In aesthetic terms, small may be beautiful. But as far as trade deals are concerned, the opposite usually applies.
After nearly six years of hectic negotiations, Japan and the 15-nation European Union have signed a landmark agreement to mutually recognize the results of safety and other tests for some industrial products.
The mutual recognition agreement, or MRA, is the first such trade pact that Japan has concluded. It covers four product categories — electrical goods, chemical products, pharmaceuticals and telecommunications peripheral devices.
The agreement will help eliminate double-testing of similar products by Japan and the EU. Japanese exporters of electrical goods, for example, will no longer be required to undergo testing by European regulatory authorities for safety and other standards if they pass similar tests by domestic authorities.
The MRA will simplify trade-related procedures, save both Japanese and European exporters money and time, grant them greater access to each other’s markets and help increase bilateral trade in the medium and long terms.
The EU already has a similar agreement with the U.S., which covers five product categories — telecommunications equipment, medical devices, pharmaceuticals, information technology and recreational equipment. Trans-Atlantic trade in the five categories is estimated to total well over $50 billion a year.
Japan and the EU launched negotiations in May 1995, nearly two years after the EU proposed such talks.
Although the two sides agreed in principle in early 1998 to let the pact cover four product items — electrical goods, chemical products, pharmaceuticals and telecommunications peripheral devices — it took another three years for them to reach a final agreement and sign the agreement.
This was mainly due to internal squabbling within the Japanese government over legal procedures for implementing the trade pact.
Japan’s foot-dragging irritated the EU, with its top trade official, Pascal Lamy, complaining about the lack of progress in the MRA negotiations to his then Japanese counterpart, Takashi Fukaya, and other Japanese ministers early last year.
The internal feuding within the Japanese government, especially between the Trade and Telecommunications ministries, was resolved after the Cabinet Legislation Bureau, the highest government legislative body, stepped in later to mediate.
The confrontation between the two ministries over the MRA apparently reflected a behind-the-scenes struggle for greater influence on some industries, including the telecom sector. The settlement to the internal dispute cleared the way for the recent signing of the agreement by Japan and the EU.
The Japan-EU MRA is expected to take effect as early as autumn, pending approval by the legislatures of the two sides. Soon after signing the agreement, Japan submitted the pact to the current ordinary Diet session for approval.
Debate has not yet been conducted on it, however, due to the recent political turmoil that resulted in the departure of Yoshiro Mori as prime minister and subsequent installment of Junichiro Koizumi. The current Diet session runs until the end of June.
“We want to have the MRA approved at the current Diet session at any cost in order to make it effective as soon as possible,” said one senior government official involved in the Japan-EU negotiations.
But the MRA is still far from sufficient to further promote bilateral trade, although concluding such a pact anyway may be much better than doing nothing.
The pact is actually a much smaller deal than initially expected in terms of product coverage. The four categories covered account for only 30 percent of bilateral trade.
The EU initially insisted on covering five other product categories, including construction materials, yachts, boilers and medical equipment, but Japan rejected the request.
Another trade official who was involved in the Japan-EU negotiations said: “Sometime in the future, we will have to discuss with the EU expanding the trade pact to include other product categories.
“But any expansion of the pact should be made in a manner that balances the benefits of both sides, as negotiations on the just-concluded MRA did,” the official said, requesting anonymity.
Of the four product categories covered by the agreement, Japan has a competitive advantage in electrical goods while the EU has one in chemical products and pharmaceuticals. They stand roughly even on competitiveness in telecommunications peripheral devices.
“On balance, the benefits Japan and the EU can get from the MRA will be equal,” the trade official said.
To be sure, although Japanese trade negotiators seem exhausted after nearly six years of tough negotiations with the EU, they show a willingness to expand the pact in the future.
But in Japan, organizations affiliated with government ministries and agencies carry out testing for product standards. Resistance from those ministries and agencies as well as testing bodies with vested interests is expected to be a major obstacle to any broadening of the MRA’s coverage in the future.
Another question has already been raised now that Japan has reached agreement with the EU: Which will be the next trading partner to strike such a pact with Japan?
According to government officials, some countries, including South Korea, Singapore and Australia, have already asked Japan to conclude a similar pact to strengthen economic and trade relations, the officials said.
But Japan will not have to conclude an MRA with Singapore because a free-trade agreement now under negotiation between the two countries will contain such an arrangement, the officials said.
“When we consider a new MRA partner, the most important factor will be whether its product-testing system is trustworthy enough for us to accept its results,” one government official said, requesting anonymity.
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