EU set to make its mind up over trade talks with Japan

Robin Emmott and Kaori Kaneko
Reuters Middle East

* Japan is part of EU strategy to sign deals with world's

top economies

* European industry and EU countries divided over the

benefits of a deal

* EU could miss out as Japan shifts focus to its Pacific


BRUSSELS/TOKYO, Nov 28 (Reuters) - Britain is trying to

convince France and Italy to agree to negotiations with Japan to

create a free-trade area with the European Union despite

concerns that a deal would hurt the continent's weaker


European free-trade advocates, including Britain, the

Netherlands and Sweden, want EU trade ministers on Thursday to

formally ask the Commission - the EU executive - to start talks

with Japan, the world's third-largest economy.

Paris and Rome, however, are determined to defend their

carmakers against strengthened competition from Japan after a

free-trade deal with South Korea was followed by rising car

imports when it came into force in July 2011.

A deal between Europe and Japan would bring together two

trading partners responsible for a third of global economic

output, but because a deal would take several years to finalise,

those pushing for an accord worry Japan could lose interest.

Japan is currently more focused on parliamentary elections

due on Dec. 16, as well as on a Pacific free-trade area that

Tokyo sees as a priority.

"There is a window of opportunity that could easily close,"

said a British diplomat involved in discussions.

The plan is part of the EU's ambition to sign free-trade

deals on behalf of its 27 member states with major economies,

including Canada and the United States, in the hope that trade

will help revive stagnant demand in the European Union.

Japan is the EU's third-largest trading partner after the

United States and China, accounting for 150 billion euros ($194

billion) a year in trade in goods and services.

Japan already has low import tariffs, with no duty on Scotch

whisky or French cognac for instance. But Europeans say Japanese

laws make it hard for them to do business there today, with

special regulations on everything from music to imported cars.

For example, Japan gives copyright protection to sound

recordings for 50 years as opposed to 70 in most of the rest of

the world. Music labels would like Japan to let royalty payments

run for longer, an issue underscored by artists like the Rolling

Stones, who have been celebrating 50 years in music this year.

"We need to ensure our products can actually reach Japanese

consumers without being blocked by legal or security barriers,"

said one Italian diplomat.

Britain, a purchaser of high-speed trains from Japan's

Hitachi, is keen to keep Japanese competition in a

European market dominated by France's Alstom and

Germany's Siemens.

Overall, an accord could increase EU economic output by up

to 1.9 percent, or by 320 billion euro ($415 billion), by 2020,

according to an internal EU document prepared for the talks.

Japan could see a 0.7 percent boost.

Reluctance in France and Italy, and to a lesser degree

Germany, stems from doubts over whether Tokyo is prepared to

significantly open its auto, agriculture and services markets to

foreign competitors.

France and Italy say they could go ahead with negotiations

but suggest that trade in cars be subject to checks to avoid a

surge in imports.


Japan's elections next month look likely to return to power

the long-dominant Liberal Democratic Party, which has been more

vague about its trade agenda than the current Democratic Party

of Japan government.

A deal with the EU also stirs little passion in Tokyo, where

officials are focused on the proposed Trans-Pacific Partnership

that would link Asia, the United States and Australia.

"Japan is ready to start negotiations with the EU," said a

Japanese source familiar with discussions in Tokyo. "But it is

for the Europeans to decide. Japan has done what we could do."

Tokyo says it is serious about a deal and has dropped a ban

on French and Dutch beef imports as well as agreeing to allow

food additives in European food imports.

There are still potential conflict areas, however, including

access to public tenders in Japan, ranging from road building to

supplying software. The European Commission says Europe's public

procurement market is far more open than Japan's, which allows

foreign bidders on fewer than 3 percent of public contracts.

On the surface, the EU car market has more barriers than

Japan's, with a 10 percent tariff on imported Japanese cars.

But EU carmarkers say they face numerous "non-tariff

barriers" that hinder exports to Japan. The country has a

category of "light" cars, which benefit from tax breaks.

Most small European cars, such as the Fiat 500, do not meet

the category's demanding criteria on size and power, however,

making it hard for them to compete with Japanese vehicles.

"It is troubling that the European Commission, in the midst

of a serious economic crisis, would propose launching

negotiations with Japan before the Japanese remove important

non-tariff barriers against the European auto industry," Ford

Motor Co, a U.S. automaker with a big presence in Europe,

told Reuters in an emailed statement.

Partly because of such worries, the Europeans have insisted

that negotiations can be called off after a year if they feel

Japan is not doing enough to open up its markets.

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