Source: EURLEX
Language: en
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### **`COMMISSION OF THE EUROPEAN COMMUNITIES`**

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                            C0M(92) 219 final

                            Brussels, 21 May 1992

             A CONSISTENT AND GLOBAL APPROACH

        A review of the Community's relations with Japan

        (Communication of the Commission to the Council)

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              A CONSISTENT AND GLOBAL APPROACH

         A review of the Community's relations with Japan

         (Communication of the Commission to the Council)

A. INTRODUCTION

1. The Council last debated relations between the Community and Japan in
April 1988. It adopted on that occasion guidelines for the Community's
policy towards Japan which called for the further opening of markets and
the development of cooperation and strengthening of dialogue. This balanced
approach was an important new turning in policy; in the four years which
followed, significant progress has been made on both the economic and the
cooperative fronts, although the relationship between the two has still to
reach equiIibr ium.

2. It is now time to review the situation in particular in the light of

five new elements:

    - the EC-Japan Joint Declaration issued in the Hague in July 1991.
     This introduced a political dimension into the relationship,
     defined objectives for cooperation on political and security issues
     and on global challenges. It confirmed cooperation on
     international economic and trade questions and on access to each
     other's markets, on the principle of equitable access based on
     comparable opportunities. The intensification of dialogue in this
     new framework has already allowed the identification of promising
     new fields of cooperation between the Community and Japan. It has
     also shown a possible convergence of positions on global problems
     of common interest, such as those of development and the
     environment. This convergence is helped by the perception of both
     sides that problems of society are a central element in a general
     view of economic progress.

    - in bilateral trade, the reversal of recent trends and the future
     outlook justifies concern about the possibility of reducing the
     serious imbalances between the Community and Japan. After a modest
     improvement in the late 1980s, the Community's exports to Japan
     fell in 1991 and the deficit in manufactured goods worsened
     sharply, showing that the base of our exports remains narrow and
     vulnerable to cyclical fluctuations. The essential diversification
     of exports is hindered by remaining difficulties of access to
     Japanese markets, of different types. Moreover, the opening of the
     markets of the Community and of the European Economic Area, and
     their accessibility to Japanese direct investment, will probably
     lead to an increased Japanese presence in Europe. It could well

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                       - 2 
     happen that, over the next ten years, the European market will
     become as important to Japanese industry as the American, in
     contrast, there remain considerable barriers to the Japanese
     market, including structural obstacles.

    - the growing tendency of the United States and Japan to seek
     immediate solutions to bilateral trade problems through
     arrangements which tend to be discriminatory;

    - the strategic importance for the development and competitiveness of
     European industry not only of Japanese but also of South East Asian
     markets, which will grow exceptionally rapidly in the coming years;

    - finally, the opportunities that the Common Foreign and Security
     Policy offers for closer concertation of national foreign and
     security policies as regards Japan, and for improving their
     coherence with the external dimension of Community policies.

B. A CONSISTENT AND GLOBAL APPROACH

3. The emergence of Japan over the last two decades as a great economic
and financial power is a challenge to the international community. Even if
growth rates turn out lower, Japan is likely to maintain a certain economic
momentum relative to Europe and the United States in the 1990s. There will
probably not be radical changes in values, even though more emphasis may be
put on the quality of life and the environment. The full impact of the
radical ageing of the population will not be felt until the next century,
though its effects are already being felt in the labour market (labour
shortages, increased employment of women), in the pattern of savings and
investment and in the cautious stance of budgetary policy.

4. The challenge facing the Community will be to maintain and develop
its technical and industrial strength, while participating fully in an open
multilateral economic system. The response must come from both industry and
government. The capacity of industry, especially manufacturing, to innovate
and restructure will primarily determine the Community's place in the
industrialised world. Public authorities at Community and national levels
must create the conditions for greater competitiveness and encourage the
efforts of industry, both through the Single Market and through
accompany i ng poIi c i es.

5. With regard to Japan, the aim should be the full integration of Japan
into the international system by making it as open to foreign trade and
investment as other advanced economies. Greater penetration of the Japanese
market is vital, not only for the direct economic benefits, but also to
give Community industry the opportunity of competing under equal
conditions in the most advanced market of the world's fastest growing
region (Asia Pacific), of gaining direct experience of advanced technology
and management practices, and of building lasting relationships with
Japanese companies.

 Inversely, the efforts that European companies are making to face up to the
opening of their markets should be taken into account by their Japanese
counterparts, which should modify their own structures to reduce the
obstacles to Japanese markets.

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                      - 3 
6. The Community has achieved considerable success in eliminating formal
barriers in specific sectors in Japan. Some of these remain, but the most
important obstacles now are structural in nature. There are no miracle
solutions in tackling these; eroding them will take time. Indeed open ing
the Japanese market needs a steady haul, in which Member States and the
Community together follow a consistent and global approach. This approach,
which will be described in more detail in the following sections, should be
based on appropriate macroeconomic and exchange rate policies and strong
implementation of anti-trust laws in Japan; industrial cooperation; and
trade promotion. Machinery should be set up to compare the EC's performance
on the Japanese market with that on other markets. This should lead to a
results-oriented dialogue with Japan.

7a Eschewing threats, the Community and Japan must continue to build up
a more mature relationship. Both are in many ways at a similar stage of
taking up their responsibilities on the world stage, Japan because it is
searching for ways of translating its economic power into political
influence, the Community because it is adopting through the European Union
institutions and mechanisms to enable it to play a stronger foreign policy
role. The time is ripe for a strengthened political dialogue, which must
show a qualitative difference from the arrangements currently in force.

7b The Community's relations with Japan represent a vital challenge.
They justify a specific effort to coordinate national policies. As soon as
the Maastricht treaties are ratified, the Commission will launch
appropriate initiatives in the framework of the Common Foreign and Security
Pol icy.

8. Nor must dialogue be confined to foreign policy questions. The
encouraging recent developments in cooperation on science and technology,
social affairs, the environment, and development assistance should be built
on and reinforced. Moreover, the development of the Community's own
financial and monetary personality in the course of this decade will
require a closer working relationship in these areas.

C. RECENT ECONOMIC DEVELOPMENTS

Japan's economic policy

9. In late 1986 and 1987, the Japanese authorities introduced
stimulatory measures in response to calls from trading partners that Japan
reduce dependence on exports and evolve towards an economy led by domestic
demand. The period 1989-90 was one of particularly rapid growth, led by
domestic rather than external demand as in earlier periods. This caused a
substantial rise in imports, to which the "bubble economy" (the massive
rise in the price of assets - in particular land, property and financial
securities - experienced with a dramatic acceleration towards the end of
the 1980's) also contributed: between 1986 and 1990 Japan's current account
surplus fell by 60% to $35.8 billion, and its visible trade surplus by 34%
to $63.5 bill ion.

10. From late 1989 onwards, the Japanese authorities tightened monetary
policy to control inflation, in particular of asset prices. The consequence
was a fall in the growth rate, the bursting of the "bubble" and a doubling

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                     - 4 
of the current account surplus in 1991 to $72.6 billion. Growth is expected
to remain relatively slow, and Japan's current account and trade surpluses

to rise. A further deterioration is therefore to be feared in the

Community's trade position with Japan.

11. Along with variations in domestic demand and the adaptability of
production, price competitiveness (the exchange rate relative to
production costs) determines Japan's trade performance compared to other
industrialised countries. Japan's price competitiveness declined from
1986 to 1988 with the rise in the yen, contributing to the fall in its
surplus. It then improved in 1989 and 1990 pushing up exports. Despite
some deterioration in 1991, it is still better than in 1986, suggesting
that the yen is now on the weak side. In the long run the yen should
appreciate relative to the European currencies.

12. In the Commission's view, Japan has more room for manoeuvre for
sustaining demand in the short term than most industrialised countries
because of low inflation and a general government surplus. The Japanese
authorities should follow policies that allow a return to growth led by
domestic demand and thus a reduction in external imbalances. The Community
and the Member States should urge this approach on the Japanese in the
relevant fora. Further structural reform would also foster growth, as
increased competition inside and from abroad would reduce inflationary
pressures, while deregulation would induce the development of new products.

Trade and investment

13. The Community's visible trade position with Japan changed for the
worse in 1991 after having improved modestly for several years. Between
1987 and 1990, its exports grew by around 25% a year and imports by around
10%, although from a higher base, with the result that the level of the
deficit did not change greatly over the period. The situation deteriorated
abruptly in 1991. Exports fell by 4%, while imports from Japan grew
substantially partly because of the demand boom in Germany; the deficit
consequently Jumped by 25% to around 29.5 billion ECU. The underlying
problem is that a large part of the Community's exports are especially
vulnerable to economic downturns. Our exports have not been able to
diversify sufficiently, although Community companies have proved their
competitiveness on markets other than Japan.

14. These trends reflect the bias of the Community's visible exports to
luxury goods (motor vehicles, textiles and alcoholic beverages). The bias
increased between 1987 and 1990, as these products accounted for nearly
half the growth of exports. In 1991 the growth of the Japanese economy
slowed and the "bubble economy" collapsed, causing spectacular falls in the
Community's exports of luxury goods, and hence a drop in its total exports.

15. Trade in services partially changes the picture. In 1989 Japan's
deficit on service trade with the Community roughly doubled, mainly because
of increased returns from European financial investments in Japan. This
meant that by FY 1990 Japan's current account surplus with the Community

had fallen to one third of its level in 1986-87 and was around half the

trade surplus ($6.2 compared with $16.3 billion).

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                     - 5 
16. The counterpart to Japan's surplus on current account with the rest
of the world has been investment abroad on a large scale, the greater part
in financial assets. As for direct investment (productive assets), this
trebled between 1986 and 1990 to reach $57 billion in the latter year, but
is not on the same scale in the Community ($13 billion) as in the United
States ($26 billion). Direct investment by Community companies in Japan
remains at a low level ($1.1 billion).

D. THE COMPONENTS OF AN APPROACH

Sectoral Issues

17. The Council's conclusions of April 1988 provided for action by the
Community to remove barriers to trade in a number of sectoral markets. The
Commission therefore conducted negotiations in sectors such as motor
vehicles, pharmaceuticals, cosmetics, medical equipment, alcoholic
beverages, leather and leather footwear, and the control of counterfeits.
These negotiations have been largely, although not wholly, successful.
Exports in many of the sectors rose sharply.

18. However, the Community still has requests on the table on which
little progress has been made, of which agricultural products are among the
most significant (annex 1). Most of the issues are under negotiation in
the Uruguay Round. If the results of the Round prove inadequate, or a
conclusion unreasonably delayed, the Community should resume direct
negotiations, in the spirit of the Joint Declaration. The list of requests
should be kept under permanent review between the Commission, industry, and

the Member States.

19. The Japanese market for services is particularly important; but
European companies only enjoy a modest share of it. If the conditions for
business were more favourable, it could offer European firms significant
opportunities, which in turn would allow fuller support for other Community
companies operating in Japan. A priority is the liberalisation of
financial services. Japan grants national treatment to Community banks as
regards establishment and operation but there are a number of market
features which, added to the rigidities in the laws and regulations, make
it difficult for Community banks to compete. Competition in the insurance
field and entry to the investment trust market remain difficult. Japan is
in the process of overhauling its financial regulations. The Community
should maintain its efforts to secure a further opening of the market for

serv ices.

Structural obstacles

20. Important though sectoral issues are to certain sectors and regions
of the Community, they are not determining in the overall economic
relationship. The concessions requested should continue to be sought, but
obtaining them will not have an major impact on trade, nor tackle the heart
of the problem. This lies in the structural obstacles which are currently
the main barriers to doing business in Japan, whether by exporting or by
investing there. Although some progress has been made through increases in

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infrastructure expenditure, more vigorous enforcement of anti-trust
legislation, and some liberalisation of distribution, the pace of
structural reform remains frustratingIy slow, despite declarations of
intention by successive governments.

21. The fundamental problem is the failure of competition and market
mechanisms in many spheres: ineffective competition policy, exclusive
business practices, close and often obscure relations between the public
authorities and the private sector, the inflation of land prices by tax and
land-use law, and the over-regulation of certain sectors. (These issues
have been exhaustively analysed in the Structural Impediments Initiative of
the United States and Japan. The Community shares much of that analysis
despite its concern about the instruments chosen by the United States to
pursue its objectives).

22. The EC-Japan Joint Declaration recognises the need to tackle
structural among other barriers to markets and provides a framework for
consultation and cooperation. The Community must build an effective
dialogue with Japan, concentrating on structural problems of specific
interest to it. Foremost among these are the remaining weaknesses in
competition policy. The enforcement of anti-trust law is inadequate and
should be carefully followed to ensure that it has a sufficiently deterrent
effect; the exemption of certain sectors from the anti-monopoly act should
be eliminated; and the Fair Trade Commission should investigate problems of
concern to Japan's trading partners (the Commission intends to propose
certain areas for study in the near future).

23. The distribution systems also remain a cause for concern,
particularly as the Community is a major exporter of consumer goods.
Although some liberalisation of large-scale retailing is under way,
problems remain of tied distribution and anti-competitive practices. Wi th
the help of industry, the Community should identify specific obstacles to
the freer distribution of EC goods and invite the Japanese authorities to
pay special attention to these.

Industrial cooperation

24. The second main thrust of the Community's approach to Japan, after
the competition component, should be industrial cooperation. It is
unrealistic to assume that the result of structural reform in Japan will be
to create a society identical with that of the United States or the
European Community. The structural obstacles mentioned above are different
from the basic social values and the organization of society which have
contributed to Japan's economic success. Successful penetration of the
Japanese market will in the long run depend on not working against the
grain of Japanese society. Long term relations between companies are
central to business life in Japan. This is particularly the case for those
products, other than luxury consumer goods, in which the Community industry
is competitive but has not yet made a breakthrough on the Japanese market
(as witnessed by the trade figures).

25. This is a lesson which has already been learnt by the United States.
The arrangement on semi-conductors and that on autos and auto-parts, the
discriminatory aspects of which will : be discussed later, will operate

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                     - 7

successfully to the extent that they reflect genuine industrial cooperation
between the private sectors. The United States and the Japanese governments
are setting up structures to encourage this development. The Community
cannot afford to lag behind.

26. Community industry is in a relatively favourable position to make a
success of the approach outlined above. Increasing Japanese manufacturing
investment in the Community gives EC suppliers an opportunity to form
business relationships based on meeting Japanese requirements on quality,
reliability of delivery, and price, while Japanese companies should play
their part by being open to new suppliers, assisting them to meet
requirements, and involving them at the design stage. With companies from
both sides, the Commission and the Japanese authorities are considering
launching a pilot programme to improve the supply of components used in the
production of consumer electronics by Japanese firms notably in the
Community. If successful, it might serve as a model for other sectors.

27. It is also open to EC and Japanese firms to conclude strategic
alliances on the development of and production of new products. Both may
need partners to share the cost and risk of new investments and to engage
research, faced with strong competition on their domestic markets. There is
also the interest of access to new technologies and markets. Recently
examples of such alliances have increased.

28. Both these approaches presuppose a greater knowledge and understanding
of Japan and the Japanese economy on the part of Community industry. It is
not unreasonable to expect that any businessman dealing with Japan on a
regular basis should have a comprehensive knowledge of these matters. This
requirement applies not only to the big firms, but also to small and medium
sized enterprises. There is, moreover, a wider problem of very little
learning of Japanese before entry into professional life.

29. It is no part of the duties of government to take decisions on behalf
of industry. Instead, both Member States and the Community should work to
create a favourable climate in which industrial cooperation can thrive. In
particular, the Community should:

    - in cooperation with the Japanese government, seek ways of
     facilitating industry's participation in mutually beneficial
     cooper at ion-.

    - further examine possibilities of facilitating the adaption by
     European parts suppliers to the requirements both of the Japanese
     market and of Japanese companies in Europe;

    - maintain and extend its Executive Training Programme (ETP) to
     broaden and deepen industry's understanding of Japanese and the
     Japanese industrial economy:

    - together with the Japanese government, strengthen the EC-Japan
     Centre for Industrial Cooperation:

    - advocate the establishment by the Japanese, government of new,
     coordinated business faciIities for Community industrial newcomers
     to the Japanese market, especially small and medium sized
     enterpr ises.

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Investment

30. Direct investment in Japan is often essential to penetrate markets,
but that by Community companies remains low, hindered both by real and
perceived structural obstacles. Industrial cooperation on the lines
suggested above should ease the situation over time. In the meanwhile, the
Japanese authorities could more effectively improve the climate for foreign
investment, particularly by encouraging interest in careers in foreign
companies operating on the Japanese market among Japanese manage r s_ _ and
students. in order to obviate current difficulties in local recruitment; by
clarifying and advising on tax liabilities and other regulatory
requirements: and by liberalising the market for support services support.
such as financial and legal services. The Centre for Industrial Cooperation
provides a useful forum for activities of this type. As for financial
incentives for investment, the Commission welcomes the measures recently
taken by the Japanese authorities, but counts on them making sufficient
funds available and on raising the value of the incentives if that proves
necessary. There remains a major obstacle to investment, however, the
difficulty of carrying out merger and acquisitions in Japan. Cross
shareholdings and general business culture largely block investment by this
channel. This should be looked into more closely.

31. For its part, the Community welcomes Japanese direct investment,
which can make a contribution to industrial development and renewal
throughout the Community, provided it is sufficiently integrated into the
economic fabric. It should be the object of all concerned to ensure that
Japanese investment remains as welcome in the Community as US investment
has proved to be in the past, after initial doubts of a similar nature. To
this end, the Community and its Member States should follow a common line
towards the issue, namely that Japanese investment should result in the
creation of new lobs, be fully integrated into the Community's economic
fabric through the use of European suppliers, and lead to the transfer of
research and development and ultimately of management functions to Europe.

Export Promotion

32. The third main thrust of the Community's approach to Japan, after
competition and industrial cooperation, is export promotion. A growing
number of Member States is embarking on important initiatives to encourage
the promotion of their exports to Japan. This is an example which should
be followed by all. For its part, the Commission intends to build on the
experience of its activities for the promotion of exports to Japan (EXPROM)
over the last ten years. The ETP programme has already been discussed. For
the rest, the Commission intends to continue to follow a coherent policy,
complementary to that of the Member States. Within these parameters, it
will develop its policy in two new directions.

32a. First, j_t_ will attempt to build synergies between the export
promotion programmes of the Community and those of the Member States. This
could eventually allow the identification of projects to be Jointly
undertaken by the Community and the Member States and the provision of
seed-money by the Community for new ones. A promising area, where the

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Commission is faced with rising demand, is Joint European participation in
trade fairs which are important to business in Asia. The Commission
intends to respond favourably to the co-financing requests of European
industry.

33. Secondly, the export promotion programmes of the Community and of the
Member States and Japanese import promotion schemes could be made more
complementary. This should be discussed in a more structured dialogue with
the MITI. Similarly, the Community needs to ensure that industry exploits
to the full the commitments to increase imports and local procurement from
foreign companies contained in the Business Global Partnership Initiative.
A higher degree of coordination at Community level would considerably
improve the chances of European companies benefiting from Japanese
promotional measures, like their United States competitors.

Public procurement

34. The opening of the Community market, through the introduction of the
Single Market, and the abolition of remaining national restrictions,
entitles the Community to expect that public procurement in Japan and
procurement by private companies under governmental guidance will be
equally open to foreign competition. The Community has proved competitive
in world markets, public works, railways, aeronautics, satellites, and
telecommunications but has not made a commensurate breakthrough on Japanese
markets. In all these areas, the Community will continue to seek nondiscriminatory opening of the Japanese market. together with the
application of GATT rules to comprehensive lists of procuring entities and
of public works and other services, greater transparency in tendering and

in the criteria for selection.

Discriminatory solutions to bilateral trade problems

35. This transparency and equality of treatment is particularly important
in the light of the recent trend to negotiate deals between the United
States and Japan which are discriminatory in intention or effect. The
provisions on autos and auto-parts contained in the Global Partnership Plan
of Action are the latest of these. This trend is unacceptable in the
context of the new relationship symbolised by the Hague Declaration, as it
leads in practice to discrimination between trading partners and the

distortion of trade.

36. The Community should insist with Japan that contracts should only be
awarded for commercial reasons; that bilateral arrangements should be made
transparent by the provision of full information on their working and
results, in terms of sales and contracts; and that third countries,
including the Community, should take part in the joint review committees
set up with the United States (for example on semiconductors and the public
procurement of computers). The Community will closely review the evolution
of trade between the Community and Japan and between the United States and
Japan in the products covered by bilateral arrangements to identify
possible discriminatory effects. Moreover, in this and other fields, the
Community should continue to assert its rights under GATT, with recourse to
the new commercial instrument when appropriate.

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E. INFORMATION TECHNOLOGY. TELECOMMUNICATIONS. AND HDTV

37. In the process of market unification, standardisation in
telecommunications and information technology is essential to improving the
competitiveness of Community producers. A major element in the Community's
approach to standardisation is compatibility with international norms. In
Japan a significant reorganisation of standardisation activities has been
gradually implemented, with an emphasis on full participation in
international exercises in which Japan intends to play a leading role in
the future. The reorganisation also implies that proprietary Japanese
standards be progressively aligned with international ones. The Commission
will continue to insist that Japan strictly applies international standards
and that Japanese standards are transparent, a condition for making
markets more accessible to European suppliers of equipment and services.

38. In information technology, a significant achievement has been Japan's
commitment to the introduction of open systems; a sign of this is the
specification of open systems standards in public procurement. While a
group on standardisation was established by the Commission and the Japanese
authorities to exchange information on respective policies, this has been
superseded by the active participation of both sides in international

bodies.

39. In telecommunications, less progress has been made and the Commission
constantly presses the Japanese authorities to make the standardisation
process more transparent. The Commission has regular discussions with the
Japanese authorities, and encourages European representatives, preferably
from industry, actively to participate in fora initiated by the Japanese
authorities. Moreover, an interconnection experiment is currently being
prepared to test the compatibility of equipment and to identify divergences
in standards (and proprietary ones).

40. No significant progress has been made in defining a harmonised
transmission standard for High Definition Television. The Community
supports a standard that would respect the gradual introduction of new
technology, while Japan maintains its original proposal which implied the
early de facto adoption of its norm. Both sides are now promoting their

standards both on their domestic and on international markets. As for a

production standard, no progress has been made since the meeting of the
CCIR, in 1990.

41. In the field of information technology and telecommunications,
cooperation is gaining in importance because of the significance of the
global market, including Japan. In telecommunications, where the Community
is competitive and has leading-edge technology to offer, a growing number
of European firms are becoming attractive industrial partners for major
Japanese companies. Cooperation in semiconductors is weak compared with
the efforts made by United States industry. The Commission has initiated a
dialogue with the Community's semiconductor industry to encourage a greater
European presence in Japan. In the software sector, the relative strength
of European industry offers opportunities which have not been fully
exploited to date.

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F. COOPERATION

Achivements since 1988

42. The Community has succeeded in giving considerable substance to the
Council's expressed desire in its conclusions of 1988 to strengthen the
cooperative relationship with Japan. This is particularly the case with
science and technology. More recently, encouraging progress has been made
on development aid, the environment, and social questions. Developments in

these sectors will be set out below.

Poli t ical dialogue

43. Progress on political dialogue has so far fallen short of
expectations. There has been difficulty for reasons of timing in keeping to
the schedule of meetings, and when they have taken place they have shown
that the dialogue between the Community and Japan falls behind that between
the Community and the United States in intensity, whereas the two should be
more nearly on the same level. The Community, the United States and Japan,
although sometimes in competition, are nevertheless facing largely the same
challenges in to-day's economically and politically interdependent world;
it would make sense to reflect on structures to improve the chances of
facing them together. The attitude which the industrialised world takes to
Russia and the other Republics of the former Soviet Union will be an early
test of this. The Commission and the Member States, in the framework of a
global approach, intend to pay special attention to this aspect of the
relat ionsh ip.

44. The G24 experience has shown that this sort of cooperation is
feasible. The Commission welcomes Japan's increasing involvement in the
programme of economic assistance to the countries of Central and Eastern
Europe, although an increase in grants would be desirable. An effort to
improve the rate of private investment would also be helpful.

Science and technology

45. Science and technology in Japan have traditionally been dominated by
research directed towards industrial applications. In contrast, basic
research has tended to be on a minor scale. This approach, together with
the particular concept of what is precompet i t i ve that follows, is being
carefully considered in the debate on the redirection of research policy in
Europe, where basic research still plays a major role. This is an important
field of dialogue and cooperation between the Community and Japan, in
particular as the latter has shown a growing interest in basic research.
The challenge for the Community is to identify the areas where

collaboration is in its interest and to ensure that benefits flow in both

directions to an adequate extent.

46. One area where strong potential for mutually beneficial research has
clearly been established is nuclear energy. The Community and Japan have
already signed agreements on thermo-nuclear fusion, nuclear materials
safeguard and protection against radiation.

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                     - 12 
47. The new openness of Japanese research laboratories is welcome.
Better opportunities are thus offered for many European scientists and
engineers to carry out long-term research activities in leading Japanese
institutions. In the long run, this will increase the number of Japan
experts and will strengthen the human network between the European and
Japanese scientific worlds. The Commission runs its own fellowship
programme and nominates candidates for a similar Japanese programme. The
efforts made by the Community, and its Member States, to develop such links
with Japan need to be matched by private sector initiatives.

48. In recent years, Japan has proposed several international projects
whose results would come in the long term. Typically they would involve
Joint research projects, technological as well as scientific, carried out
by private sector, governmental and academic laboratories in Europe, Japan
and North America. The pilot phase of the Human Frontier Science
Programme, which involves basic research to elucidate the complex
mechanisms of living organisms, was completed in March 1992; the programme
is now entering its next phase. The Intelligent Manufacturing System
programme, covering advanced manufacturing technology, was originally
launched by Japan but has become a truly trans-regional exercise. On the
basis of a two-year feasibility study, the Community will decide on its
participation in the full ten-year programme. The importance of IMS lies
in the attempt to establish a model for trans-regional cooperation in an
applications-orientated domain. There are other initiatives launched and
led by Japan, such as the Real World Computing programme* [1] ), with which
Japan seeks to associate foreign researchers and laboratories. While
generally favourable to these initiatives, the Community is defining with
care the nature and organisation of its participation to ensure balanced
advantages.

49. Finally, the Community does not have a formal channel to handle
science and technology cooperation with Japan and has to proceed on a caseby-case basis, an approach whose limitations are clear. The Community is
currently studying, with support from the European Parliament, a Japanese
proposal for a forum in which to consider major issues of cooperation in
science and technology.

50. The localisation of R and D activities is becoming relevant to the
general investment questions mentioned earlier. An increasing number of
Japanese R and D centres are being set up in the Community; these should be
well integrated so as to contribute effectively to the development of the
Community's R and D fabric. On the other hand, there are only a few
examples of Community firms establishing R and D activities in Japan. They
should demonstrate their commitment to a long term presence in Japan by
increasing their R and D activities there.

Env i ronment

51. The Joint Declaration explicitly identifies the environment as an
area where cooperation should be developed. This has been given a clear
impetus by the first high level consultations on the environment held
recently between the Commission and the Japanese authorities, which helped

(1) covering advanced computing, formerly called the New Information
    Processing Technology programme.

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                     13

identify specific areas of cooperation. On global issues such as the
environment and development, climate change and biodiversity, the positions
of the Community and Japan in international fora are often close; i t wou I d
be advantageous further to coordinate them, with a view to building up the
leading role they could Jointly play in this area.

52. Concrete actions were also identified: Joint act iv i t ies on problems
such as acid rain and emissions of C0 2 and other greenhouse gases, and in
programmes on the ground like those concerning tropical forests in Brazil
and Sarawak. The two sides also agreed to exchange information on
environmental developments and policy in the Community and Japan, including
the use of economic and fiscal instruments, waste management, the
classification of dangerous chemicals, the regulation of biotechnology and
the situation in Central and Eastern Europe. Views have been exchanged on
preparations for the Rio Conference.

Development Assistance

53. A coordinated approach by all donors is required to make effective
the policy reforms adopted by many developing countries. Until 1991,
relations with Japan in the development field hardly existed, despite
attempts to begin a dialogue. These were relaunched however,during
President Delors' visit to Japan in 1991 and by the Joint Declaration. Such
cooperation is of importance because of the major part the Community and
Japan play in development assistance; the role of the EC will be further
reinforced by Political Union. As for Japan, it should make a greater
contribution to the international aid effort, so that a fair sharing of the
financial burden is achieved. It would also be desirable for Japan to
devote a greater part of its aid to the least developed countries.

54. Moreover, there is a certain complementarity between the policies of
Japan and the Community. The Community has a strong and well-established
presence in Africa, Middle-East and Central and South America whereas Japan
has tended to concentrate on Asia. Therefore, they could benefit from each
other's expertise, including possibly on Southern Africa. A series of
meetings between the Commission and the Japanese authorities have begun, to
define in the first place the common ground between each side's policy. A
considerable level of agreement has emerged and the basis laid for a
fruitful dialogue and for strengthening collaboration in the future, which
could lead rapidly to more operational cooperation, possibly including cof inaneIng.

Social Affairs

55. Greater understanding of the organisation and conditions of work, of
industrial relations and of social legislation would benefit the business
community and trade unions in both the Community and Japan. The Commission
and the Japanese authorities intend to contribute to this, by facilitating
exchanges of information and the develoment of a broad dialogue between a I I
parties concerned. A Joint programme has been started to promote the
exchange of experts, from government and from both sides of industry, and
joint studies on employment, training industrial relations and labour

affa i rs.

```

```
                      - 14

Energy

56. The Community and Japan, as important consumers and importers of
energy, share interests in the energy field, among which is the rational
use of energy and the development of renewable resources. The development
and utilisation of new, innovative technologies in these fields could be a
fruitful area for cooperation between the Community and Japan. Where the
Community has a technological lead, for instance in wind energy and
photovoltaics, biogas and energy efficiency in buildings, it could provide
benefits for the Community's industry. Recently, energy issues having a
major impact on the environment, such as the relation between emissions
from energy use and global warming, have been discussed.

Culture and mutual understanding

57. In view of Japan's place in the world, a greater understanding of its
society, values, tradition and culture is urgently needed in the Community,
where real knowledge of Japan is rare. While Japanese comprehension of
Europe is probably greater and more widely spread, it can be based on
antiquated stereotypes and ignore the Community dimension or adopt a
sceptical attitude towards it. For these reasons, the Commission is
seeking with the Japanese authorities ways of promoting mutual
understanding, and proposes the encouragement of exchanges of different
kinds. It is also considering the possibility of coordinating European
cultural activities in Japan, to maximise their impact and create awareness
of European culture in general.

G. TOWARDS A MORE EFFECTIVE DIALOGUE

58. The EC-Japan Joint Declaration sets out the framework for dialogue
with Japan, reinforcing the mechanisms for consultation and cooperation.
These should be used to follow the implementation of the declaration and to
give an impetus to cooperation and the solution of problems. This
communication has attempted to identify the main thrust of what should be
the Community's approach. Throughout the communication, the principle
conclusions under each heading have been emphasized. It is proposed that
the Council should adopt these conclusions as the operational basis of the
Community's policy towards Japan. A draft text is appended (Annex 2 ) .

59. Progress in the implementation of this policy will need to be reviewed
at regular intervals, to ensure that concrete results are achieved. As
regards the cooperative dialogue, the occasions foreseen in the EC-Japan
Joint Declaration should be used to review progress and to identify new
fields. As far as the economic relationship is concerned,the Commission
proposes the following new method in line with the EC-Japan Declaration.

60. The Commission will regularly carry out a statistical analysis of
developments in the trade of goods and services, of the necessary degree of
sophistication. To set this in context, a comparison will be made with the
Community's performance on the markets of its other comparable trading
partners, and the performance of Japan's partners on the Japanese market.
This process will help the timely identification of obstacles to the normal
development of sales by Community firms on the Japanese market. The results
of this analysis will be submitted to the Member States for their comments.

```

```
                       15 
The Commission will then proceed to a regular and systematic evaluation
with the Japanese authorities of the results of the analysis. This analysis
should lead to recommendations on the mesures required to advance the
penetration of Japanese markets by Community firms. The process would be
conducted in the framework of the Joint Declaration, which provides for
consultation on market barriers, including structural obstacles. The
recommendations would be presented for discussion to the annual High Level
Consultations. A general review of the situation would be undertaken by the
annual ministerial meetings. The Member States would be associated with
this process through appropriate procedures.

It should be emphasized that the purpose of this process will not be to set
quantified objectives for trade, but to identify problems, to establish
their causes, and to propose action for their timely resolution.

61. The Commission believes that the approach it suggests combines an
improvement of its own activities, (respecting the principle of
subsidiarity, particularly regarding initiation to Japanese language and
culture) with the necessary cooperation with Member States. The
orientations it lays before the Council, together with the procedures
foreseen for regular review with the Japanese side, will enable the
Community to continue to build up its relationship with Japan on a mutally
satisfactory basis, and thus enable them together to play the role each is
called upon to assume in the world.

```

```
                                 ANNEX 1

SECTORAL OBSTACLES TO JAPANESE MARKET

As far as the access to the Japanese market is concerned, the main following
obstacles can be identified regarding foodstuff products, industrial
products, services or rules of general application.

I) Industrial products
   A) Tariffs
      inter alia, level of tariffs on leather and leather shoes (primary
      and secondary tariffs), synthetic menthol, ferro-nickel and
      refined and unrefined copper.
   B) Standards and certification
     * motor vehicles: issues open in the domains of safety and
      pollut ion.
     * pharmaceuticals and medical equipment: unnecessary delays in
      registration and not great enough acceptance of international
      standards and test procedures.
   C) Taxat ion

      level of consumption tax on cars.
   D) Trade measures
      quotas on leather and leather footwear.
   E) Label Iing
      confusing linen labels.

II) Services
   A) Restrictions for the access to the profession of lawyers
     * counting of experience for qualifying as a foreign lawyer.
     * use of home firm name.

     * arbitrat ion.

   B) Financial services

     inter alia

     * openness and transparency of the financial markets.
     * conditions of the insurance market.

     * regulation affecting the management of pension funds by investment

      managers.
     * procedure for the award of investment trust management licences.

III) Foodstuff products
   A) Tariffs
     * level: high tariffs specially on cheese, processed pork, beef,
           sugar confectionary, bottled wine, brandy and whisky, corn
           starch and potato starch.
     * calculation of duties: discriminatory calculation of custom value

                     for coffee f iIters.

   B) Phytosanitary measures
     * import ban on EC fruits (citrus, apples and pears) and vegetables
      (Med fly).
     * zero tolerance of insects on cut flowers and live plants.
     * non-acceptance of on-board cold treatment procedures for fruit.
     * pre-inspect ion of cut flowers shipments.
     * gassing treatment requirement for tomatoes, apples and pears.
   C) Veterinary measures
      prohibition of imports of chilled or frozen pork from EC except
      IRL. Northern Ireland, DK.

```

#### **_.*£_**

```
   D) Sanitary measures
     * radioactivity checks on imported EC foodstuffs.
     * ban on dairy products additives (nisin).
     * zero tolerance on residues in livestock products.
     * processed meat: approval of processors and veterinary
      certification system.
     * additive rules for pastry.
     * prior registration: tomato juice and sauces, fruit juices.
   E) Prohibitive standards for processed meats
     * import ban on Parma ham.

     * coli forms.

     * zero tolerance on bacterial activity for dried ham and sausages.

     * out-dated heat treatment rules for meat.

   F) Trade-related measures
     * QR's on certain fish products and allocation of the quotas.
     * QR's on milk and cream and on starch and inulin.
     * import tenders for skim milk powder and butter
     * fraudulous imports of pork from Taiwan.
     * low quotas for cheese.
     * processed meat, fruit juices: monopoly of distribution; import
      licences subject to local lobby.

   G) Administrative guidance
      restrictive prenotation administrative guidance for butter mix.
   H) Taxat ion

     * liquor tax differentials.

     * unfair taxation of imitation whiskies.

     * commodity tax on fruit Juices.
   I) Label Iing
      "date of manufacturing" or "date of importation" markings.
   J) Def ini t ion/classi f icat ion

     * restrictive definition of fondue cheese.

     * tariff classification of ice cream powder.
     * minimum protein content of skimmed milk powder.

, v ) Rules of general application
   A) Distr ibut ion
     * restrictive provisions of the Large Scale Retail Stores law.
     * absence of liquor licences for most supermarkets.
     * captive retail outlets.
     * restriction of opening of dealership/repair shops for automobiles.
   B) Compet i t ion
     * effective enforcement of competition law to create sufficient

      deterrent effect.

     * elimination of areas exempt from scope of Anti-Monopoly Act.
     * conditions for foreign sole import agent contracts.
   C) Intellectual property
      too mild custom procedures and penalties against counterfeiting
      (f.i. in the field of liquor).
   D) Government procurement
     * closed specification process.
     * lodging of complaints.
     * pre-bid qualification process and registration procedures.
     * duration of the bidding period.
     * non-transparent criteria to evaluating bids.
   E) Administrative obstacles

      conditions for custom clearance.

```

```
                          ANNEX 2

               DRAFT COUNCIL CONCLUSIONS

1. The Council confirms the need for a balanced approach in relations
  with Japan based, on the one hand, on policies to further the
  penetration of Japanese markets by Community firms and, on the other,
  on the strengthening of dialogue and the development of cooperation
   in areas of mutual interest. It believes that the EC- Japan
  Declaration issued in July 1991 provides an appropriate framework for
  consultation and cooperation and that both sides must make every
  effort to give substance to the goals it sets.

2. The Council welcomes the steps that the Japanese government has taken
   in recent years to improve access to certain sectoral markets. It is
  concerned, however, by the recent deterioration in the Community's
  trade position with Japan, by the return to growth led by export
  rather than domestic demand, by the lack of progress in opening
  specific sectoral markets, by the slow pace of structural reform, and
  by the growing tendency of the United States and Japan to seek
  solutions to bilateral trade problems through arrangements that
  appear discriminatory. It believes that the Member States and the
  Community together must follow a consistent and global approach
   towards economic and commercial issues, attaching particular
   importance to the removal of structural obstacles.

ECONOMIC POLICY

3. The Council calls on the Japanese authorities to resolve the above
   issues, and in particular:

Macro-economic questions

  - to follow policies that allow a return to growth led by domestic
    demand, and furthered by structural reform, and a reduction in
    external imbalances; the Community and the Member States should
    pursue this approach also in the relevant international fora;

  - to follow a policy which in the long run will permit the yen to
    appreciate relative to the European currencies;

Sectoral issues

    to remove barriers to trade in sectoral markets important to the
    Community, accepting the resumption of direct negotiations if the
    results of the Uruguay Round prove inadequate or a conclusion is
    unreasonably nnrpacnnahlv r!p>lav*»H- delayed;

```

##### **i f**

```
                      - 2 
Structural obstacles

    further to strengthen competition policy and, in particular, to
    enforce competition law so that it has sufficient deterrent
    effect, to eliminate the exemption of certain sectors from the
    anti-monopoly act and to study competition issues of concern to
    the Community;

   to remove specific obstacles to the free distribution of Community
  goods and services.

Industrial cooperation

4. The Council underlines the importance of industrial cooperation in
   the EC-Japan relationship. The Community should:

    cooperate with the Japanese government in seeking ways of
     facilitating industry's participation in mutually beneficial
    cooperat ion;

     further examine possibilities of facilitating the adaptation by
    European parts suppliers to the requirements both of the Japanese
    market and of Japanese companies in Europe;

   - maintain and extend its Executive Training Programme (ETP) in
    order to broaden and deepen industry's understanding of Japanese
    and of Japan's industrial economy;

     together with the Japanese government, strengthen the EC-Japan
    Centre for Industrial Cooperation;

    advocate the establishment by the Japanese government of new,
     coordinated business facilities for Community industrial newcomers
     to the Japanese market, especially small and medium sized
    enterprises.

Investment

5. The Council welcomes Japanese direct investment in the Community,
   provided it is sufficiently integrated into the Community's economic
   fabric so as to make a full contribution to industrial development
   and renewal throughout the Community. To this end, the Community and
   the Member States should follow a common line towards the issue,
   namely that Japanese investment should result in the creation of new
   jobs, be fully integrated into the Community's economic fabric
   through the use of European suppliers and lead to the transfer of
   research and development and ultimately of management functions to

   Europe.

6. The Council calls on the Japanese authorities to improve the climate
   for foreign investment in Japan, particularly by encouraging interest
   in careers in foreign companies among Japanese managers and students;
   by clarifying and advising on tax liabilities and other regulatory
   requirements; and by liberalising the market for support services,
   such as financial and legal services.

```

```
                     - 3

Export promotion

7. The Council supports the Comission's intention to build synergies
  between the Community's Export Promotion Programme and those of the
  member states and to develop complementarity between Community export
  promotion programmes and Japanese import promotion schemes.

Public procurement and bilateral arrangements

8. The Council calls on the Japanese authorities:

    to open public procurement further and to avoid discrimination in
    the awarding of contracts, with greater transparency in tendering
    and in the criteria for selection;

    to ensure that, in the context of bilateral arrangements and
    otherwise, contracts are awarded for purely commercial reasons and
    there is full transparency on the working of these arrangements;

     in information technology and telecommunications, to strengthen
    cooperation in strategic sectors and to ensure that Japan strictly
    applies international standards and that Japanese standards are
    transparent, a condition for making markets more accessible to
    Community suppliers of equipment and services.

POLITICAL DIALOGUE

9. In the framework of a comprehensive political dialogue between the
   Community and Japan, based on the Joint Declaration of July 1991 and
  on a regular political assessment, the Council should make a
   continuous effort to strengthen relations between the Community and
   Japan in all fields and to define possible common actions, taking
   full advantage of the common interests which link the Community and
   Japan in many areas. At the same time, the Community and its Member
   States should make every effort to coordinate their positions and to
   improve cooperation in order to develop a common stance.

COOPERATION

10. The Council fully supports the intention of the Commission to develop
   cooperation in the following fields and with the following aims in

   v iew:

     in science and technology, to strengthen cooperation in strategic
    sectors, to define areas where collaboration is in the Community's
     interest, to ensure that benefits flow in both directions to an
    adequate extent and to explore a Japanese proposal for a forum in
    which to consider further cooperation in this field;

    as regards the environment, further to coordinate positions on
    global issues and to participate jointly in specific programmes
    and in projects on the ground;

```

##### **_lb_**

```
                      4 
    in development assistance, to better share the financial burden,
    to strengthen coordination so as to make effective the policy
    reforms adopted by many developing countries, and to develop
    further collaboration leading rapidly to more operational
    cooperation, possibly including co-financing;

    in social affairs, to faciliate exchanges of information and the
    development of a broad dialogue;

    in energy, to discuss cooperation, particularly in areas such as
    clean technology which have potential industrial benefit for the
    Commun i t y;

    to discuss ways of promoting cultural exchange and mutual
    understanding.

METHODS

11. To ensure that the Community's policy towards Japan gives concrete
   results, the Council approves the methods proposed by the Commission,
  namely:

  - as regards the cooperative dialogue, to use the occasions foreseen
    in the EC-Japan Joint Declaration to review progress and identify
    new fields;

   - as far as the economic relationship is concerned, the Commission
    will regularly carry out a statistical analysis of developments in
    the trade of goods and services, in comparison with the
    Community's performance on the markets of its other comparable
    trading partners, and the performance of Japan's partners on the
    Japanese market. After the results of this analysis have been
    submitted to member States for their comments, the Commission will
    proceed regularly to a systematic evaluation with the Japanese
    authorities, using the Community's performance with other advanced
    trading partners as a reference. Resulting recommendations will
    be presented to the Annual High Level Consultations. A general
    review will be undertaken by the Annual Ministerial Meetings. The
    Member States will be associated with this process through
    appropriate procedures. The purpose of the process will not be to
    set quantified objectives for trade, but to identify problems, to
    establish their causes, and to propose action for their timely

    resolution.

A CONSISTENT AND GLOBAL APPROACH

12. The Council recognises that the success of these policies will depend
   on the adoption of a consistent and global approach. It calls on the
   Member States and the Commission to achieve this together, on the
   basis of what precedes.

```

##### **ISSN 0254-1475**

### **COM(92) 219 final**

# **DOCUMENTS**

## **EN 11**

### Catalogue number: CB-CO-92-240-EN-C ISBN 92-77-44611-0

##### **Office for Official Publications of the European Communities** **L-2985 Luxembourg**