Chapter 1 Worldwide expansion of economic partnership networks and the creation of the multilateral trading system

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1 Part III International Economic Policy In order to underpin the competitiveness in export, competitiveness in attracting people and enterprises and competitiveness of Japanese multinationals, which were examined in this report, it is essential to steadily execute the Strategy of Global Outreach, including conducting economic partnership negotiations, capturing foreign markets in a strategic manner and promoting inward foreign direct investment. At the same time, in order to make use of Japan s outstanding capability to resolve social problems and contribute to the realization of common goods on a global scale, it is also necessary for Japan to actively participate in international rule-making so that that capability is appropriately appreciated. Moreover, if Japan is to enhance its competitiveness so that it can earn profits in the global market, it must enhance its platform capabilities and strengthen Japanese companies global management skills. In other words, it is essential to develop an environment to ensure that global companies, people, information and risk money from around the world come to Japan and that innovations continue to take place. It is also important that Japanese companies voluntarily pursue aggressive management and earn high levels of profits by proactively enhancing corporate governance systems and promoting dialogue with investors, among other measures. Explained below is the execution status of the Strategy of Global Outreach, including international rule-making efforts. Chapter 1 Worldwide expansion of economic partnership networks and the creation of the multilateral trading system Section 1 Strengthening links to the global economy via economic partnerships (EPA/FTA) 1. The Effects of economic partnerships (EPA/FTA) 1 For export companies located in Japan, promoting economic partnerships helps to maintain or increase the competitiveness of exports through the elimination or reduction of tariffs, among other measures. On the other hand, for companies owning investment assets or providing services abroad, economic partnerships put in place an environment that makes it easier to develop their business in other countries. 1 EPAs (Economic Partnership Agreements) / FTAs (Free Trade Agreements) are bilateral or multilateral international agreements that contain provisions regarding such matters as the reduction/elimination of custom duties on goods, the liberalization of trade in services, the enhancement of the investment environment and the establishment of a forum of discussing improvements to the business environment, with the objective of strengthening economic relations in a wide range of areas. There is no strict distinction between EPAs and FTAs, with recent FTAs containing such elements of EPAs as provisions concerning the enhancement of the investment environment (as seen in the U.S.-ROK FTA, for example). The EU uses the term in a slightly different way, referring to all of the FTAs that it has concluded with former colonies as EPAs. 615

2 In the case of exports, tariff reductions increase the competitiveness of exports from Japan. Mexico imposes a tariff of 20% on passenger cars, while Malaysia imposes a 30% tariff on air conditioners and Indonesia imposes a 10% tariff on bulldozers, but these tariffs are reduced to zero if the EPA is utilized. Moreover, the conclusion of wide-area EPAs between multiple countries or regions has the advantage of making EPAs more user-friendly for companies within the region, because they unify the requirements and procedures that are determined separately for each EPA. For example, unifying the requirements and procedures for enabling companies to utilize EPAs to benefit from a tariff reduction (called the rules of origin ) within a particular region reduces companies administrative costs, while broadening the range of countries in which EPAs can be utilized. Other advantages of wide-area EPAs include easier utilization of EPAs in relation to products manufactured in multiple countries within the region and the ability to consolidate cargo at logistics hubs within the region for onward distribution. For companies that do business overseas, EPAs/FTAs increase the legal stability of overseas investment, because governments make commitments to each other on such matters as protecting foreign investment, ensuring that any profits made from overseas business can be freely transferred to Japan, limiting or prohibiting attempts to oblige companies to employ local workers, and prohibiting government intervention in the value and effective period of technology transfer contracts entered into between private sector companies. In addition, for companies that are expanding service business overseas, they stipulate rules that give Japanese companies peace of mind when doing business, such as prohibiting restrictions on the investment of foreign capital and requirements of commercial presence, and ensuring the transparency of procedures based on public comment and other processes. In addition, Japan s EPAs contain a provision regarding the establishment of Committees for the Improvement of the Business Environment 2, as a framework for improving the business environment in the contracting parties. Participants in each Committee for the Improvement of the Business Environment include not only government representatives, but also representatives of private sector companies, enabling the various business-related problems faced by Japanese companies doing business overseas to be discussed face-to-face with representatives of the government of the counterpart country. Outcomes of discussions by these Committees include an agreement with Mexico concerning the establishment of an anti-counterfeiting hotline, and increased patrols and security cameras to improve security in Malaysia. 2. Overall trends in economic partnerships (EPA/FTA) Since the 1990s, moves toward regional integration have accelerated, due to the changes in the international economic environment and each country s development strategy, and the number of EPAs 2 The actual name used for these committees differs from one EPA to another; for example, the relevant committee is called the Committee for the Improvement of the Business Environment in the Japan-Mexico EPA, the Sub-Committee on Promotion of a Closer Economic Relationship in the Japan-Switzerland EPA, and the Sub-Committee on Improvement of the Business Environment in the Japan-Peru EPA. In this White Paper, they are referred to by the generic term Committees for the Improvement of the Business Environment. 616

3 and FTAs concluded has been growing over time. Factors behind this include (i) more active moves by the countries of the West to seek economic partnerships with neighboring countries with which they have strong economic ties, through the liberalization and facilitation of trade and investment (e.g. the U.S. and the EC (which later developed into the EU in 1993) respectively accelerated moves for the establishment of NAFTA (entered into force in 1994) and a single market); (ii) the fact that, amid high growth achieved by NIEs and ASEAN countries through their early promotion of economic deregulation, emerging economies such as Chile, Mexico and Peru adopted a strategy of utilizing EPAs/FTAs as part of their policy shift toward the liberalization of trade and investment, and the introduction of the market mechanism; and, furthermore, (iii) the fact that, since the late 2000s, major countries worldwide have actively sought to conclude EPAs/FTAs in order to expand trade and investment, in light of the stagnation of the Doha Round of WTO negotiations. The number of notifications of regional trade agreements (RTA) 3 in accordance with Article XXIV of GATT, among other provisions, was less than 27 in 1990, but had risen to 612 as of April 7, Economic integration in the Asia-Pacific region and FTA trends worldwide In the East Asia and Asia-Pacific region, moves toward the conclusion of FTAs intensified after Japan brought an EPA with Singapore into force in Singapore, Malaysia, Republic of Korea (hereafter referred to as ROK ), and China were among those that brought into force numerous FTAs with countries and regions within and outside East Asia over the next few years, through to the latter half of the 2000s. In 2010, tariffs among the six original members of ASEAN (Indonesia, Singapore, Thailand, Philippines, Malaysia, and Brunei Darussalam) were eliminated in principle. In addition, all of the ASEAN+1 FTAs entered into force in the goods sector, which is said to have taken East Asian FTAs to a new level. ASEAN+1 FTAs are the FTAs that ASEAN has concluded individually with six surrounding countries (Japan, China, ROK, India, Australia, and New Zealand), covering East Asia with a network of FTAs that has ASEAN as its hub. Aided in part by the development of this FTA network, the division of labor between processes and the consolidation and optimal arrangement of production bases has progressed accordingly within East Asia and within the Asia-Pacific region as a whole, when the final consumption markets are taken into account (Figure III ). If further tariff reductions on the basis of a unified schedule are achieved and various rules on business activities are standardized through wide-area economic partnerships, it would provide additional backing to efforts by companies to create more advanced supply chains spanning the whole region. In particular, in the Asia-Pacific region, APEC member countries and regions are aiming to establish the Free Trade Area of the Asia-Pacific (FTAAP). As a pathway to it, several initiatives are being undertaken, including the TPP (Trans-Pacific Partnership), the RCEP (Regional Comprehensive Economic Partnership), and the Japan-China -ROK FTA (Figure III ). 3 Regional Trade Agreement (RTA): The generic term used for agreements including EPAs/FTAs and customs unions, in which specific countries and regions make commitments including trade liberalization. 4 See the WTO website ( 617

4 Negotiations regarding the Japan-China -ROK FTA and the RCEP respectively began in March and May 2013, and negotiations between the U.S. and the EU concerning the Transatlantic Trade and Investment Partnership (TTIP) started in July As of May 2014, various economic partnership initiatives are progressing concurrently, aimed at linking North America, Europe, and the Asia-Pacific region (Figure III ). It is hoped that these initiatives will create a highly synergistic effect, acting as a mutual stimulus to facilitate the development of worldwide rules for trade and investment through the conclusion of high-level EPAs/FTAs between developed countries as well. 618

5 Figure III Supply chains in East Asia A large volume of intermediate goods (components) are exported from Japan, ROK and ASEAN countries to China. After assembly in China, the completed goods are exported to large markets, such as North America and EU. It is important to establish economic partnerships that cover the supply chains across East Asia. East Asia China EU28 ROK Japan ASEAN NAFTA *The size of the arrows indicates trade value, and color, the proportion of intermediate goods. 70%- 60%- 50%- 40%- 30%- -30% Unit: billion dollars Trade value: as of 2013 Based on RIETI-TID Source: Ministry of Economy, Trade and Industry. 619

6 Figure III Pathways to FTAAP China-Japan-ROK FTA FTAAP (Free Trade Area of the Asia-Pacific) RCEP (Regional Comprehensive Economic Partnership) 10 ASEAN member states + Japan, China, ROK, India, Australia, and New Zealand TPP Malaysia Japan Canada Singapore Viet Nam U.S. Mexico Brunei Darussalam Australia Peru Chile New Zealand Source: Ministry of Economy, Trade and Industry 620

7 Figure III Global FTA trends As well as the Japan-EU EPA, the U.S.-EU FTA (TTIP) is under negotiation. In the Asia-Pacific region, the Japan-China-ROK FTA, the RCEP (*), and the TPP are under negotiation. The conclusion of high-level EPAs/FTAs between developed countries will facilitate the development of worldwide rules for trade and investment. EU U.S.-EU FTA (TTIP) since July 2013 U.S. Japan-EU EPA since April 2013 Japan TPP Japan joined negotiations in July 2013 FTAAP (Free Trade Area of the Asia-Pacific) China-Japan-ROK FTA since March 2013 Source: Ministry of Economy, Trade and Industry RCEP since May 2013 *RCEP: 10 ASEAN member states + Japan, China, ROK, India, Australia, and New Zealand 4. The development of Japan s EPA networks So far, Japan has brought EPAs with 14 countries and regions into force. On January 15, 2015, the EPA with Australia, which is the largest trading partner among Japan s existing bilateral EPA partners, came into force, and on February 10, 2015, the Japan-Mongolia EPA was signed. In addition, negotiations are underway on eight EPA/FTA agreements (TPP, Japan-EU EPA, RCEP, Japan-China- ROK FTA, AJCEP chapters on trade in services and investment, Japan-Canada EPA, Japan-Colombia EPA, and Japan-Turkey EPA (Figures III and II ). The expansion of free trade and the promotion of economic partnerships are the key pillars of Japan s international trade policy. In particular, tapping into the Asia-Pacific region s growth and major markets by promoting such wide-area EPAs as the TPP, the RCEP, the Japan-China-ROK FTA, and the Japan- EU EPA, and thereby drawing an economic partnership network across the entire globe, is essential to Japan s growth. Japan Revitalization Strategy (Revised in 2014) Japan s challenge for the future (the Cabinet decision on June 24, 2014) stipulates as follows: the Government will push forward to achieve early conclusion of the TPP negotiations in a way that maximizes Japan s national interests. At the same time, the Government will promote strategic and prompt negotiations on other EPAs including RCEP, the Japan-China-Republic of Korea FTA and the Japan-EU EPA, in order to enhance Japan s external 621

8 economic relations and to promote domestic structural reforms through progress in global rule-making concerning trade and investment. The Government will also encourage more active overseas business activities by the private sector through promoting their utilization of the existing EPAs. Moreover, in line with the decision to aim to raise the FTA ratio to 70% (2012: 18.9%) by 2018, the Government is continuing the negotiations (Figure III ). Figure III History of Japan s EPA negotiations Japan s EPAs in force (13 countries/1 region) November 2002 Japan-Singapore EPA entered into force April 2005 July 2006 Japan-Mexico EPA entered into force Japan-Malaysia EPA entered into force September 2007 Japan-Chile EPA entered into force November 2007 Japan-Thailand EPA entered into force July 2008 July 2008 Japan-Indonesia EPA entered into force Japan-Brunei EPA entered into force December 2008 Japan-ASEAN EPA (AJCEP) entered into force December 2008 Japan-Philippines EPA entered into force September 2009 Japan-Switzerland EPA entered into force October 2009 Japan-Viet Nam EPA entered into force August 2011 Japan-India EPA entered into force March 2012 Japan-Peru EPA entered into force January 2015 Japan-Australia EPA entered into force Japan s First Economic Partnership Agreement (Background) October 1999 Singapore proposed an FTA with Japan. October 2000 At summit talks, Prime Minister Yoshiro Mori and Prime Minister Goh Chok Tong agreed to start negotiations. January 2002 Prime Minister Junichiro Koizumi and Prime Minister Goh Chok Tong signed the agreement. Other ASEAN countries became interested in concluding FTAs with Japan December 2003 Japan agreed to start FTA negotiations with Thailand, Philippines, and Malaysia. Negotiation results beneficial to Japanese exports Automobile: Elimination of tariffs from 7th year onward (*except for large buses and trucks) Steel: Gradual or immediate tariff elimination Government procurement: With Mexico, discriminatory treatment due to the lack of an FTA was resolved. Partial opening of market for Japanese agricultural products Beef, pork, chicken, oranges (fruits, juices) etc.: Tariff quotas were set. First wide-area EPA It covered Cambodia, Lao PDR, and Myanmar, which had not concluded bilateral EPAs with Japan. EPA became also applicable to supply chains across Japan and the ASEAN region. (Accumulation of rules of origin) Agreement separate from bilateral EPAs Companies are able to compare AJCEP and existing bilateral EPAs with ASEAN countries, and select and use the one that is more beneficial. Source: Ministry of Economy, Trade and Industry 622

9 ASEAN (AJCEP) In force (Dec. 2008) Figure III Current situation of economic partnerships with Japan In force (13 countries and one region): Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei Darussalam, ASEAN, Philippines, Switzerland, Viet Nam, India, Peru, Australia Signed (one country): Mongolia, etc. (three countries and five regions): TPP, EU, RCEP, Japan- China-ROK, AJCEP chapters on trade in services and investment (substantially agreed), Canada, Colombia, Turkey Others: ROK (negotiation suspended), GCC (Gulf Cooperation Council) (negotiation postponed) EU Switzerland In force (Sep. 2009) India In force (Aug. 2011) GCC countries Negotiation postponed GCC (Gulf Cooperation Council): Saudi Arabia, Kuwait, the United Arab Emirates, Bahrain, Qatar, and Oman Mongolia Signed on Feb. 10, 2015 Turkey RCEP (10 ASEAN countries + Japan, China, ROK, India, Australia and New Zealand) Japan-China-ROK Singapore In force (Nov. 2002) Revised (Sep. 2007) Malaysia In force (Jul. 2006) Brunei Darussalam In force (Jul. 2008) Viet Nam In force (Oct. 1, 2009) Source: Ministry of Economy, Trade and Industry ROK Negotiation suspended Thailand In force (Nov. 2007) Indonesia In force (Jul. 2008) Philippines In force (Dec. 2008) TPP New Zealand Australia Entered into force on Jan. 15, 2015 Canada Mexico In force (Apr. 2005) Revised (Apr. 2012) Peru In force (Mar. 2012) Chile In force (Sep. 2007) U.S. Colombia Under negotiation 623

10 Figure III Comparison of FTA coverage ratio Japan In force: 22.3% Including those signed: 22.3% Including those under negotiations: 84.6% China In force: 27.5% Including those under negotiations: 52.0% ROK Inforce: 40.7% Including those under negotiations: 82.4% Others 12.9% ROK 5.7% Others In force 15.4% 22.3% Signed Mongolia Trade value: 0.02% 159,002.1 billion EU 9.9% U.S. yen (2014) U.S. 13.3% China 20.5% U.S. 12.8% Others 21.0% In force: 40.1% Including those under negotiations: 64.3% Trade value: 4,306.3 billion USD (2014) EU In force Under negotiation Others 12.2% Provisionally signed Japan 7.2% 10.4% EU 14.3% Others 27.5% ROK 6.8% Japan 7.8% Others 17.6% In force U.S. 10.5% EU 10.1% Trade value: 1,009.8 billion USD (2014) China 21.3% Provisionally signed In force: 29.6% Including those under negotiations: 68.2% Others 10.4% Signed 0.5% Others 2.2% China 16.1% Others 19.6% Trade value: 3,968.6 billion USD (2014) Japan 5.1% EU 16.9% In force 37.2% ROK 2.9% China 13.9% Others 17.8 % Trade value: 4,168.7 billion USD (2014) Others 18.9% Japan 3.1% In force Others 27.3% U.S. 13.9% ROK 27.3% Signed 1.1% Negotiation concluded Canada 1.6% - The items (Japan, China, ROK, U.S., EU28) are arranged in descending order (clock-wise) of trade value per country within each progress status of negotiations. - When a country is in negotiations for both bilateral and multilateral FTAs with the same country, trade values are counted in the order of progress (in the order of in force, signed, under negotiation, and others ). - Source of the trade values: Japan - Trade Statistics of Japan (Ministry of Finance) (final figures as of March 21, 2015); China, ROK, U.S. and EU Direction of Trade Statistics (IMF) (April 27, 2015). - Figures do not sum up to 100% as they are rounded off to one decimal place. Source: Ministry of Foreign Affairs The following provides an introduction to the current development of Japan s economic partnership networks, examining (1) economic partnerships with countries and regions with large markets, and (2) other economic partnership initiatives. 624

11 (1) Economic partnerships with countries and regions with large markets [TPP (Trans-Pacific Partnership)] (under negotiation) In 2005, Singapore, New Zealand, Chile, and Brunei Darussalam signed the Trans-Pacific Strategic Economic Partnership (P4) Agreement, which entered into force in In March 2010, the TPP negotiations began, with the participation of the U.S., Australia, Peru, and Viet Nam, in addition to the aforementioned four countries. They were subsequently joined by Malaysia (October 2010), Mexico (October 2012), and Canada (October 2012), with Japan joining the negotiations in July As of April 2015, a total of 12 countries were participating in the negotiations. In 2014, discussions were held continuously toward an early conclusion of the negotiations, with ministerial meetings held in Singapore in February and May and in Australia in October. At the APEC Economic Leaders Meeting held in Beijing, China in November, meetings of the leaders and ministers of the countries participating in the TPP negotiations were also held. With the end of the negotiations coming into focus, the leaders issued a statement notifying that they instructed ministers and negotiators to place the top priority on concluding the TPP agreement (Figure III ) Accordingly, several meetings of the chief negotiators were held as part of the effort toward an early conclusion of the negotiations. 625

12 Figure III Trans-Pacific Partnership Leaders Statement November 10, 2014 We, the Leaders of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam, welcome the significant progress in recent months, as reported to us by our Ministers, that sets the stage to bring these landmark Trans-Pacific Partnership (TPP) negotiations to conclusion. We are encouraged that Ministers and negotiators have narrowed the remaining gaps on the legal text of the agreement and that they are intensively engaging to complete ambitious and balanced packages to open our markets to one another, in accordance with the instructions we gave them in Bali a year ago. With the end coming into focus, we have instructed our Ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers, and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible. As we mobilize our teams to conclude the negotiations, we remain committed to ensuring that the final agreement reflects our common vision of an ambitious, comprehensive, high-standard, and balanced agreement that enhances the competitiveness of our economies, promotes innovation and entrepreneurship, spurs economic growth and prosperity, and supports job creation in our countries. We are dedicated to ensuring that the benefits of the agreement serve to promote development that is sustainable, broad based and inclusive, and that the agreement takes into account the diversity of our levels of development. The gains that TPP will bring to each of our countries can expand even further should the open approach we are developing extend more broadly throughout the region. We remain committed to a TPP structure that can include other regional partners that are prepared to adopt its high standards. Our fundamental direction to our Ministers throughout this process has been to negotiate an outcome that will generate the greatest possible benefit for each of our countries. In order to achieve that, our governments have worked to reflect the input we each have received from our stakeholders in the negotiation. Continued engagement will be critical as our Ministers work to resolve the remaining issues in the negotiation. Reference: Trans-Pacific Partnership Leaders Statement Source: Government Headquarters for the TPP, Cabinet Secretariat [Regional Comprehensive Economic Partnership (RCEP)] (under negotiation) The RCEP aims to create a wide-area economic zone that covers about half of the world s population and accounts for about 30% of its GDP. It is one of the key regional initiatives that will ultimately assist in bringing the FTAAP (Free Trade Area of the Asia Pacific) to fruition. Advanced supply chains have already been built in East Asia, but further liberalization of trade and investment within the region will play a crucial role in promoting deeper regional economic integration. If a wide-area EPA covering the whole region were to be concluded, companies would be able to build production networks that realize optimal strategies for the allocation and siting of production, and it is anticipated that this would strengthen the international competitiveness of industries within East Asia. The standardization of rules and streamlining of procedures would also alleviate the burden on companies making use of EPAs (Figure III ). At the November 2012 meeting of the leaders of ASEAN member states and relevant countries, the leaders of the 16 countries concerned (the 10 ASEAN member states, plus Japan, China, ROK, India, Australia, and New Zealand) endorsed the Guiding Principles and Objectives for Negotiating the RCEP (hereinafter the Guiding Principles ) and announced the launch of RCEP negotiations. 626

13 The Guiding Principles state that the RCEP will cover trade in goods and services, and investment, as well as intellectual property, competition, economic and technical cooperation and dispute settlement and that the participants will aim for conclusion of an agreement by the end of The first round of RCEP negotiations took place in Brunei in May 2013; as well as a plenary meeting of Senior Economic Officials, working group meetings on trade in goods, trade in services, and investment also took place. Since the first round of negotiations was held, seven rounds of negotiations and two ministerial meetings were held by February At the second ministerial meeting held in Myanmar in August 2014, discussions were held on how to proceed with initial offers related to trade in goods and the method of liberalization of services and investment. Currently, in addition to negotiations at the Trade Negotiating Committee, negotiations are underway about a broad range of areas, including trade in goods and services, investment, intellectual property, competition, economic and technical cooperation, legal and institutional matters, STRACAP (Standards, Technical Regulations and Conformity Assessment Procedures), SPS (Sanitary and Phytosanitary Measures), rules of origin, trade facilitation and customs procedures. Figure III Meaning of participation in RCEP Integration of supply chain networks in East Asia Integration of companies supply chains is necessary in order to promote exports to growth markets both within and outside the East Asia region. Currently, each EPA has different rules, and this interferes with corporate activities (e.g. rules of origin, etc.). Under the RCEP, the development of cross-border supply chain networks will be promoted by integrating those rules into more simple and easy-to-use ones for companies. Example 2: Japanese motor vehicle component companies in Thailand import parts from Japan to manufacture airbags in Thailand, and then export them to India. India Example 3: Japanese elevator manufacturers in Thailand import lifts from China to manufacture elevators in Thailand, and export them to India. China ROK ASEAN Japan Australia New Zealand Example 1: Japanese motor vehicle companies in Thailand import engines and transmissions from Japan, assemble them in Thailand, and export the completed vehicles to Australia. Source: Ministry of Economy, Trade and Industry [Japan-China-ROK FTA] (under negotiation) Japan, China, and ROK are major economic players worldwide, together accounting for about 20% 627

14 of the world s GDP and trade value. The Japan-China-ROK FTA is an important regional initiative that would not only encourage trade and investment between the three countries, but also help to bring the FTAAP (Free Trade Area of the Asia Pacific) to fruition. Since the start of the negotiations in March 2013, six rounds of negotiations among the chief delegates were held to discuss a broad range of areas, including trade in goods, rules of origin, customs procedures, trade remedies, trade in services, investment, competition, intellectual property, SPS (sanitary and phytosanitary measures), TBT (technical barriers to trade), legal provisions, e-commerce, the environment and cooperation. At the sixth round of negotiations (chief delegates meetings) held in January 2015, intensive discussions were held mainly on such areas as trade in goods, trade in services, and investment. In March 2015, the Japan-China-ROK trilateral foreign ministers meeting was held for the first time in three years in Seoul, and at the meeting, the ministers agreed to make continued efforts towards the acceleration of trilateral FTA negotiations. [Japan-EU EPA] (under negotiation) Among Japan s economic partnership initiatives with major countries and regions outside the Asia- Pacific region are Japan-EU EPA negotiations. Japan and the EU are important economic partners that together account for 10% of the world s population, 20% of the value of global trade, and 30% of its GDP. Accordingly, it would be fair to say that the Japan-EU EPA would not only bring about economic growth for our nation by expanding trade and investment between Japan and the EU, but also lead the effort to create rules for trade and investment worldwide. Previously, the EU concluded FTAs mainly with neighboring countries and former colonial territories of the EU member states, but since the 2000s, it has placed emphasis on FTAs with countries which offer market potential or which retain trade barriers, including the ROK. The EU is also moving to strengthen trade relationships with developed countries. For example, it has been negotiating with the U.S. concerning the Transatlantic Trade and Investment Partnership (TTIP) since July 2013, and it has concluded negotiations with Canada about the Comprehensive Trade and Economic Agreement (CETA). In terms of the Japan-EU EPA, at the May 2009 Japan-EU Summit, summit leaders announced their intention to cooperate in strengthening economic integration between Japan and the EU. A joint High- Level Group was established at the Japan-EU Summit in April 2010, and the leaders agreed to begin a joint examination of ways of comprehensively strengthening and integrating economic relations between Japan and the EU. Based on the results of work by the joint High-Level Group in a wide range of fields, summit leaders agreed at the May 2011 Japan-EU Summit to begin the process for negotiations. They decided that the Japanese government and the European Commission would together carry out a scoping exercise, to define the framework (scope and level of ambition of negotiations.) Following the completion of the scoping exercise in 2012, at a meeting of the Foreign Affairs Council in November that year, the European Commission received a mandate from EU member countries to proceed with negotiations. Upon receipt of this mandate, Japan and the EU agreed during the March 2013 Japan-EU Summit Telephone Talks to launch negotiations concerning a Japan-EU EPA 628

15 and a political agreement (which is now called a Strategic Partnership Agreement (SPA)). After the start of negotiations in April 2013, nine rounds of negotiations were held by the end of March Between May and June 2014, the European Commission conducted the one-year-on review as an internal EU process and decided to continue the negotiations. When Prime Minister Abe visited Europe in May 2015, he conveyed Japan s hope to reach agreement in principle by the end of 2015 on various occasions and agreed with the leaders of European countries and the EU on the importance of the early conclusion of the EPA. At the Japan-EU Summit held in November 2014, Prime Minister Abe and new European Commission President Jean-Claude Juncker agreed to accelerate the negotiations on the Japan-EU EPA with the aim of reaching agreement in principle by the end of In the ninth round of negotiations held on February 23-27, 2015, some progress was achieved through discussions concerning a broad range of areas, including tariffs, non-tariff measures, investment, services and government procurement. The two sides will further accelerate the negotiations with the aim of reaching a broad agreement by the end of Reference: Press release concerning the Japan-EU Summit Meeting (November 2014) With regard to Japan-EU relations, Prime Minister Abe said that he wished to demonstrate leadership together with President Juncker and accelerate the negotiations, aiming to reach agreement in principle on the Japan-EU Economic Partnership Agreement (EPA) during 2015 and continue to work toward concluding the Japan-EU Strategic Partnership Agreement (SPA) as rapidly as possible. Responding to this, President Juncker said that Japan and the EU were natural partners and that he wished to accelerate negotiations on the Japan-EU EPA. He said he also hoped they could conclude negotiations on both the EPA and the SPA during 2015 and that he wished to make efforts together with Prime Minister Abe toward this goal. Reference: Press release concerning the Japan-EU Summit Meeting Source: Website of the Ministry of Foreign Affairs of Japan (2) Other economic partnership initiatives [Japan-Australia EPA] (entered into force on January 15, 2015) Based on the Australia-Japan Trade and Economic Framework, which was signed in the July 2003 Japan-Australia Summit, an inter-governmental joint study on the costs and benefits of trade and investment liberalization was conducted and it was completed in April Subsequently, in the April 2005 Japan-Australia Summit, the two sides agreed to conduct an intergovernmental joint study on appropriate economic relationships between developed countries, including the merits and demerits of EPAs/FTAs, and five joint study meetings were held between November 2005 and September Following a final report submitted by the joint study group, the two countries leaders agreed in December 2006 to start EPA negotiations. Between April 2007 and June 2012, 16 rounds of negotiations along with informal working-level discussions were held in order to resolve differences between the positions of Japan and Australia. At the April 2014 Summit Meeting, a broad agreement was reached on the Japan-Australia EPA after 629

16 seven years of negotiations, and the EPA was signed at the July 2014 Summit Meeting and entered into force on January 15, Australia is Japan s fourth largest trading partner, after China, the United States and the ROK, and is the largest trading partner among Japan s existing bilateral EPA partners. The share of tax-free products in the total value of Japan s exports to Australia, which was previously less than 30%, surpassed 80% immediately after the entry-into-force of the EPA, with tariffs on almost all of the remaining taxable products scheduled to be eliminated by the eighth year. In particular, in the automotive sector (MFN tariff rate at 5%), which accounts for around half of Japan s exports, tariffs on around 75% of completed vehicles exported to Australia in terms of value will be immediately eliminated. Tariffs on the remaining taxable completed vehicles will be entirely eliminated in the third year. A high-level agreement was also reached in a broad range of areas other than tariffs, including securing of stable supply of resources and energy including natural gas and coal as well as critical foods, such as wheat, barley, beef, dairy products and sugar, liberalization of investment and services, development of rules on e-commerce and government procurement and protection of intellectual properties. [Japan-Mongolia EPA] (signed on February 10, 2015) At the July 2014 Japan-Mongolia Summit Meeting, a broad agreement was reached on the Japan- Mongolia EPA after negotiations which started based on an agreement reached at the Japan-Mongolia Summit Meeting in March At the February 2015 Japan-Mongolia Summit Meeting, the two countries leaders signed the EPA. Under this EPA, the share of items exported from Japan to Mongolia without tariffs (tariff-free export) in the total value of exports will increase from less than 1% to around 96% in 10 years from the entry-into-force of the EPA, meaning dramatic improvement in access to the Mongolian market. Regarding automobiles in particular, tariffs on completed vehicles (0 to 3 years old since production) with engine displacement of 4,500cc or less will be eliminated immediately after the entry-into-force of the EPA. In areas other than tariffs, there will be substantial improvements in the investment environment in Mongolia as seen from Japan, particularly investment, including the granting of national treatment and most-favored nation treatment from the investment permission stage when Japanese private companies enter the resource and energy sector in Mongolia and the application of the ISDS (investor-state dispute settlement clause) provisions. As the relationship between Japan and Mongolia, which is rich in natural resources, is very close and important, this agreement is an important framework for promoting trade and investment between the two countries. The Japan-Mongolia EPA is the first EPA/FTA concluded by Mongolia. Regarding the Strategic Partnership, which is advocated in the Japan-Mongolia Joint Statement issued in November 2010, an agreement was reached at the March 2013 Japan-Mongolia Summit Meeting that this partnership will be developed mainly in (i) politics and security, (ii) economy and (iii) cultural and personnel exchanges. The conclusion of this EPA will make significant contributions to the enhancement of this strategy partnership. 630

17 [ASEAN-Japan Comprehensive Economic Partnership (AJCEP) Agreement chapters on trade in services and investment] (substantive agreement) Negotiations concerning the ASEAN-Japan Comprehensive Economic Partnership (AJCEP), which is an EPA with all ASEAN member countries, began in April 2005 on the basis of an agreement reached between the relevant leaders in November Having been signed in turn by each country on April 14, 2008, it has been gradually entering into force between Japan and ASEAN member countries. Negotiations regarding the AJCEP chapters on trade in services and investment began in October 2010 and a substantive agreement on the rules for these was reached after three years. This outcome was welcomed by the leaders of each country at the ASEAN-Japan Commemorative Summit Meeting in December The parties concerned will continue to work on the coordination of the remaining technical points and other matters. [Japan-Canada EPA] (under negotiation) Four joint studies concerning negotiations on the Japan-Canada EPA were carried out between March 2011 and January 2012, and a report on these studies was prepared. Taking into account this report, the leaders of the two nations agreed at the March 2012 Japan-Canada Summit Meeting that negotiations concerning a bilateral EPA should begin, to pave the way for substantive economic benefits for both countries. The first round of negotiations took place in November 2012, with the seventh round taking place in November At the most recent round, fruitful discussions were held in areas including trade in services, investment, intellectual property and energy, minerals and foods. The share of taxable items in the total value of exports from Japan to Canada is 43.6% (2013), while the comparable share in the total value of exports from Canada to Japan is 29.6% (2013). As for the tariff rates on major taxable items in export from Japan to Canada, the rate is 6.1% for passenger cars, 6-8.5% for auto parts and 6.5-7% for tires. [Japan-Colombia EPA] (under negotiation) With a population of 46 million people, Colombia is a market that is expected to achieve high growth (a growth rate of more than 4% on average over the next five years), so it is hoped that improving the trade and investment environment with an EPA will help to expand imports and exports. Along with promoting the policy of economic liberalization, Colombia has signed FTAs with the EU and ROK in addition to FTAs entered into force with countries in Latin America, the United States and Canada. In accordance with an agreement reached at the September 2011 Japan-Colombia Summit Meeting, a joint research project focused on the Japan-Colombia EPA started. The report on the joint study compiled in July 2012 stated that the possible EPA would help to bring significant benefits to both countries. In light of the joint research report, the two countries agreed at the September 2012 Japan- Colombia Summit Meeting that they would hold EPA negotiations and held the first round of negotiations in December Subsequently, at the July 2014 Japan-Colombia Summit Meeting, the two countries leaders 631

18 confirmed that they would accelerate the negotiations with the aim of reaching an agreement as soon as possible. At the 10th round of negotiations in March 2015, progress was achieved through discussions concerning a wide range of areas, including trade in goods, government procurement, rules of origin, intellectual property and e-commerce. [Japan-Turkey EPA] (under negotiation) With a population of 77 million, Turkey has an attractive market that is expected to achieve high growth (a growth rate of more than 5% on average over the next five years). The improvement of the trade and investment environment is expected to lead to growth in imports and exports, so there is great interest in this matter among Japanese companies. Japan aims to improve the bilateral trade and business environment between the two countries and develop trade liberalization measures and rules that are not inferior to those under EPAs between Turkey and third-party countries. In July 2012, Turkey and Japan held the First Japan-Turkey Trade and Investment Summit, at which the two countries agreed to begin joint research concerning the Japan-Turkey EPA. Following two joint research sessions, which were held in November 2012 and February 2013, a joint research report recommending that EPA negotiations be initiated was submitted to the governments of Japan and Turkey in July In light of the joint research report, the two countries agreed at the January 2014 Japan-Turkey Summit Meeting that they would begin EPA negotiations and held the first round of negotiations in December of the same year. Through the Japan-Turkey EPA, the two countries aim to promote exports to Turkey by Japanese companies by quickly leveling competitive conditions for them and their competitors, including European and ROK companies. They also aim to improve Turkey s institutional frameworks related to the investment environment in order to enhance the country s competitiveness as a hub for companies aiming to export products into and enter markets in the neighboring countries. [Japan-ROK EPA] (negotiations suspended) Although negotiations with ROK regarding an EPA began in December 2003, they have effectively been suspended since the sixth round of negotiations, which took place in November However, following the 2008 Japan-ROK Summit Meeting, working-level discussions began with a view to the resumption of negotiations. At the October 2011 Japan-ROK Summit, the two countries agreed to begin the full-fledged working-level discussions required for the resumption of negotiations, and coordination activities, including director-level discussions have continued with a view to the resumption of negotiations. [Japan-GCC FTA] (negotiations postponed) Negotiations regarding an FTA with the countries of the GCC (Gulf Cooperation Council), which consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates began in September 2006, with two official meetings and four inter-sessional meetings taking place up to March However, negotiations were postponed at the request of the GCC in July that year; Japan is 632

19 currently lobbying the member countries for their resumption. This region accounts for approximately 77% (2013) of Japan s crude oil imports by volume, while the total value of Japan s exports to that region is approximately 2.3 trillion (2013). Furthermore, population growth is giving rise to demand for large-scale infrastructure development, so the public and private sectors in many countries are proactively promoting business in this area. Forming and maintaining friendly relations including economic relations with the countries of this region is vital from the perspectives of both the expansion of trade and investment, and our nation s energy security. 5. The EPA life-cycle The foregoing section provided an introduction to the EPAs/FTAs currently under negotiation and those regarding which an agreement has been reached to begin negotiations. To respond to requests from businesses engaged in global expansion, it is vital not only to undertake initiatives aimed at the conclusion of such new agreements, but also to facilitate the utilization of existing EPAs/FTAs and improve (renegotiate) their content. At present, companies are increasingly making use of the EPAs that Japan has already brought into force, so it would be fair to say that they have entered the utilization and operation phase. In future, it will be vital to enhance the quality of EPAs throughout what might be termed the EPA life-cycle. Initiatives in this regard include: (i) proactive efforts by not only the government, but also JETRO 5, the Japan Chamber of Commerce and Industry 6, and various industry groups to promote broad use of EPAs, increase the usage rate, and facilitate their proper implementation; (ii) discussions involving representatives of the governments and private sector companies of both countries in such forums as the Committees for the Improvement of the Business Environment, and; (iii) the revision of the existing EPAs in light of actual needs and usage EPA utilization consultation service (for domestic companies) EPA advisors and other services to support companies expanding overseas (for overseas companies) 6 Type I Organization certified to issue certificates of origin 7 Committees for the Improvement of the Business Environment 8 The Japan-Singapore EPA entered into force in 2002 and was revised in The Japan-Mexico EPA entered into force in 2005 and was revised in