Trade Sustainability Impact Assessment of the Free Trade Agreement between the European ...

314 Pages·2016·4.89 MB·English

Trade Sustainability Impact
Assessment of the Free Trade
Agreement between the
European Union and Japan
Final Report

Directorate-General for Trade
Trade Sustainability Impact Assessment
2016 EN
Legal notice:
This report was commissioned and financed by the European Commission. The information and
views set out in this report are those of the author(s) and do not necessarily reflect the official
opinion of the Commission. The Commission does not guarantee the accuracy of the data
included in this study. Neither the Commission nor any person acting on the Commission’s
behalf may be held responsible for the use which may be made of the information contained therein.

EUROPEAN COMMISSION
Directorate-General for Trade
Directorate C — Asia and Latin America
Unit C.1 — Far East
Contact: Timothée Sautter
E-mail: [email protected]

European Commission
B-1049 Brussels
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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

Lead authors

Stakeholder consultations – Elitsa Garnizova, Philipp Lamprecht
Economic analysis – Hosuk Lee-Makiyama
Horizontal commitments – Stephen Woolcock
Sectorial analysis – Patrick Messerlin, Hosuk Lee-Makiyama
Environmental analysis – Duncan Brack, Stefania Lovo
Social analysis – Ken Heydon, Hosuk Lee-Makiyama
Additional analysis – Centre for Social and Economic Analysis (CASE), Philipp Lamprecht,
Michal Krol

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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

Table of contents

1. Abstract ................................................................................................. 19
2. Working methodology .............................................................................. 20
2.1 Context of the negotiations .................................................................. 20
Context of EU-Japan negotiations ...................................................... 20
Overview of negotiations at the time of publication of this report .......... 21
2.2 The purpose of the Trade Sustainability Impact Assessment (Trade SIA) .. 21
2.3 The phases of the Trade SIA .............................................................. 22
Inception phase (September 2014 – February 2015) ........................... 22
Implementation phase (February 2015 – July 2015) ............................ 22
Completion phase (July 2015 – December 2015) ................................. 22
2.4 Steering committee .......................................................................... 23
2.5 Methodology .................................................................................... 23
The general approach ...................................................................... 23
The main indicators considered ......................................................... 24
2.6 Evidence ......................................................................................... 25
Qualitative analysis and desk research ............................................... 26
Case studies ................................................................................... 26
Stakeholder panels .......................................................................... 27
Quantitative analysis and modelling ................................................... 27
Partial equilibrium (PE) modelling ...................................................... 27
Decomposition analysis .................................................................... 28
Import-source analysis .................................................................... 29
2.7 Sectoral aggregation used for the study .............................................. 30
2.8 Formulation of policy recommendations ............................................... 31
3 Stakeholder consultations ......................................................................... 32
3.1 Overview of consultation strategy ....................................................... 32
3.2 Implementation of consultation plan ................................................... 33
3.3 Steering Committee meetings ............................................................ 33
3.4 Civil Society Meetings ....................................................................... 33
3.5 Stakeholder roundtables .................................................................... 34
Attendance and logistics ................................................................... 34
3.6 Surveys ........................................................................................... 35
Sector selection survey .................................................................... 35
Social, human rights and environmental survey .................................. 37
SME Survey .................................................................................... 38
Type of organisation who responded to the survey .............................. 42
Location of headquarters and subsidiaries .......................................... 42
Trading and intention to conduct business in the EU/Japan ................... 43
Barriers and opportunities to trading in EU/Japan ................................ 43
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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

Issues to be addressed by the FTA and potential negative effects of an
agreement .......................................................................... 44
3.7 Bilateral communication .................................................................... 44
3.8 Website ........................................................................................... 45
3.9 Other consultation channels ............................................................... 47
3.10 Policy Recommendations ................................................................... 47
4 Economic analysis ................................................................................... 48
4.1 Introduction ..................................................................................... 48
Europe’s strategy to reinforce the EU-Japan relationship ...................... 48
The EU strategy corresponds to its long-term interests ........................ 48
The challenge from TPP .................................................................... 48
4.2 The current baseline ......................................................................... 49
Confirming the improvement potentials in the EU-Japan trade .............. 49
Cross-effects from TPP – downgrading the EU baseline ........................ 50
Stakeholder comments on competition on the Japanese market ............ 51
4.3 The outcome of the FTA negotiations .................................................. 52
Emphasis and sequencing ................................................................ 52
Tariffs ............................................................................................ 53
Services trade ................................................................................. 53
Public procurement .......................................................................... 53
Investment provisions ...................................................................... 54
Technical barriers to trade (TBT), SPS and NTMs ................................. 54
Intellectual property ........................................................................ 54
4.4 The impact of the EU-Japan FTA ......................................................... 55
Economic indicators ......................................................................... 55
The distribution of gains ................................................................... 56
No impact on vulnerable groups or the informal economy in Europe ...... 57
Other social and environmental externalities for further analysis ........... 58
Impact on public finances – revenue forgone ...................................... 58
Other cross-cutting effects with other trade agreements and EU-Turkey
customs union ..................................................................... 59
4.5 Recommendations ............................................................................ 60
Conclusions .................................................................................... 60
Recommendations ........................................................................... 60
Flanking measures .......................................................................... 61
5 Horizontal commitments ........................................................................... 62
5.1 Introduction ..................................................................................... 62
Supplementary information on commitments on non-tariff issues .......... 62
5.2 Horizontal Regulatory Cooperation ...................................................... 62
5.3 Technical Barriers to Trade (TBT) ........................................................ 64
5.4 Sanitary and Phytosanitary Measures (SPS) ......................................... 67
5.5 Customs .......................................................................................... 69
Customs and Trade facilitation .......................................................... 69
De minimis ..................................................................................... 69
Risk assessment ............................................................................. 70
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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

5.6 Rules of Origin ................................................................................. 70
5.7 Investment ...................................................................................... 72
Definitions and duration ................................................................... 72
Liberalisation provisions ................................................................... 72
Standards of investment protection ................................................... 73
Expropriation and the ‘right to regulate’ ............................................. 73
Investor state dispute settlement/investment court system .................. 73
Costs of disputes ............................................................................. 74
5.8 Public procurement ........................................................................... 75
5.9 Geographical Indications and other Intellectual Property Rights issues .... 80
Geographical Indications (GIs) .......................................................... 80
Other IPRs ..................................................................................... 81
5.10 Trade Defence Instruments ................................................................ 83
5.11 Competition ..................................................................................... 84
6 Sectoral analysis: Food and feed (processed food) ....................................... 86
6.1 Introduction ..................................................................................... 86
Implications of the economic analysis ................................................ 86
6.2 Beef ................................................................................................ 87
The current baseline in Japan ........................................................... 87
The current baseline in the EU .......................................................... 88
Liberalisation scenarios and impact .................................................... 89
6.3 Pork ................................................................................................ 90
The current baseline in Japan ........................................................... 90
The current baseline in the EU .......................................................... 91
Liberalisation scenarios and impact .................................................... 91
6.4 Dairy and Cheese products ................................................................ 93
The current baseline in Japan ........................................................... 93
The current baseline in the EU .......................................................... 95
Liberalisation scenarios and impact .................................................... 96
6.5 Beverages: Wine .............................................................................. 97
The current baseline in Japan ........................................................... 97
The current baseline in the EU .......................................................... 98
Liberalisation scenarios and impact .................................................... 98
6.6 Beverages: Spirits ............................................................................ 99
The current baseline in Japan ........................................................... 99
The current baseline in the EU ........................................................ 100
Liberalisation scenarios and impact .................................................. 101
6.7 Beverages: Waters ......................................................................... 101
The current baseline in Japan ......................................................... 101
The current baseline in the EU ........................................................ 103
Liberalisation scenarios and impact .................................................. 103
6.8 Confectionery and bakery ................................................................ 104
The current baseline in Japan: Bakery ............................................. 104
The current baseline in the EU ........................................................ 105
The current baseline in Japan on bakery .......................................... 105
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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

The current baseline in the EU ........................................................ 106
Liberalisation scenarios and impact .................................................. 107
6.9 Starch, sorbitol and inulin ................................................................ 107
The current baseline in Japan ......................................................... 107
The current baseline in the EU ........................................................ 108
Liberalisation scenarios and impact .................................................. 108
6.10 Conclusions, recommendations and flanking measures ........................ 109
Conclusions – Results of partial equilibrium analysis indicate significant
EU export opportunities ...................................................... 109
Employment and social assessment ................................................. 110
Japan .......................................................................................... 112
The impact of the TPP .................................................................... 111
The results of the partial equilibrium analysis of liberalisation impact
(see Annex 3) .................................................................... 113
6.11 Annex to the sectoral analysis ‘food and feed’ – A brief analysis of the
tariff-rate quota as a liberalisation instrument .................................... 113
Economic analysis ......................................................................... 113
Taking into account negotiating imperatives ...................................... 114
6.12 Annex to the sectoral analysis ‘food and feed’ – The Japanese protection
regime in the pork sector ................................................................ 115
6.13 Annex to the sectoral analysis ‘food and feed’ – An outline of the
methodology of the partial equilibrium analysis .................................. 117
7 Sectoral analysis: Motor vehicles sector .................................................... 118
7.1 Introduction ................................................................................... 118
Implications of the economic analysis .............................................. 118
7.2 The current baseline ....................................................................... 119
Stabilisation in Europe and Japan .................................................... 119
Internal EU competition is shaped by local brands and locally
manufactured PCs .............................................................. 121
Extensive localised production by Japanese manufacturers ................. 122
Trade has not impacted EU overcapacities negatively ......................... 123
Varying degrees of investment in R&D and loss of competitiveness ...... 124
Europe is increasing its export dependency while Japan’s is decreasing 125
Trade balance is less meaningful as an indicator ................................ 126
Impact of exchange rate fluctuations ............................................... 129
7.3 The outcome of the FTA negotiations ................................................ 129
Common for the motor vehicle category: ......................................... 129
Examples of regulatory divergences in passenger cars (PCs)............... 130
Examples of regulatory divergences on commercial vehicles (CVs) ...... 130
Examples of regulatory divergences on powered two-wheelers (PTWs) 130
7.4 The impact of the EU-Japan FTA ....................................................... 131
2012 Impact Assessment on exports and output ............................... 131
Alternative impact assessments ...................................................... 132
Comparison of the social and economic impact ................................. 133
Environmental impact .................................................................... 135
7.5 Case study: FTA impact on Kei cars .................................................. 135
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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

The current baseline ...................................................................... 135
Preferential treatment of kei cars .................................................... 137
Potential impact of the FTA ............................................................. 139
7.6 Conclusions, recommendations and flanking measures ........................ 140
The baseline factors pointing towards further internationalisation ........ 140
Impact on economic, social and environmental indicators ................... 140
Recommendations ......................................................................... 141
Flanking measures ........................................................................ 142
8 Sectoral analysis: Railways ..................................................................... 144
8.1 Introduction ................................................................................... 144
Implications of the economic analysis .............................................. 144
8.2 The current baseline ....................................................................... 144
Baseline in the passenger rail services (PRS) .................................... 145
Baseline in the rail supply industry (RSI) .......................................... 148
The EU-Japan bilateral trade in RSI products .................................... 148
Japan and the EU in the world RSI trade .......................................... 151
Regulatory regimes in matter of norms and procurement ................... 153
8.3 The outcome of the FTA negotiations ................................................ 155
8.4 The impact of the EU-Japan FTA ....................................................... 156
Potential impact in the RSI markets ................................................. 156
Potential impact in the PRS markets ................................................ 158
Market structures .......................................................................... 158
Recent economic performance ........................................................ 161
8.5 Conclusion, recommendations and flanking measures ......................... 163
Conclusions towards industrial cooperation ....................................... 163
Flanking measures ........................................................................ 163
8.6 A minor note on Civil aircraft/airspace sectors as well as ships and
vessels sectors ............................................................................... 163
9 Sectoral analysis: Pharmaceuticals (and related chemical products) ............. 165
9.1 Introduction ................................................................................... 165
Implications of the economic analysis .............................................. 165
9.2 The current baseline ....................................................................... 166
Demographics driving public health care costs .................................. 166
Limited investment interaction between the EU and Japan .................. 167
Zero-tariffs and comprehensive cooperation ..................................... 167
Quasi-drugs .................................................................................. 168
9.3 The outcome of the FTA negotiations ................................................ 168
Examples of regulatory divergences on generics and biosimilars ......... 169
Examples of regulatory divergences on vaccines ............................... 169
Japanese pharmaceutical industry interests ...................................... 169
Quasi-drugs .................................................................................. 170
Chemicals .................................................................................... 170
9.4 The impact of the EU-Japan FTA ....................................................... 171
Negative impact on output and employment indicators are unlikely ..... 171
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Trade Sustainability Impact Assessment (Final Report)
Free Trade Agreement between the European Union and Japan

Impact on healthcare spending ....................................................... 172
Trade indicators, comparison to a PE model ...................................... 172
9.5 Conclusions, recommendations and flanking measures ........................ 173
Conclusions for a comprehensive preferential agreement ................... 173
Recommendations ......................................................................... 173
Flanking measures ........................................................................ 174
10 Sectoral analysis: Medical devices ........................................................... 175
10.1 Introduction ................................................................................... 175
Implications of the economic analysis .............................................. 175
10.2 The current baseline ....................................................................... 176
Considerable trade, device “deficit” in Japan ..................................... 176
Tariff protection............................................................................. 176
Lesser degree of regulatory cooperation in medical devices than in
pharmaceuticals ................................................................. 176
High degree of SME participation ..................................................... 177
Considerable levels of supply-chain integration ................................. 177
10.3 The outcome of the FTA negotiations ................................................ 177
10.4 The impact of the EU-Japan FTA ....................................................... 178
Tariffs .......................................................................................... 178
Regulatory issues .......................................................................... 178
SMEs, import side and supply-chain benefits .................................... 179
Impact on healthcare spending ....................................................... 179
10.5 Conclusions, recommendations and flanking measures ........................ 180
Impact on trade indicators and SME considerations ........................... 180
Impact on public health expenditure, consumer and social indicators ... 180
Recommendation towards regulatory harmonisation and cooperation ... 180
Flanking measures ........................................................................ 181
11 Sectoral analysis: business and financial services; retail and wholesale
services with an impact on merchandise. .................................................. 182
11.1 Introduction ................................................................................... 182
Implications of the economic analysis .............................................. 182
11.2 The current baseline ....................................................................... 183
Services market access in prior EU and Japanese FTAs ....................... 183
Low trading intensity in services overall. .......................................... 186
Employment ................................................................................. 186
Entry costs, and overly regulatory environment ................................ 187
The role of corporate profits and productivity .................................... 187
11.3 The outcome of the FTA negotiations ................................................ 189
Common issues for the services industry .......................................... 189
Business services: Recognition of professional qualifications ............... 189
Financial services .......................................................................... 190
Retail and wholesale sectors ........................................................... 190
11.4 The Impact on the EU-Japan FTA ...................................................... 192
11.5 Conclusions, recommendations and flanking measures ........................ 192
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