study of the effects of the EU-Korea Free Trade 
Agreement previous to its entry into effect estimate exports gains 
of up to 83% (or 41 billion euro) for the EU and of 38% (or 34 
billion euro) for Korea: See Decreux, Y., Milner, C., and Péridy, N., 
‘The Economic Impact of the Free Trade Agreement between the 
European Union and Korea’, Report for the European Commission, 
May 2010.

3.  European Commission, ‘Evaluation of the Implementation of the 

Free Trade Agreement between the EU and its Member States and 
the Republic of Korea Interim Technical Report Part 1: Synthesis 
Report’, June 2017, http://trade.ec.europa.eu/civilsoc/meetdetails.
cfm?meet=11499.

5.  Organisation for Economic Cooperation and Development, 2015 

‘Pensions at a Glance’ http://www.oecd-ilibrary.org/social-issues-
migration-health/pensions-at-a-glance-2015/old-age-dependency-
ratio_pension_glance-2015-23-en

6.  European Commission, Trade Sustainability Impact Assessment 
(Final Report)’, http://trade.ec.europa.eu/doclib/docs/2016/may/
tradoc_154522.pdf, 2016. 

7.  Ministry of Foreign Affairs of Japan, Press Release: ‘Japan’s 

statement regarding the US announcement of its withdrawal 
from the Paris Agreement’, http://www.mofa.go.jp/press/release/
press4e_001610.html, 2 June 2017.

8.  International Energy Agency, ‘Global EV Outlook 2016 – beyond 

one million electric cars’, 2016.

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EPSC Brief