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EU trade talk trouble highlights shift to South Korean market

by Shinya Ajima

Kyodo News

Japan and the European Union have had difficulty launching a joint study on a free-trade deal, with analysts pointing out that Japan’s market appears less promising than other Asian economies.

However, the two sides are still thought to have many common interests in promoting free and open trade and investment around the world, including the shared interest of presenting a united front against China’s protectionist measures.

Tokyo has at every opportunity, including the annual Japan-EU summit, been proposing starting a joint study to explore pathways to future talks on an FTA.

But trade experts and diplomatic sources say the main focus of the 27-member EU is not Japan but South Korea, with which the EU signed an FTA last year.

Brussels faces difficulties enacting the deal. Business lobbies in Europe have intensified their campaign to dissuade the European Parliament from voting for the accord amid fears of a potential influx of cheaper South Korean products such as vehicles from Hyundai Motor Co. and flat-panel televisions from Samsung Electronics Co.

Some say Japan’s proposal could not have come at a worse time, with European officials sensitive about taking up anything that might make it difficult to ratify the accord with South Korea — even an apparently inoffensive “joint study.”

“I think we need to do a bit more homework,” a European diplomat said on condition of anonymity. “In the EU, a joint study . . . is like already committing to an FTA.”

The relatively quick recovery of other Asian economies from the global financial turmoil, showing their underlying strength, is another factor making an FTA with Japan appear less attractive.

The EU has set a policy of actively engaging in free-trade talks with economies that have potential for economic growth and high tariffs that must be lowered.

Japanese tariffs on EU imports are not extremely high. In fact, requests from the European Union at trade talks are dominated by those concerning Japan’s nontariff barriers, like regulations on government procurement and product safety screening, which Brussels says disadvantage European exporters.

Besides, Japan’s gross domestic product is forecast to grow relatively modestly in the future, unlike other Asian economies such as China, India and members of the Association of Southeast Asian Nations.

“It is unavoidable that Japan ranks lower on the EU priority list,” said Junichi Sugawara, an analyst at the Mizuho Research Institute. “It would not be at all surprising if the EU has concluded that it had better spend time and effort in dealing with South Korea, India or ASEAN countries.

“The EU seems to have no interest in trade talks with Japan, except for discussing reducing nontariff barriers, and they already have a framework to regularly discuss the issue,” Sugawara added, referring to the Japan-EU Regulatory Reform Dialogue, which is held twice a year. “I don’t believe that launching a joint study . . . seems attractive for the EU.”

Experts, however, deny the impasse will negatively affect the global resolve for freer trade and investment, in which Japan and European economies are playing leading roles.

Some say that as both Japan and the European Union increasingly shift the focus of their trade policies to emerging Asian economies, they face a common question — how to handle China.