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

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 carmakers.

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.