TOKYO -- Trade negotiations between Japan and the European Union, launched a year ago, are at a crucial juncture.
The talks on an economic partnership agreement have not drawn as much attention as those between Japan and the U.S. over the Trans-Pacific Partnership trade agreement. TPP negotiations have grabbed headlines recently because of President Barack Obama's Japan visit later this week.
Japan and the EU kicked off the EPA negotiations on April 15, 2013. One year on, the EU will assess the progress made so far in the talks and decide whether to continue them. Japan and the EU account for over 30% of the world's gross domestic product. The combined value of the economies involved in the EPA talks is some $23.5 trillion.
The U.S., Japan and 10 other countries negotiating the TPP account for approximately 40% of the world's GDP, with a combined value of $26.6 trillion. Two huge trade zones of roughly the same size are under negotiation at the same time.
Hard to get
The EU is playing hardball with Japan in negotiations. It is fully aware Japan has more to lose if the talks collapse.
Europe is still relatively closed and has high tariff barriers. EU's import tariffs on Japanese cars are 10%, for example. There is a 14% tariff on Japanese electronics products. Japan's import tariffs on EU products in those two sectors stand at zero.
South Korea concluded an FTA with Europe in 2010. Under this pact, the EU will completely eliminate its tariffs on South Korean cars by July 2016. Japanese automakers and electronics companies are at a huge disadvantage in the EU market, compared with South Korean rivals.
Japan wants the EU to lower its import tariffs on cars and electronics products. If the EU decides to discontinue the EPA negotiations with Japan, many of the Asian nation's companies would suffer. The big question now is whether Japan will be able to convince the governments of big EU nations such as Germany and France, and major European companies, to stay in the EPA talks.
Critics say that information disclosure on the TPP negotiations has been insufficient. Even less information has been disclosed about the Japan-EU EPA negotiations. Japan and the EU have not disclosed the 20 or so areas under negotiation. But there is no doubt that railway is one of the key sectors that will determine the future of the talks.
When Japan and the EU launched the EPA talks, they agreed on a document that includes plans for the railway sector. Train makers in the EU will be treated equally by Japanese railway operators such as JR group companies in car and equipment procurement, if the content of the plan comes to pass. Three of the JR group companies, commonly known as JR East, JR West and JR Tokai, were fully privatized in the early 2000s. So they are no longer under the Japanese government's control. The three JR group companies are cooperating with the Japanese government and working to increase procurements from European makers.
At the fifth round of EPA negotiations held in Tokyo from the end of March to early April, the EU acknowledged that there has been considerable progress on the railway issue. Increased imports of European train cars and equipment by JR group companies will boost the EPA negotiations. But solving the rail issue alone will not be enough to nudge the EU to agree to remove or lower import tariffs on Japanese products.
Japan needs more powerful ammunition to prompt the EU to liberalize its market. Early progress in the TPP negotiations between Japan and the U.S. would put strong pressure on the EU.