What is the Japanese market like?
That Japan has one of the largest world economies was probably already clear to you. With over 127 million (!) inhabitants, Japan occupies fourth place in the global economy. After China, Japan is Europe's largest Asian trading partner. Worldwide, the country even ranks sixth in trade with Europe.
Together, the European Union and Japan account for about a quarter of global GDP (gross domestic product). Japan mainly ships machinery, electrical machinery, motor vehicles, chemicals, optical and medical instruments to the EU. From the EU, the main shipments to Japan are motor vehicles, (electrical) machinery, pharmaceuticals, optical and medical instruments.
Did you know:
- The annual value of EU exports of goods to Japan is €58 billion. For services, the value is about €28 billion.
- Over 600,000 jobs in the EU are linked to exports to Japan. Japanese companies based in the EU employ over 550,000 people.
- The projected increase in EU exports to Japan is between 16% and 24%. For processed food to Japan, the increase is even between 170% and 180% or up to an additional €10 billion.
- Almost 74,000 EU companies export to Japan. 78% of these are smaller companies.
- The European Union has a delegation in Japan.
- Trade relations are part of the EU's overall political and economic relationship with Japan.
- Japan is a member of the World Trade Organisation.
What problems do European companies face when they want to trade with Japan?
Despite the above statistics, European companies often encounter trade barriers when exporting to Japan. These include high import duties or procedures and standards that differ from international norms, making it difficult for them to compete.
In some industries, companies also experience technical barriers to trade, such as the requirement for separate licences for different varieties of a product (e.g. citrus fruits). Or blocking foreign companies from obtaining government contracts in some sectors.
What does the trade agreement look like?
The EU wants the trade agreement with Japan to free itself from the above-mentioned unnecessary obstacles to European exports. This will allow European companies to sell more goods and services to Japan. The summary of the trade agreement is available on the European Commission's website. You can find it at this link view (English).
In summary, the trade agreement will contribute to:
- Down with high import duties
The high import duties on European products such as wine, pasta, chocolate, shoes and leather products make them considerably more expensive there. The EU wants Japan to remove tariffs on a wide range of products so that European products can be more competitive. And that will make it easier for European producers and exporters to sell their goods in Japan.
- Remove all trade barriers
The main obstacles for EU companies wishing to operate in the Japanese market appear to be Japanese rules and regulations. These differ from international standards and practices, often making them difficult to comply with in practice. Some companies even say that these rules make it more expensive to export to Japan. Most EU standards are based on international standards, but the Japanese ones deviate from them. This makes it difficult and expensive for exporters as they have to set up separate production lines for the Japanese market. The EU wants improvements in more than 70 areas where Japanese trade barriers make it difficult for European exporters. The EU also wants Japan to bring its standards up to international standards.
- Show that the EU and Japan reject protectionism
At a time when protectionist pressures are growing, the EU-Japan trade agreement sends a clear signal to the world. That two of the world's largest economies reject this form of market protection and are open to trade based on fair rules and high standards.
How will the treaty affect businesses in Europe?
Smaller exporters in particular are disproportionately affected even by small barriers, as they often lack the time and resources to overcome them. Therefore, the EU has negotiated a special chapter for them in the agreement.
The EU wants the agreement:
- make it easier for exporters to find out which Japanese rules apply to their product or service
- make Japanese regulations more transparent
- simplifies Japanese customs procedures
The European Commission has also produced an infographic on the trade agreement:
Does the treaty also create investment between Europe and Japan?
The agreement makes it easier for European and Japanese companies to invest in each other's markets. It is expected that this will allow more Japanese companies to invest in Europe or set up production in the EU.
The agreement also contains some provisions on corporate governance. The aim is to attract and encourage investment by increasing investor confidence and improving competitiveness. In this way, investors can take advantage of the opportunities the trade agreement offers.
The EU is determined to integrate its new approach to investment protection and dispute resolution - an investment court - into all its new trade agreements. The investment bank system would create a more predictable environment for investors.
Source: European Commission