EU Nations Authorize Start of Free-Trade Talks With Japan

European Union governments authorized the start of talks with Japan on a free-trade agreement, brushing aside concerns from EU carmakers in a bid to expand economic ties with Asia after an accord with South Korea.

EU trade ministers gave the European Commission, the bloc’s regulatory arm, a mandate for negotiations with Japan to expand a 150 billion-euro ($195 billion) commercial relationship by removing tariffs. The European goal is also to scale back non- tariff barriers in the Japanese market for financial services and for goods such as automobiles and pharmaceuticals.

“This is an important political decision and necessary if we want to foster growth and jobs in Europe,” European Trade Commissioner Karel De Gucht told reporters today in Brussels after the ministerial agreement. “We have a clear mandate.”

The EU is sidestepping stalled World Trade Organization efforts to open markets by seeking commerce deals with individual countries or groups of nations. Japan is the EU’s second-biggest trade partner in Asia after China.

The 27-nation bloc struck a trade accord with Korea that took effect last year and is close to ratifying a pact with Colombia and Peru that will strengthen European ties with Latin America after earlier agreements with Mexico and Chile. The EU is also nearing completion of free-trade negotiations with Canada and considering seeking a similar deal with the U.S.

Broader Coverage

An agreement with Japan would cover almost twice as much trade in goods and services as the EU had with Korea. EU-Japan trade in products was worth almost 117 billion euros in 2011, while services trade totaled around 34 billion euros in 2010, according to the latest data from the commission.

De Gucht said Europe, battling the third year of the euro- area debt crisis, can’t afford to forgo the chance for a commercial accord with Japan. In July, when asking EU governments to approve the start of talks, he said a “huge number” of European industries including pharmaceuticals, chemicals, food and drink, and express delivery support the initiative and a deal could create 400,000 jobs in the EU. He repeated that employment projection today.

The European Automobile Manufacturers’ Association, whose members include Volkswagen AG (VOW), Europe’s largest carmaker, Bayerische Motoren Werke AG (BMW), PSA Peugeot Citroen (UG) and Fiat SpA (F), criticized the ministerial green light.

‘One-Way Street’

The association said a free-trade pact with Japan would threaten as many as 73,000 car-industry jobs in Europe because an increase in EU imports of Japanese autos wouldn’t be offset by a rise in exports of European vehicles to the country.

“This deal is a one-way street as far as the automobile industry is concerned,” Ivan Hodac, secretary general of the Brussels-based lobby group, said in an e-mailed statement today.

The negotiations with Japan could last for years. Some EU governments and industries are sensitive about deepening commercial ties with Asia.

The accord with Korea was opposed by European carmakers, which say a jump in EU imports of Korean cars after the deal took effect in July 2011 points to the risks of a pact with Japan. De Gucht said the EU would target the removal of car- market regulatory obstacles in Japan to ensure a level playing field.

“The mandate sets out a strict and clear parallelism between the elimination of our duties and non-tariff barriers in Japan,” he said. “So, if you will, like for like.”

Fewer NTBs

The EU imposes a 10 percent duty on Japanese cars, while Japan applies no levy on European autos, according to the commission. In this regard, the car market highlights the challenges ahead in the talks in general as the commission focuses on eliminating non-tariff barriers, or NTBs, in Japan and Japanese negotiators seek lower European import duties.

“You have very low tariffs in Japan but very little access to the market because of the NTBs,” De Gucht said. “Our tariffs are higher, but I would say we have much fewer NTBs.”

He also pledged to cut off talks with Japan after 12 months should the Japanese government fail to follow through on pledges to dismantle non-tariff barriers.

De Gucht said talks would kick off at the next EU-Japan summit, due to be held in the coming months after Japanese elections, and would “easily” last two to three years. It could take four to five years for any deal to be ratified, he said.

Safety Clause

French Trade Minister Nicole Bricq said France insisted that any accord with Japan include a provision to guard against a possible surge in European imports of “sensitive” goods such as cars.

The EU-Korea agreement has such a clause, which can be activated after a request from a national government. It entails a surveillance system under which European importers notify the commission of their projections of car shipments from Korea. That can be followed, on the basis of a separate request, by “safeguard” measures such as a suspension of planned EU duty cuts or the reinstatement of the bloc’s traditional levy.

In August, after Peugeot, France’s largest carmaker, said it would close a factory near Paris and eliminate 14,000 jobs, the French government of Socialist President Francois Hollande asked the commission to activate the surveillance system. De Gucht rejected the request.

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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