After longing preliminary talks, Trade Commissioner Karel De Gucht [EU statement] will now allow the member states of the European Union to start trade negotiations with Japan. During the EU-Japan Summit in May of 2011, both Japan and the European Union agreed to start a “scoping exercise” to determine the content and the level of ambition of a possible Free Trade Agreement between the two sides. This scoping exercised ended in May of this year.
On July 18, 2012, the European Commission expressed its interest in the European Union opening up free trade talks with Japan. Following the European Commission’s call for free trade talks between the European Union and Japan, the European Automobile Manufacturers’ Association (ACEA) is concerned about the potential free trade. The free trade agreement would require the European Union to remove their 10% duties on automobiles. The removal of this duty would cause the European Union to loss 1.2 billion euros in tariff revenues from Japanese car manufactures and about 1,500 euros for every imported. “This would trigger a higher flow of cars into the EU. Car production could go down by some 160,000 units as a result, leading to job losses,” stated Ivan Hodac, Secretary General of ACEA.
The ACEA also has other issues with Japanese domestic car market. The ACEA finds it unfair that Japan requires EU type-approved vehicles to have modifications done to them in order to be sold in Japan. Another major concern of the ACEA is the Japanese ‘kei’ cars. The ‘kei’ cars has over 35% of the Japanese market share. This limits to amount of European made cars in Japan.
Despite this, the European Union must have found the benefits of this potential free trade agreement outweigh these issues.
With the effective collapse of the WTO Doha round of talks, we’ve seen growth of a “spaghetti” of bilateral trade agreements. But from Japan’s perspective, no single one of these has been sufficiently important to get politicians to address hard issues such as the protectino of agriculture. What might Japan offer to EU in turn for the EU’s shift on tariffs?
Now the “type” approval is much better than what preceeded it (when each car needed inspection). But each major market has its own motor vehicle regulations, though for the most part those in Japan are close to the US system. And each market has its idiosyncracies, including a definition of “kei” (minicars) in Japan that means a European small car is too wide to qualify…that might be a concession, but as the vehicle market in Japan will shrink in 2013 (ditto the EU market), it will be hard to get anyone to focus on something as indirect as bilateral trade.