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EU–Japan FTA in spite of

SME and NTB?

by Dr Wolfgang PAPE

Bruxelles

All support SME

n ‘Horizon 2020’ : SME Instrument with € 3 billion for 2014-2020

n Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) with € 2.3 billion for 2014 to 2020

n plus SBA, EU-Japan Centre; Regional Fund…

n SME supported also in MS and Japan (JETRO, 中小機構;

Abe, 12.11.2014: “…we have to keep an eye on small and medium-sized enterprises that have suffered a surge in import prices. We will take measures as needed.”), as well as in USA, China, Korea … 2

Why support to SME ?

n SME = 99% of EU (=Japan) enterprises

n SME = “engines of growth”, more

flexible and innovative than Big Business

n SME providing 75,000,000 jobs,

i.e. 67,4% of all private employment

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Who in Europe knows UAPME ?

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UAPME:

=‘Union Européenne de l’Artisanat et des Petites et Moyennes Entreprises’

=“Voice of SME in Europe”

>80 member organisations in all Europe, >12 million enterprises with > 55 million employees

No mention of SME in “Joint Statement of EU Business” on EU-Japan Review of April 2014

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Good SME news

(UAPME, 16.10.2014)

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“SMEs growing again amidst

optimism that the worst is behind them”

However, …

SME disadvantaged in FTA

n “Bilateral FTA increase trading transaction costs particularly for SME …” (ADB‘s Azis 2013)

n Just 26% of all exporters use FTA, (IUE Report 2014 on ASEAN) but only 15% of exporting SME (WTO’s Lamy in EP 2012)

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FTA complications

n Length and complexity of bilateral negotiations confirm differences with each trade partner: ‘no drag and drop’ copies nor ‘level playing field’ (eg in EU Review 2014.05 only 1 reference to recent KorEU: “For investment in non-services sectors, the FTA between the EU and Korea was

used as a benchmark.”)

n Result: “Spaghetti-Bowl” (Bhagwati 1995) covered by tomato sauce of languages + cultures, eg ‘rules of origin and duty drawback’, isolation, etc.

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NTB on top like intransparent spices in tomato sauce over ‘spaghetti’

n Non-Tariff Barriers (> NT Measures) refer to all barriers to trade that are not tariffs (OECD)

n Some 80% of negotiation efforts in general on NTB

n New goods and services provide fertile ground for new NTB, eg with technology advancing = new NTB potential

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Negotiators’ problems with NTB

n Unlike tariffs, NTB hardly quantifiable for ‘give and take’ by negotiators =>EU directives foresee parallelism between EU's tariff concessions and elimination of NTB by Japan

n Negotiators of NTB dependent on info from business, not always objectively substantiated (eg Japan rejects EU industry

claims, if not further substantiated, and EU cannot pursue them in

negotiations) => need for ex officio investigations)

n Sometimes lack of EC competence to abolish NTB in MS (working permit, corporate laws, labour issues etc.); better TBT in WTO

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General difficulties of NTB

n Cultural differences in terminology, eg Japanese競争 < competition in English

n Bilaterals only inter partes, discriminating other traders

n Erga omnes rules necessary and possible: eg 50 countries on 29.10.2014 agreed

on Common Reporting Standard for taxation, in order to avoid ‘tax-shopping’, others to join

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No death of distance

“Psychic distance” (Johansson 1977), i.e. NTB create naturally bigger a burden the wider the socio-cultural gap between trade partners involved

Open neighbours find fewer NTBs between themselves than far apart Western continent from Eastern island

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Issues with Japanese NTB

From traditional 日本人論 to

METI’s ‘Galapagos Syndrome’:

instead of open omnilateralism only defensive uniqueness; not only with industrial standards, but also in education, (agri)culture, service etc.

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“Asia's FTA mania” ?

n ADB survey of exporters in Japan, South Korea, Singapore and Thailand in 2007-08: “Few firms actually want to use FTAs, only 22% took advantage of FTA”.

n “Huge recent rise in trade deals seems to have done nothing to boost the share of the continent's intra-Asian trade.”

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“Useless bilateral FTAs ”? (Graph by The Economist, 3.9.09)

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Conclusion:

n EU to better pro-actively support SME in FTA

n Japan to dig deeper to root out NTB and new seeds

n Azis of ADB (2013): “In the world of free trade, a multilateral trade agreement supported by unilateral liberalization is ‘first best’.”

However, even better if we achieve omnilateral agreement with all stakeholders!

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Happy End?

Reason for congratulations:

After 40 years of diplomatic relations now for first time EU-Japan on the path towards a comprehensive trade agreement !

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Wolfgang PAPE

感謝いたします。

Thank you!