EU, Japan to seek trade deal despite carmaker fears

BRUSSELS Fri Nov 30, 2012 12:04am IST

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BRUSSELS (Reuters) - EU trade ministers overcame resistance from the car industry on Thursday and agreed to start negotiations to create a free-trade pact with Japan, Europe's most ambitious step so far in a strategy to tie up deals with the world's biggest economies.

Agreement was reached only after France and Italy secured safeguards for carmakers that are already cutting jobs because of falling demand at home and worry a deal could lead to greater Japanese imports and damage the industry.

EU negotiators were told they should pull the plug on the talks - expected to last two or three years - if Tokyo failed to remove the barriers to trade that Europeans say make it hard to do business in Japan.

The country already has low or zero import tariffs, with no duty on Scotch whisky or French cognac for instance, and the real prize for Europe is removing special regulations on everything from music to imported cars.

"Let's not be anxious, Europe is not naive, Europe is going into this negotiation with our eyes wide open," EU trade chief Karel De Gucht told a news conference.

Struggling to resolve a three-year debt crisis, Europe's push for an accord is part of its ambition to supplement stagnant domestic consumer demand with free-trade pacts with major economies.

A deal with South Korea came into effect last year, one with Canada is near completion, and preliminary talks are underway for an agreement with the United States.

Japan was the European Union's seventh-largest trading partner in 2011, accounting for 116 billion euros ($151 billion)in goods trade. The EU and Japan are together responsible for a third of global economic output.

The Japanese business group Keidanren welcomed the deal.

"We want negotiations to start rapidly in order to agree a deal quickly," it said in a statement. "We want (the Japanese government) to continue to put into effect regulatory and structural reform."

SUSPICION IN EUROPE

The European Commission - the EU executive, which negotiates on behalf of the 27 member states - says a Japan trade deal could boost EU output by up to 1.9 percent, or 320 billion euros, by 2020, thanks to increased exports including food, drink and luxury goods. It says that could create 400,000 jobs.

But the EU carmakers' association ACEA estimated a trade deal with Japan would cost the European auto industry up to 70,000 jobs.

"I don't believe the Japanese have any intention to remove their barriers to our vehicles," Ivan Hodac, ACEA secretary general, told Reuters. "It is not clear at all how these safeguard clauses would work."

On the surface, the EU car market has more barriers than Japan's, with a 10 percent tariff on imported Japanese cars and 22 percent on trucks, compared to Japan's zero import tariffs.

But EU carmakers say numerous barriers hinder exports, such as Japan's category of "light" cars. These benefit from tax breaks, but most small European cars do not fit the category's demanding criteria on size and power.

Such rules particularly annoy France and Italy, whose automakers specialize in smaller cars.

France recently requested the Commission monitor the import of South Korean cars, after the trade deal with Seoul was accompanied by a surge in European sales for Korean car brands.

Still, France agreed to negotiations after the Commission's assurances that EU tariffs would only be lowered if Japan's non-tariff barriers were removed.

French Trade Minister Nicole Bricq said the safeguards against excessive Japanese car imports were tougher than those in the South Korea accord, though she did not specify how they would be implemented.

"The Commission must take into account the needs of sensitive sectors - carmakers," she told reporters in Brussels, warning that Paris would fight to defend its industry during negotiations.

Trade chief De Gucht cited victories over Japanese regulation that the EU had achieved in preliminary talks, such as the granting of new liquor licenses to European companies.

British Trade Minister Stephen Green said the complexity of the European and Japanese economies meant the negotiations would be very difficult.

"There was a clear recognition that this will be a long and painful process," he told reporters.

For Japan, a trade deal with the EU could boost economic output by 0.7 percent, according to the EU estimate.

"Given the potential of the Japan-EU (free-trade pact) to contribute to economic growth of both sides, Japan will continue to work towards a high level" agreement, Japanese Foreign Minister Koichiro Genba said in a statement.

But the plan stirs little passion in Tokyo, where officials are focused on the proposed Trans-Pacific Partnership that would link Asia, the United States and Australia.

The country is also distracted by a general election next month, which looks likely to return to power the long-dominant Liberal Democratic Party, which has been vaguer about its trade agenda than the current Democratic Party of Japan government.

($1 = 0.7705 euros)

(Additional reporting by Philip Blenkinsop in Brussels and Kaori Kaneko in Tokyo)

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