japan trade relations july 2012

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Position Paper

Committed to free and sustainable trade

FTA Position Paper on EU-Japan

Trade Relations

1) Early launch: All EU institutions should support the start of negotiations for afree trade agreement between the EU and J apan

2) Ambitious approach: A trade agreement should tackle a broad range of issuessuch as tariffs and quotas, non-tariff measures and investment

3) Main recommendations: The EU should address the following core issues in

the negotiation process with J apan: Dismantle all illegitimate non-tariff barriers

Remove all quotas and customs duties

Harmonise standards and classification rules

Confirm the joint objective of successful WTO negotiations

31 July 2012

FTA KEY MESSAGES


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EU-J apan Trade Relations, 31 J uly 2012 2

FTA Foreign Trade Association

FTA Position Paper on EU-JAPAN Trade Relations

The EU and J apan are both experiencing a persistent economic crisis with symptomssuch as low levels of GDP growth and increasing public debts. In this challenging context,trade is a driving force to create economic growth and wealth.

The aim ofdeepening the economic relationship between the EU and Japan istherefore ofstrategic importance to give new impetus to the economy in a time of crisisand to increase employment. In addition, the conclusion of a free trade agreementbetween the EU and J apan would send a powerful signal to other WTO members thatthe EU and J apan are eager to promote a liberal environment for commerce.

A) TRADE AS A GROWTH DRIVER REALISE THE FULL POTENTIAL

J apan is Europes seventh most important trading partner and the EU even ranks thirdamong J apans trade partners. Both exchanged goods worth 116 billion euro in 2011.With regard to the huge combined market size the trade volume between these twomajor global economies remains neverthelessmodest in particular in relation to EUscommerce with the USA, China and Russia.

Currently, trade barriers still prevent a higher degree of economic cooperation thisis also true for the retail and wholesale sector. The strengthening of commercial tiesbetween the EU and J apan would augment the bilateral trade volume in goods andservices and generate important benefits for the distribution sector.

For these reasons, the FTA fully supports the start of trade negotiations between theEU and J apan which should lead to an agreement removing behind-the-border obstaclesand eliminating quotas and tariffs.

B) TRADE BARRIERS IN JAPAN DIFFICULT MARKET PENETRATION

Against the background of the current crisis the J apanese government decided to launchstructural reforms and to open up the domestic market to a certain extent. Thisaspiration to more trade liberalisation, however, did not positively affect the businessactiviti es of FTA members in this country.

J apan is still a difficult place to do retail and wholesale business and to export to. Thestructure of the J apanese economy is to a large extent still characterised byconglomerates of companies controlling large market shares and shielding the domesticmarket from foreign competition. Different studies, for instance from the OECD, indicatethat the Japanese retail and wholesale sector(worth about 1,250 billion euro) remainslargely closed for foreign companies.

Three different groups ofobstacles for European trade can be distinguished: Firstly, many European products still face a competitive disadvantage or even

exclusion due to limited allocation of quotas and high import duties

Secondly and even more important, non-tariff barriers (i.e. legal uncertainties andunjustified burdensome requirements) artificially increase the retail price forproducts from the EU


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Thirdly, the foreign participation in the J apanese distribution sector remains limitedas a direct result of the burdensome market access

(I) Quotas and Tariffs

FOOTWEAR IMPORT QUOTAS: J apan still imposes quotas on certain products.The import of leather footwear to J apan is particularly affected as the current quotais far too low and products imported within the quota are on top subject to a 24 percent customs duty. Leather footwear imported outside of the quota is heavily taxed the duties can correspond to up to 200 per cent of the value of the goodPRODUCT RESTRICTIONS: High import surcharges for specific products andimport restrictions (e.g. rice import limited by quotas) protect Japanese domesticproducers. Therefore, European retailers face high burdens in their day-to-dayprocurement operations and cost structures

(II) Regulatory obstacles

FOOD IMPORT PERMITS: The J apanese food import permits system (under theFood Hygiene Law) is of protective nature as it clearly disadvantages foreigntrading companies. These have to cope with unpredictable and time-consumingprocesses. One striking example: Food imports to J apan are restricted due to thelimited resources of quarantine bureaus (e.g. only 2 officers at Tokyo Port) and theobligation to provide detailed scientific analyses and specific formalitiesFOOD QUALITY: J apanese food hygiene standards are not systematicallyharmonised with international standards (Codex Alimentarius). This situationnegatively affects food quality and hampers efforts by European trading

companies to set up efficient food supply chainsPERFUME LICENSING: The Pharmaceutical Affairs Law stipulates importers toJ apan to apply for Import licenses and Import sales licenses for products suchas fragrances. The process of obtaining these licenses is cumbersome (up to twoyears!) and uncertain if refused then the item cannot be importedLIQUOR LICENSING: J apan is applying a strict liquor wholesale licensing underthe Liquor Tax Law. The allocation of licences is very time consuming and lackstransparency. Moreover, liquor prices are controlled by tax authorities (National

Tax Agency). Due to external influence and unfair practices European retail andwholesale companies are being disadvantaged

(III) Access to Japanese market

OUTLET OPENING: Before opening a retail store operators have to go through alengthy and non-transparent permission process which is often to the detriment offoreign operators. A myriad of different laws and separate license procedures arein force discouraging investments in J apanLARGE STORES: The authorisation to open retail outlets of more than 500m is acomplex procedure that involves authorities at both the national and regional level.

The legislation in question (Large Stores Law), internationally criticised, allows theauthorities to refuse permission if nearby small and medium retailers could benegatively affectedREAL ESTATE: Many towns have set in place restrictive land use plans whichmake it nearly impossible to obtain the allocation of plots for construction of new

retail outlets


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C) TRADE BARRIERS IN THE EU NEED FOR SIMPLER RULES

The European distribution sector does not only face barriers in J apan but also when

importing Japanese products into the Common market. The EU should pursue theobjective of removing these tariff and non-tariff measures:

CUSTOMS: The EU countries do not uniformly apply the common customs laws.No institution or procedure ensures that common rules on classification andcustoms operations are implemented and administered consistently within the EU.In consequence, when importing the same product from J apan to different EUcountries, European companies have to deal with different member states rules

TARIFFS: Less customs tariffs are imposed on exports from the EU to J apan (1.7per cent in average) in comparison to imports from J apan to the EU (3.4 per centin average). Furthermore, it is reported that 68.7 per cent of European productsexported to J apan are duty-free against only 35.9 per cent in the opposite directionCLASSIFICATION: European companies importing to the EU from J apan havebeen exposed to risks with arbitrary and unclear changes in tariff classification

D) RECOMMENDATIONS A CALL FOR AMBITIOUS OBJECTIVES

A free trade agreement would improve the economic environment for Europeantrading companies in Japan and facilitate mutual exchangeof goods. Negotiationsfor a free trade agreement with J apan should be steered by clear principles and astringent timeline.

The numerous trade obstacles with Japan can only be removed if negotiations arelaunched. No action would, in contrast, prevent the European distribution sector toincrease business with J apan. Therefore, the FTA encourages the Council of Ministersto confer the Commission a mandate to launch negotiations. Furthermore, the EuropeanParliament should signal its commitment to economic growth by adopting a supportiveposition on EU-J apan trade talks.

The FTAcalls foran ambitious negotiation mandate which should focus on the followingpriorities:

REGULATION: The key aim should be to provide business friendly legalframeworks for trade and investment. The wide range of trade-distorting and

counterproductive non-tariff barriers especially on the J apanese side need tobe dismantled.IMPLEMENTATION CHAPTER: A possible agreement should include a strongimplementation chapter in order to guarantee that the achievements of thenegotiations process are effectively appliedSIMPLIFICATION: The EU and J apan should achieve a high level of compatibilityof rules by developing common sets of principles. Regulatory cooperation betweenadministrations should be intensified and produce joint standards and classificationrules. On the J apanese side, food hygiene standards should be harmonised withinternationally accepted standardsQUOTAS AND LICENSES: All quotas and trade restrictions on certain goodsshould be abolished to enable fair competition. In addition, the J apanese license

regime for liquor and fragrances should be liberalised


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CUSTOMS DUTIES: Even though average duties are already at a low level,certain peak rates prevent commercial activities. All industrial and agriculturalproducts should be traded duty-freeWTO: The EU and J apan should take a clear commitment in favour of successful

negotiations at the WTO level. The bilateral process should become a driving forceof the international aspiration to conclude the Doha Round

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For further information about the position paper, please contact:

Pierre Grning Trade Policy [email protected] tel: + 32 2 741 64 03

About the FTA

FTAs mission is to promote the values of free and sustainable trade for its memberswithin Europe and worldwide. The FTA strives for a liberal international framework fortrade and is dedicated to improving the international supply chain in terms of corporateresponsibility.

As a large association of nearly 1,000 European and international retailers, importers,brand companies and national associations, with a total turnover of more than 600 billioneuro, the FTA represents companies of all types and all sizes from more than 22countries, including fashion brands, departments stores, chain of supermarkets, apparel,discount and online.

www.fta-intl.org

japan trade relations july 2012

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