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Japan-EU trade agreement key to new world trade order

Japan and the European Union are currently negotiating an economic partnership agreement. The European Commission, the executive arm of the EU, recently submitted a report to EU member countries calling for continued negotiations, and the members are expected to give it a green light. In a recent interview with The Nikkei, Markus Beyrer, Director General of BUSINESSEUROPE, the EU's business organization, stressed the importance of the Japan-EU EPA in creating a new world trade order.

Q: The TPP is attracting attention for its effects on Japanese business and trade. But the Japan-EU FTA is not getting as much attention. What does the EU business sector want in Japan?

A: It is a similar situation in Europe. Public attention is focused on the TTIP, the Trans-Atlantic Trade and Investment Partnership, negotiations, and less on the talks with Japan. It should be more balanced, because we need to have all the major players regrouped on the free-trade front to move forward on global trade. For Europe and Japan, it is important to go forward on a bilateral basis.

Markus Beyrer

     Having said that, I just had a look at (Japanese) newspapers this morning and there was a lot of focus on tariffs, which is also an important story. For us, it's a trade-off between opening up European IT and car markets and progress in non-tariff barriers to trade on the Japanese side. This is what we are aiming for. This will be linked to general structural reform in Japan. A lot of things still need to be tackled. 

     We just had a sector-to-sector meeting, which we co-host once a year with our friends from Keidanren (the Japanese Business Federation) in Brussels, and overall the assessment was not negative. There was some progress, but more needs to be done. We are in a phase where we have a slightly positive assessment, but the question is always whether the glass is half-full or half-empty. More has to happen to come to a positive conclusion, specifically on non-tariff barriers to trade but also on services and public procurement.

Q: When the negotiations started, Germany, Italy and some in French industry were negative, because they wanted to protect their tariffs, and overall the U.K. has been more positive. What is the atmosphere now?

A: The public debate in Europe on free trade is driven by the trans-Atlantic agenda. So of course, the U.K. is always on the forefront of the free trade. This is the case with Japan, and China too, and their positions are not always reflected, but the totality of the opinion is that it's fine. Some countries with strong car industries and IT protection are in principle ready to lower tariffs, but only if there is true, clear and deep access to the Japanese market. This is based not so much on tariffs but on many other things, and we are in the middle of negotiation. For the first time in many years we see a certain readiness to change.

Q: One major concern for the Japanese is railroads, and they say the Japanese markets are already open.

A: The reason this is part of the so called roadmap (which EU and Japan had agreed on before the negotiation started) is that so far it has not been open, otherwise it would not be at the top of the list. We will hear today whether there has been some progress. But of course, this has been from the beginning one of the topics we always said and thought that we will have to have progress to prove that there is a deep and consistent opening.

Q: Do you want to sell high-speed trains or tram-type local community stuff?

A: Both possibilities are there, but high-speed trains are a good European product as it is a good Japanese product. This is an important point, but we have various strong metro products and things like that. Overall it's about the ability to compete fairly, and the rest is up to the market.

Q: The Japanese side says the European market is also not open.

A: Well, it depends. We have the same debate with the U.S. We say you have to eliminate Buy American and our position is, if you come to us with examples, we are ready to talk, because this is the spirit of fair negotiations.

Q: The major difficulty of the Japanese railway market is safety standards.

A: We have similar things on the EU side. In neither the U.S.-EU nor in the EU-Japan negotiations is the goal to lower safety standards -- safety standards are based on political decisions.

     But I don't think people who travel on a high-speed train in Europe are less safe than they would be in Japan. We have similar talks with the U.S. side. My argument is, if we can mutually recognize safety standards for turbines for planes, we should be able to do it with other parts as well. We need to recognize each other's standards, but it's important not to create new standards that will make the two markets drift apart.

Q: Are railroads important in government procurement as well?

A: Public procurement is the most important issue. Railroads appear in a number of sectors. But the most important impact on public procurement is the postal system, because under this heading are a number of services which we would consider to be in other sectors. 

Q: What do you want done with Japan Post?

A: Well, this is also about having access to the Japanese financial services market, including insurance. That's something the U.K. is interested in, and it is the biggest driver of financial services just as it is in the TTIP, too.

     I have been president of Austrian Post for a while. It's important to move postal services forward from a traditional to a modern-style service provider. You have seen the transformation of the German Post? In Austria, it's not yet there, but it is a player in Central Europe and is doing well on the stock exchanges. Of course, in these kinds of services you always have problems such as what to do with the remaining civil servants and strong trade union interest and influence. But overall it's about transforming something that came out of a world of sovereignty into a modern service provider.

     There is also the transparency issue, which is very important in public procurement. For a long time we have been asking to have access to the bidding, and to have access in English or at least to translation, which would also help in the public procurement market.

     (Financial services, which Japan Post is handling right now) is one place where we think normal access would be relevant. 

Q: So do you think eventually Japan Post has to be divided up?

A: I'm not saying that Japan Post has to be divided up, because this is a Japanese story. But to give you an Austrian example, in Europe, traditionally, the postal service and telecommunications services were together, and over the years these services have been split up. You can see now that those who split latest are less competitive in Europe and those who did it early are more.

     Japan is a little different because with NTT DoCoMo you have a very competitive telecommunications service provider which is a benchmark for a lot of things. But in Europe we had this split debate and you can see that those who were the most proactive had significant gains and a competitive edge. The transformation process is not always easy but when you achieve it, there is a lot of benefit for all sides.

Q: You have the TTIP talks with U.S. and FTA talks with Japan, and in both you are talking about the future of the market -- transparency, governance, standards, etc. But if the EU and the U.S., the biggest power in the world, have their own ideas about the future design of the markets and international standards, how can the EU balance the TTIP and Japan talks? And beyond that there is China ...

A: First of all, I would not limit it to the trans-Atlantic talks. What is important is that the U.S., Europe and Japan, and other parts of the world, share common values on a number of things. We still support multilateral steps forward and are pushing their implementation, but still, what we hear is mixed. As the multilateral talks have become much more difficult, we have to pave the way for the next wave of multilateral liberalization. The U.S., Europe and Japan together have a responsibility to set standards based on common values, starting with intellectual property.

     Talking about China, we can only underline our model that investment is based on protecting intellectual property rights and investment in R&D, and none of us can underline this point of view enough to have a breakthrough. It is important that we have a strategic alliance on these things and of course China is huge and growing market. It's important that Europe also start talks on investment agreements and partnership with China. It is about global balance. We need to have good alignment between the EU-Japan EPA, the TTIP and the TPP.

Q: Is the TPP good for the EU business community?

A: This is something we see positively for a number of reasons.

     The TPP, in terms of scope, is not as comprehensive as the agreements the EU is negotiating with the U.S. and Japan. Normally, when the EU is thinking about Japan and the U.S. as strategic partners, we are looking in terms of an agreement that is very, very comprehensive. We don't think that is the case with the TPP, because you have so many countries with different levels where you have reached this kind of comprehensiveness.

Q: If the TPP and TTIP create different rules of trade, won't that create more problems in the future?

A: Up to a certain extent there will be differences. In the trans-Atlantic talks we aim for the most integrated marketplace. In TPP you don't have the U.S. negotiating with the TPP Commission but rather with a number of countries that are quite different. We think this is important, but we say to our U.S. friends, okay, you carve out something with the TPP, but that doesn't mean that we can leave this aside in the TTIP. We want to be rather ambitious on that. But to answer your question, the other pillar for us is the EU-Japan EPA and we should be ambitious there too.

Q: Because of  the up-coming midterm elections, the Obama administration has been weakened in Washington, and I sense that the president himself is not as eager about the TTIP and TPP.

A: We always have midterms in the U.S., and big elections in Europe. On the other hand, we have seen some gain of dynamic in the TTIP negotiations following the situation in Ukraine. So there are always factors from many sides to influence a story. At the beginning it seemed impossible to have an energy chapter in the TTIP, whereas after what happened in Ukraine, here is now readiness from the U.S. side to talk about this. They are still committed to the trade agenda. Mr. Obama will also need some progress and some success in free trade, and so far there is not such a long list. U.S. business is very much pushing, and this will have an impact on Congress.

Q: What about Russia? That situation must be difficult for business sectors in the EU. You want to keep good relations with Russia, but politically EU must be tough.

A: Of course, it was unfortunate what happened in Ukraine, but as a business community we have agreed on a set of points, because we have different views within our constituency. Our Eastern European members are driven by security interests, with a specific history with Russia. Countries like my home country Austria and Germany are heavily invested in Russia and of course with a legitimate interest to have these investments protected. And you would have countries closer to the U.S. being less invested. So you have a big range of opinions, but we had a long debate on this, and agreed on five points.

     No. 1: Europe has to play a strong role in the story. This must be in coordination with the U.S., but it's a European story, so Europe has to play a strong role. Second, we cannot allow Ukraine to default.

     The third point is that we are not in favor of sanctions and we don't think they are the best remedy, because they would have negative effects on both sides, as well as in Europe, but this is a politically important point. We took the decision that we will not question whatever the European Council decides. This means we have to avoid the wrong sanctions and make sure we don't have an escalation, but once the political level makes a decision, we will accept it. We decided that business must not be the instrument of blackmailing Europe, so this means we will not do anything to undermine whatever the European Council decides. 

     We have our role and will try make sure the wrong things don't happen, but we have also made clear that we will not be the instrument to split Europe.

     The fourth point is we will keep our dialogue and relations open with our Russian friends (in the business circle). We have a roundtable and a group of investors there, so we can keep our dialogue open. We have proposed to the Russians that we are the ones who should keep the bridges and the dialogue open.

     No. 5 is that we need to rethink our energy policy. We think that Europe has too much climate policy and not enough real energy policy. So what we need is to move into a balance of sustainability, but balance it with cost competitiveness, where we have serious problems. We are focusing on the fact that we have to decrease our external dependency in a cost-effective way.

     This has been highlighted by the European Commission -- it means renewable energy and energy efficiency, but this can only be one part of the story because the dimensions will not be enough. It also means external diversification of imports and exploring and exploiting our own resources, including shale gas. We have very interesting shale gas resources but we had been rather reluctant on this issue.

Q: When Europe is more energy independent from Russia, then you can have equal talks?

A: Well, it will not be independent so fast and we also have to underline that when we say we have to reduce dependence, we have to do it in a cost-efficient way because energy prices are already a problem for European industry, and of course Russia will remain a factor. But as you say, there has to be a balance; there have to be alternatives.

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