Source: EURLEX
Language: en
Format: md

**Council of the**
**European Union**

**Interinstitutional File:**

**2018/0092 (NLE)**

**PROPOSAL**

**Brussels, 18 April 2018**
**(OR. en)**

**7959/18**

**WTO 63**
**SERVICES 12**
**COASI 80**

From: Secretary-General of the European Commission,
signed by Mr Jordi AYET PUIGARNAU, Director

date of receipt: 18 April 2018

To: Mr Jeppe TRANHOLM-MIKKELSEN, Secretary-General of the Council of
the European Union

No. Cion doc.: COM(2018) 193 final

Subject: Proposal for a COUNCIL DECISION on the signing, on behalf of the
European Union, of the Economic Partnership Agreement between the
European Union and Japan

Delegations will find attached document COM(2018) 193 final.

Encl.: COM(2018) 193 final

7959/18 BK/asz

## DGC 1 EN

EUROPEAN

COMMISSION

Brussels, 18.4.2018
COM(2018) 193 final

2018/0092 (NLE)

Proposal for a

**COUNCIL DECISION**

**on the signing, on behalf of the European Union, of the Economic Partnership**

**Agreement between the European Union and Japan**

# **EN EN**

**EXPLANATORY MEMORANDUM**

**1.** **CONTEXT** **OF** **THE** **PROPOSAL**

**•** **Reasons for and objectives of the proposal**

Japan is the world’s third largest economy outside of the EU in terms of GDP, yet only EU's
seventh largest trading partner. It has a population of over 127 million inhabitants with a very
high purchasing power. It is a key market for European Union exporters, services providers
and investors.

On 29 November 2012, the Council authorised the Commission to enter into negotiations for
a Free Trade Agreement (FTA) with Japan. The Free Trade Agreement with Japan was
renamed the "Economic Partnership Agreement" (the EPA) at the time of the conclusion of an
agreement in principle on 6 July 2017.

On the basis of the negotiating directives adopted by the Council in 2012 the Commission has
negotiated with Japan an ambitious and comprehensive Economic Partnership Agreement
with a view to creating new opportunities and legal certainty for trade and investment
between both partners. The texts of the EPA after the finalisation of the negotiations were
published in December 2017.

The EPA does not include investment protection standards and investment protection dispute
resolution because the still ongoing negotiations on those subject matters could not have been
completed at the time of the conclusion of the EPA negotiations. The firm commitment on
both sides is to complete the investment protection negotiations as soon as possible, in light of
their shared commitment to a stable and secure investment environment in the Union and
Japan. Investment protection, when agreed, will therefore form a separate bilateral investment
agreement.

The Commission is putting forward the following proposals for Council decisions:

      - Proposal for a Council decision on the signing on behalf of the European Union of
the Economic Partnership Agreement between the European Union and Japan; and

      - Proposal for a Council decision on the conclusion of the Economic Partnership
Agreement between the European Union and Japan.

In parallel to these proposals, the Commission will put forward a proposal for a horizontal
safeguard regulation that will cover the EPA among other trade agreements.

The attached proposal for a Council Decision constitutes the legal instrument authorising the
signing on behalf of the European Union of the EPA between the European Union and Japan.

**•** **Consistency with existing policy provisions in the policy area**

The negotiation of the EPA was accompanied by the negotiation in parallel by the European
External Action Service of the Strategic Partnership Agreement (the SPA) between the
European Union and its Member States, on the one side, and Japan on the other. The
negotiations for the SPA are now entering the final stage. The SPA, in combination with the
EPA, are part of one negotiating context. Once in force, the SPA will provide the legal
framework to further develop the already longstanding and strong partnership between the EU
and its Member States and Japan in a broad range of areas, including political dialogue,
energy, transport, human rights, education, science and technology, justice, asylum and

# EN 1 EN

migration. Moreover the SPA provides for the possibility of suspending its application in case
of a violation of essential elements of the SPA, i.e. the human rights clause and the nonproliferation clause. In addition, the parties to the SPA note that in such case a party may take
other appropriate measures outside the framework of the SPA in accordance with
international law.

**•** **Consistency with other European Union policies**

The EPA is fully consistent with European Union policies and will not require the EU to
amend its rules, regulations or standards in any regulated area, e.g. technical rules and product
standards, sanitary or phytosanitary rules, regulations on food and safety, health and safety
standards, rules on GMO’s, environmental protection or consumer protection, with the
exception of a derogation regarding the bottle size regulated in the Spirit Drinks Regulation [1]
to facilitate Japanese exports of traditional Shoshu, a spirit which Japan exports in traditional
bottles of four go （合） or one sho （升 ) [2] .

Furthermore, like all other free trade agreements the Commission has negotiated, the EUJapan EPA fully safeguards public services and ensures that governments’ right to regulate in
the public interest is fully preserved by the Agreement.

**2.** **LEGAL** **BASIS,** **SUBSIDIARITY** **AND** **PROPORTIONALITY**

**•** **Legal basis**

In July 2015, the Commission seized the Court of Justice of the EU for an opinion under
Article 218(11) TFEU on whether the Union had the necessary competence to sign and
conclude alone the Free Trade Agreement that had been negotiated with Singapore, or
whether the participation of the EU Member States would be necessary, in respect of certain
matters covered by that Agreement.

In its Opinion 2/15 of 16 May 2017, the Court confirmed the EU’s exclusive competence with
regard to all matters covered by the agreement that had been negotiated with Singapore,
except for non-direct investment and investor-to-state dispute settlement where the Member
States are defendants that the Court considered to be of shared competence of the European
Union and the Member States. The Court drew the EU exclusive competence from the scope
of the Common Commercial Policy under Article 207(1) TFEU and from Article 3(2) TFEU
(based on the affectation of existing common rules contained in secondary legislation).

In accordance with Opinion 2/15, all the matters covered by the EPA must also be held to fall
within the competence of the European Union and, more particularly, within the scope of
Articles 91, 100(2) and 207 TFEU.

The EPA is to be signed by the European Union pursuant to a decision of the Council based
on Article 218(5) TFEU and concluded by the European Union pursuant to a decision of the
Council based on Article 218(6) TFEU, following the European Parliament’s consent.

1 Regulation (EC) No 110/2008 of the European Parliament and of the Council of 15 January 2008 on the
definition, description, presentation, labelling and the protection of geographical indications of spirit
drinks and repealing Council Regulation (EEC) No 1576/89.
2 1 sho ( 升） is equal to 1800ml and 1 go （合） is equal to 180ml.

# EN 2 EN

**•** **Subsidiarity (for non-exclusive competence)**

The EPA, as presented to the Council, does not cover any matters that fall outside the scope of
the EU’s exclusive competence.

**•** **Proportionality**

The proposal to conclude the EPA is in line with the vision of the Europe 2020 strategy and
contributes to the EU's trade and development objectives. It does not exceed what is
nevessary to achieve those objectives.

**•** **Choice of the instrument**

This proposal for a Council decision is submitted in accordance with paragraph 5 of Article
218 TFEU, which envisages the adoption by the Council of a decision authorising the signing
of the agreement. There exists no other legal instrument that could be used in order to achieve
the objective expressed in this proposal.

**3.** **RESULTS** **OF** **STAKEHOLDER** **CONSULTATIONS** **AND** **IMPACT**

**ASSESSMENTS**

**•** **Stakeholder consultations**

Prior to the conclusion of the negotiations with Japan, a Trade Sustainability Impact
Assessment (TSIA) of the EPA was conducted by an external contractor to study the potential
economic, social and environmental impact of a closer economic partnership between the EU
and Japan.

In the framework of the TSIA, the contractor consulted internal and external experts,
organised public consultations and held bilateral meetings and interviews with civil society.
Consultations in the framework of the TSIA provided a platform for the involvement of key
stakeholders and the civil society in a dialogue on trade policy.

Both, the TSIA report and the consultations held in the context of its preparation, provided the
Commission with inputs of great value.

Also, prior and during negotiations, the EU Member States were regularly informed and
consulted orally and in writing on the different aspects of the negotiations via the Council’s
Trade Policy Committee. The European Parliament was also regularly informed and consulted
via its Committee on International Trade (INTA), and notably its EU-Japan FTA Monitoring
Group. The texts resulting from the negotiations were sent throughout the process to both
institutions.

**•** **Collection and use of expertise**

A Trade Sustainability Impact Assessment of the EPA was carried out by the London School
of Economics Enterprise.

**•** **Impact assessment**

The TSIA, conducted by an external contractor and finalised in April 2016, concluded that the
EPA would deliver important positive impacts (in terms of GDP, income, trade and
employment) for both the EU and Japan.

The long-term GDP increase for the EU is estimated to be +0.76% in the most appropriate
scenario assuming full tariff liberalisation and symmetrical reduction of Non-Tariff Measures.
It can be expected that bilateral exports increase by +34%, while total global exports increase
is +4% for the EU.

# EN 3 EN

**•** **Regulatory fitness and simplification**

The EPA is not subject to REFIT procedures. It nevertheless contains a number of provisions
that will simplify trade and investment procedures, reduce export and investment related costs
and will therefore enable more small firms to do business in both markets. Among the
expected benefits are increased transparency, less burdensome technical rules, compliance
requirements, customs procedures and rules of origin, enhanced protection of intellectual
property rights and geographical indications, better access to procurement tender procedures,
as well as a special chapter to enable SMEs to maximize the benefits from the EPA.

**•** **Fundamental rights**

The proposal does not affect the protection of fundamental rights within the Union.

**4.** **BUDGETARY** **IMPLICATIONS**

The EPA will have a financial impact on the EU budget on the side of the **revenues** . The EPA
will lead to an estimated loss of duties of €970 million at the entry into force of the
Agreement. After the EPA is fully implemented (after 15 years from its entry into force) the
yearly loss of duties is estimated to reach €2.084 billion. This estimation is based on a
projection of the evolution of trade for the next 15 years without any agreement.

The EPA is not expected to have a financial impact on the EU budget on the side of the
**expenditures** .

**5.** **OTHER** **ELEMENTS**

**•** **Implementation plans and monitoring, evaluation and reporting arrangements**

The EPA includes institutional provisions that lay down an implementing bodies’ structure to
continuously monitor the implementation, operation and impact of the Agreement.

The institutional chapter of the EPA establishes a Joint Committee that has as its main task to
supervise and facilitate the implementation and application of the Agreement. The Joint
Committee is comprised of representatives of the EU and of Japan who will meet once a year
or in urgent cases at the request of either side. The Joint Committee will be co-chaired by a
representative of Japan at ministerial level and the relevant Member of the European
Commission, or their respective delegates.

The Joint Committee will be in charge of supervising the work of all specialised committees
and working groups established under the agreement (Committee on Trade in Goods;
Committee on Trade in Services, Investment Liberalisation and Electronic Commerce;
Committee on Government procurement; Committee on Trade and Sustainable Development;
Committee on Sanitary and Phytosanitary Measures; Committee on Rules of Origin and
Custom-Related Matters; Committee on Intellectual Property; Committee on Regulatory
Cooperation; Committee on Technical Barriers to Trade and Committee on Cooperation in the
Field of Agriculture).

As emphasised in the “Trade for All” Communication, the Commission is dedicating
increasing resources to the effective implementation and enforcement of trade and investment
agreements. In 2017, the Commission published the first annual FTA Implementation Report.
The main purpose of the report is to convey an objective picture on the implementation of the
EU FTAs, highlighting the progress made and the shortcomings that need to be addressed.
The objective is for the report to serve as the basis for an open debate and engagement with
Member States, the European Parliament and the civil society at large on the functioning of
the FTAs and their implementation. As an annual exercise, the publication of the report will

# EN 4 EN

allow regular monitoring of FTA developments, reporting also how identified priority issues
have been addressed. The report will cover the EPA as of its entry into force.

**•** **Explanatory documents (for directives)**

Not applicable.

**•** **Detailed explanation of the specific provisions of the proposal**

The EPA establishes the conditions for EU economic operators to take full advantage of the
opportunities generated by the third largest national market in the world.

As announced by President Juncker and Prime Minister Abe at the time of the finalisation of
the negotiations: _"The EU-Japan EPA is one of the largest and most comprehensive economic_
_agreements that either the EU or Japan have concluded so far. This EPA will create a huge_
_economic zone with 600 million people and approximately 30 percent of the world GDP, and_
_it will open up tremendous trade and investment opportunities and will contribute to_
_strengthening our economies and societies. It will also strengthen economic cooperation_
_between Japan and the EU and reinforce our competitiveness as mature yet innovative_
_economies."_

In negotiating this Agreement, the Commission ensured to provide the best possible
conditions for EU operators on Japan's market.

This objective has been fully met: the Agreement goes beyond existing WTO commitments in
many areas, such as services, procurement, non-tariff barriers and the protection of
intellectual property rights, including geographical indications (GIs). In all of these areas
Japan agreed to new commitments which go significantly beyond what Japan has been so far
willing to accept.

The agreement satisfies the criteria of Article XXIV GATT (to eliminate duties and other
restrictive regulations of commerce with respect to substantially all trade in goods between
the parties), as well as of Article V GATS, which provides for a similar test with respect to
services.

In line with the objectives set by the negotiating directives, the Commission notably secured:

(1) Japan will liberalise 91% of its imports from the EU at entry into force of the
Agreement. At the end of the staging period 99% of its imports from the EU will be
liberalised, while the remaining imports (1%) will be partly liberalised through
quotas and tariff reductions (in agriculture). In terms of tariff lines, Japan fully
liberalises 86% of its tariff lines at entry into force, going up to 97% after 15 years.
Major positive achievements for the EU include full liberalisation at entry into force
for wines and sparkling wines, full liberalisation of other major agri-food exports
(hard matured cheeses, pasta, chocolate, confectionery) over a transitional period;
very significant concession achieving almost liberalisation for pigmeat over time;
substantial improvement of market access conditions for EU exports of beef and all
the other cheeses; as well as liberalisation of all European industrial exports,
including old-standing priorities such as footwear and leather products.

(2) New tendering opportunities for EU bidders, with Japan notably giving us new
access to the sub-central level 48 "core cities" with above 300.000 inhabitants,
around 15% of Japan’s population and agreeing to eliminate the "Operational Safety
Clause" for EU companies active in the railways market one year after the entry into
force of the Agreement.

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(3) The removal of technical and regulatory trade barriers to trade in goods such as
duplicative testing, in particular by promoting the use of technical and regulatory
standards used in the EU in the sectors of motor vehicles, electronics,
pharmaceuticals and medical devices as well as green technologies. There will also
be a specific Motor Vehicles Annex with a safeguard clause, allowing the EU to
reintroduce tariffs in case Japan stops applying UNECE Regulations or reinstalls
removed NTMs (or develops new ones).

(4) On services, the EPA includes a chapter on Trade in Services, Investment
Liberalisation and Electronic Commerce and the related schedules of commitments,
which go significantly beyond both parties' WTO commitments. The chapter
includes cross-cutting rules on domestic regulation and mutual recognition, and
sector-specific rules designed to ensure a level playing field for EU businesses. As in
all its trade agreements, the EU protects public services. On electronic commerce, the
chapter contains the most ambitious provisions the EU has ever included in a trade
agreement, covering all trade done by electronic means. It reflects the interests that
both European and Japanese companies and consumers have in digital trade, while
fully safeguarding legitimate policy objectives.

(5) For the first time in EU agreements, the EPA will contain provisions on corporate
governance to be included in a specific chapter. These provisions are inspired from
the OECD Code on corporate governance and reflect the EU's and Japan's best
practices and rules in this area.

(6) A high level protection of intellectual property rights, including with regard to the
enforcement of these rights and including detailed provisions on copyright, providing
for improved copyright protection.

(7) High level of protection for EU GIs, with TRIPS Article 23 protection, for more than
200 foodstuffs and wines and spirits EU GIs to be protected under the EPA.

(8) A comprehensive chapter on trade and sustainable development, which aims at
ensuring that trade supports environmental protection and social development and
promotes the sustainable management of forests and fisheries. The chapter also sets
out how civil society will be involved in its implementation and monitoring. It also
includes a commitment to implement the Paris Agreement on Climate Change as
well as a dedicated review mechanism.

(9) A comprehensive and novel chapter dedicated to SMEs to ensure that they fully
benefit from the opportunities offered by the EPA.

(10) A comprehensive section on the mutual facilitation of wine exports with the approval
of several oenological practices including priority additives of each side.

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2018/0092 (NLE)

Proposal for a

**COUNCIL DECISION**

**on the signing, on behalf of the European Union, of the Economic Partnership**
**Agreement between the European Union and Japan**

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular
Article 91, Article 100(2), and Article 207, in conjunction with Article 218(5) thereof,

Having regard to the proposal from the European Commission,

Whereas:

(1) On 29 November 2012 the Council authorised the Commission to open negotiations of
a free trade agreement (FTA) with Japan.

(2) The negotiations for the Economic Partnership Agreement between the European
Union and Japan (hereinafter referred to as “the Agreement”) have been successfully
concluded

(3) Therefore, the Agreement should be signed on behalf of the Union, subject to its
conclusion at a later date;

HAS ADOPTED THIS DECISION:

_Article 1_

The signing, on behalf of the European Union, of the Economic Partnership Agreement
between the European Union and Japan (hereinafter referred to as “the Agreement”) is hereby
authorised, subject to its conclusion.

The text of the Agreement to be signed is attached to this Decision.

_Article 2_

The President of the Council is hereby authorised to designate the person or persons
empowered to sign the Agreement on behalf of the European Union, subject to its conclusion.

_Article 3_

This Decision shall enter into force on the day of its adoption.

Done at Brussels,

_For the Council_

_The President_

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