Talking tough

Talks surrounding the Japan–European Union free trade agreement (FTA) and economic partnership agreement (EPA) will be accelerated this spring. Negotiators have until the end of the year to finalise the deal, as per a deadline set by Japanese Prime Minister Shinzo Abe. At stake are various issues pertaining to market access, tariffs and non-tariff measures, and other issues affecting the two sides that, combined, represent 36% of global economic trade. Naoki Ito, Deputy Director-General, Economic Affairs, of Japan’s Ministry of Foreign Affairs, is one of Japan’s lead negotiators. He spoke with EURObiZ Japan about what Japan would like to see in the agreement.

Could you give us an update on where FTA/EPA negotiations currently stand from your perspective?

We started negotiations in April 2013, and, so far, we have had eight rounds of negotiations. [Ed note: this interview was conducted prior to the 9th round of talks] We have been discussing wide-ranging issues — such as trade in goods, services; investment; intellectual property rights; non-tariff measures; and government procurement. And, last year, there was a process of review established and conducted by the European side. Following that process, in which I think Japanese efforts got a good mark by European officials and governments, we entered into the second stage of negotiations. I think there was a notable difference in terms of atmosphere, perception and the environment surrounding the negotiations before and after the review.

Apparently, each capital in Europe believes this Japan–EU EPA is a truly positive free trade agreement, and most of the government officials in Europe are now behind it, as are business organisations in Europe. The fact that we have gone through the review process has created confidence and trust in the negotiating process. Also, it has built a high level of confidence and trust between negotiators. When we deal with difficult issues ahead, this would surely count in providing a good and positive outcome for negotiations.

What are the key things that Japan would like to see in an agreement?

I would say this is of shared importance between Japan and Europe. We share fundamental values. We are members of the G7, G20, WTO … we have been, in a way, champions of rules-based systems, rules-based economies, and rules-based trade. I think with the realisation of the Japan–EU EPA, we would actually be able to set new standards and rules on trade and investment, not only between Japan and the EU, but beyond — for the betterment of the global economy. I think that’s the first point I’d like to stress.

If we are able to achieve a comprehensive and high-level EPA between Japan and the EU, we think it should provide further growth for the Japanese economy, because under the current government … we have been embarking upon the revitalisation of the Japanese economy.

At the same time, some Japanese companies are showing concerns in areas such as non-tariff measures, intellectual property rights and cross-border flows of personal information. Through the negotiations, the Japanese government works with our EU colleagues and Japanese companies to see some progress in each one of them.

Also, we are promoting the idea “Cool Japan”. This is a kind of export of our culture. With this agreement, it is hoped “Cool Japan” will be enjoyed by citizens of Europe.

In a nutshell, the Japan–EU EPA is very important, in that we would be able to expand foreign investment overseas, we would be able to expand trade and, in return, we would be able to encourage European investment into Japan.

Does progress so far fit with Prime Minister Shinzo Abe’s agenda to reduce trade barriers?

Addressing regulatory issues is part of a very important agenda that the government has embarked upon. Japan has addressed some of the regulatory issues which were raised by the European side in the early part of negotiations. We have an aim to adopt 47 of the UN-ECE [United Nations Economic Commission for Europe] regulations on passenger vehicles; and, so far, 37 have been adopted. If you talk about internationally commonly used food additives — out of 45, we have designated 39 already. And, also last year, we revised the Pharmaceutical Affairs Act, which will provide an environment where measures will be taken for safe and prompt supply of pharmaceuticals and medical devices. Many of these issues have been within the scope of very strong interest shown by European governments, as well as European companies. Already, this Japan-EU negotiation framework has borne fruit, in terms of regulatory reform and regulatory cooperation in Japan and with the EU.

You have said that so-called non-tariff “barriers” should be considered non-tariff “measures”. Why do you characterise the issue in these terms?

Regulatory measures are in place in any country. Those measures are taken for the purpose of ensuring the safety of society, consumer protection, even for environmental protection — in light of historical needs, market needs and so on. Also, consumers’ tastes differ from one country to the next. So, rather than using the particular word “barrier”, which is associated with the [perceived] difficulty of access to the Japanese market, we use “non-tariff measures”. When Japanese companies started making investments into the European market, particularly in the late 1960s, early 70s … I’m sure there were issues of regulations faced as well. But they strenuously addressed those issues squarely — and somehow avoided problems — to do good business. This is why we would prefer using the term non-tariff “measures” rather than “barriers”.

EU negotiators have mentioned government procurement [the opening up of public projects in Japan] as a key goal. What is the view of this from the Japanese side?

Before going into government procurement, perhaps I need to refer to specific elements which we want to achieve through negotiations. There are four or five areas; one is the market access, or tariff issue. This is very high on our agenda. The European side still maintains relatively high tariffs — 10% for automobiles, 14% for electronics. So we would really hope that the European side would be able to eliminate tariffs on those industrial goods, so that Japanese exports to Europe would be further accelerated. And also, rulemaking in services, investment and e-commerce — these areas, including regulatory cooperation, would provide predictability of the market situation. That could ensure a better business environment for Japanese companies in the EU region as well. That should also provide opportunities for EU companies to be more active in the Japanese market.

Also, areas like intellectual property rights, corporate governance, investment … these would provide further opportunities for both sides to be more active in each other’s market. In particular, geographical indications are a very important area not only for European companies, but also for the Japanese side, since Japan is trying to increase exports of agricultural products all over the world. I hope that GI rules, to be established between Japan and the EU, will provide better opportunities for the Japanese food industry to expand its market share in the EU region.

About government procurement … earlier in the negotiations, the discussions focused more on railway procurement. Back in October, the EU side decided to delist JR companies from the WTO government procurement agreement. Again, this was a result of the review by the EU side. So we have seen very good progress through the process of negotiations. This would provide a really good possibility for industrial cooperation and collaboration in the railway sector. So, we do hope that this will be showing the actual outcome on the ground. Now, Japanese companies like Hitachi are really active in the European market, and in the Japanese market I believe that the JR companies remain willing to enhance a market-access opportunity for European vendors. We do hope that some of the European providers — such as Alstom, Siemens and PESA — will try to seize this momentum to play a good part in the Japanese market.

As for government procurement, in general, we have been discussing this over the negotiating table as one of the very important elements. I think there is a meeting of the minds on where we should go, through the negotiations … but, still, there is a bit of a difference of opinion on where we could land, as well as in GP systems between Japan and Europe. But we hope we can find a mutually satisfactory outcome through the negotiations.

The protection of Japanese agricultural products is a sensitive issue. Are you confident that an FTA–EPA would maintain protections for this sector?

The market access negotiations are one of the key, indispensable elements of this EPA agreement. And that is an area where the respective sides … tend to negotiate in a concrete but unsophisticated way. This is an area where we really need to work harder to achieve an agreement. And I’m sure that there is going to be a rather difficult road ahead of us. But since this is a very, very important area, where each side wants to gain for the benefit of their respective economies and exporters, I’m confident that we’ll be able to achieve a good win–win outcome through negotiations. And I’m sure that, down the road, the EU side will show consideration to those sensitivities in the Japanese economy, in particular the agricultural sector.

Are you confident that Prime Minister Abe’s deadline to conclude an FTA/EPA this year will be met?

I think it’s really important to maintain this timeline — which is ambitious but achievable — in order to accelerate negotiations, as well as to aim at a high level of ambition. Some people might say that, rather than talking about the timeline for negotiations, we should focus on the quality of an agreement. But our view is that by trying to abide by the timeline, we’d be able to achieve an even higher level of agreement, in a more accelerated manner. In January, in Brussels, [Foreign Affairs] Minister [Fumio] Kishida and Commissioner [Cecilia] Malmström shared the view that reaching an agreement in principle this year is an ambitious but achievable goal. With the level of confidence in the negotiations and the level of trust between negotiators, we will certainly be able to achieve it.

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