Key unresolved trade issues

Date: 13/06/1996

Trade winds do not always bring warm breezes. Potential storms are always brewing between the EU and Japan. These are some of the main bones of contention:

Investment

The European Business Community (EBC), which represents 1,000 companies in Japan, has complained that Japanese over-regulation, exorbitant taxes and operating costs, as well as Tokyo's refusal to harmonise standards and testing procedures with international ones, make it a difficult place to do business and not an attractive site for investment. EBC says European investment in Japan for the past 45 years has amounted to one-ninth of Japanese investment in Europe, because of “regulatory, structural and cultural impediments to foreign direct investment”.

Financial Services

Of the 90 foreign banks in Japan, 37 are European.Together they share only 1&percent; of the market, the EBC complains. No regulations hinder banking activity, but the Keiretsu system, which links Japanese companies with their suppliers in closely knit networks, makes it hard for foreigners to have meaningful roles in the marketplace. But deregulation and liberalisation, especially in pension fund management and securities, along with relaxation of reporting requirements, have helped. EU officials are still waiting for reforms in the insurance sector, but acknowlege the introduction of a European-style brokerage system and some liberalisation in product and rate approval. The Commission eagerly awaits the implementation of Japanese plans to liberalise legal services, which it feels could answer the EU's problems in this sector.

Dumping and Rules of Origin

“Anti-dumping is still an area of hidden protectionism in the EU,” says Japan's ministry of industry and trade (MITI) 1996 report on its trading partners' policies. It still questions whether EU anti-dumping and countervailing duty laws comply with World Trade Organisation rules. While welcoming the effects the Uruguay Round has had on European practice, it warns that “given the EU's past history of rampant abuse in this area”, it fears that EU officials may use their discretionary power to apply the new rules selectively. MITI also fears that the EU is examining southeast Asian products to see if they have any Japanese, Chinese or Taiwanese content, then levelling dumping charges on that basis alone. In addition, Japan says the EU unfairly compares average prices to create artificial charges of dumping.

Standards

Japanese trade officials complain that the EU practice of labeling products with the 'CE' product safety mark makes it very difficult for foreign producers to break into European markets. Manufacturers must prove their products meet the essential safety requirements and get green lights from European standards bodies. Because safety standards still vary among EU member states, MITI says foreign exporters “are confronting chaos”.

Automobiles

Commission officials say the automobile sector has been the scene of biggest EU gains. By last June, they say, 80&percent; of EU requests had been resolved. The most important was Japan's decision last June to adhere to the 1958 UN/ECE agreement on mutual recognition of car standards. Japan is the first non-European country to join and the move makes access to the Japanese market much less costly because European car makers can have their cars tested and inspected at home before export. Last autumn, the Union won observer status to the US-Japan agreement on car components, which has calmed EU fears of losing out to American competitors in the components sector.

Electronics

Japan is coming around to the argument for harmonising its standards with international ones. The EU hopes for a mutual recognition agreement (MRA) with Japan which would allow European manufacturers to certify at home that its products conform with Japanese standards.

Shipping

The Commission protested last September about “restrictive practices” in shipping, after two years of “informal” attempts to resolve the problem. European shippers pay Japanese port authorities 133 ecu per container for weighing and measuring tasks that are no longer done. For ships that carry thousands of containers,

the practice is hugely expensive. In 1991 alone, it cost EU shippers 28 billion ecu.

Agriculture

Progress here leaves much to be desired, according to the Commission, but it notes Japanese intentions to make customs rules more flexible. For its part, Tokyo is worried about export taxes the EU imposed last autumn on wheat and barley, causing prices to rise for Japanese consumers.

Semiconductors

Tokyo has welcomed European participation in a US-Japan dispute over renewal of their bilateral accord on semiconductors. Hopes are rising that Tokyo may consider a trilateral arrangement as proposed by the Commission. The Union, afraid of being left out of the two-way deal which expires at the end of July, has criticised it as discriminatory and hopes it will not be renewed. Japan still opposes the EU rule of origin policy for semiconductors, which it claims aims to protect Union manufacturers abroad.

Telecommunications

Following WTO talks and faced with serious competition, Japan is deregulating this sector.

It has liberalised interconnection rules, reduced restrictions on foreign capital participation in Japanese telecoms firms, removed some access barriers, and plans to break up Nippon Telephone and Telecoms to allow more competition.