Japan’s Market is Open to the World

*As a review of the situation surrounding the EU-Japan EPA/EIA, JETRO compiled data materials released or provided by the parties involved into this file.

April 2012

Aircraft ・Skymark Airlines operate 6 Airbus A380 planes and plans to purchase 6 Airbus A330 planes. ・ Peach Aviation and Starflyer operate 10 and 7 Airbus A320 planes respectively ・ AirAsia has been operating 3 Airbus A320 planes.

Recent European Success Stories in the Japanese Transportation Market

Train parts ・JR East bought German brake systems for the Bullet Train (Hayabusa).

Source: Skymark, Peach Aviation, Starflyer, MLiT, and Knorr-Bremese

The EU had a trade surplus with Japan in railway products from 2001 to 2010. Japan mainly imported railway carriages, maintenance equipment and electronic parts.

Trade balance in railway products between Japan and the EU

Railway products trade surplus of EU vis a vis Japan EU-Japan trade balance in railway products

year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 total average

France -811 -490 -528 -44 -330 -892 111 -3,394 -236 -164 -6,778 -678

Germany -2,150 -2,645 -2,405 -834 -1,308 -2,325 -2,380 -3,455 -248 -318 -18,069 -1,807

Spain -1,846 -1,508 -1,847 -302 -971 -1,986 -1,722 -2,667 -173 -246 -13,168 -1,327

Italy -1,556 -27 -733 -2,493 -1,285 -2,815 -608 -899 -1,314 -2,146 -13,876 -1,388

UK -572 -284 -582 -322 -513 -1,523 5,555 14,975 14,026 -54 30,706 3,071

Austria -1,258 -1,225 -1,078 -679 -3,622 -5,312 -4,619 -4,598 -5,908 -4,953 -33,252 -3,325

EU total -5,639 -4,868 -3,527 -1,666 -7,628 -14,477 -3,613 2,141 6,202 -8,375 -41,451 -4,145

world total 50,214 36,507 32,145 77,940 127,812 69,685 57,899 81,443 55,797 47,998 637,440 63,744

Source: Trade statistics of the Ministry of Finance , Japan (in JPY million)

Central Government

Entities

47 Prefectures 19 Designated Cities

Over1,000 Local Municipalities （about 80%）

Rest of Local Municipalities

40 Core Cities 41 Exceptional

Cities

Current JETRO site Mar 2011 Dec 2011 Dec 2012

Providing tender information from all relevant government entities in English

More procurement information available in English

Source: METI

Succeeded in signing contracts with five local governments

(worth more than 19 billion yen) 2012-16

Veolia Water Japan Japanese subsidiary of a French company (environment)

Received a large order for an anti-influenza drug for

government stockpile (worth more than 5 billion yen)

2009-

GlaxoSmithKline Japanese subsidiary of a British company (pharmaceuticals)

Received orders for expensive medical instruments from institutions, including

national university hospitals (worth more than 4 billion yen)

2010-

Siemens Japan Japanese subsidiary of a German company (industrial machinery)

Examples of European companies involved in government procurement in Japan

Source:JETRO

Rising EU car sales on the Japanese market

New registrations of vehicles imported from Europe (especially Germany) to Japan rose from 2010 to 2011.

New registrations of European vehicles imported into Japan

Group 2011 2010 % Change

VW (VW , Audi) *1 71,801 63,561 12.9%

BMW (*BMW, BMW Mini) *1 48,545 43,764 10.9%

Daimler (Mercedes, Smart) 34,426 32,037 7.5%

FIAT (Fiat, Alfa Romeo, Maserati, Lancia) *2

8,554 8,226 4.0%

Source: Japan Automobile Importers Association (JAIA)

(passenger cars, trucks and buses)

*1. Including brands with headquarters located in Germany. *2. Including brands with headquarters located in Italy.

Bigger share of imported European cars in Japan than imported Japanese cars in Europe

Share of imported cars

5.5% (Imported European cars in Japan) vs. 3.9% (Imported Japanese cars in the EU)

(Passenger cars)

（Source：JAMA）

(2011)

Other88.5%

7.6%

3.9%

Market share in the EU

Imported from Japan European Brands

Manufactured in EU

（Source：ACEA, JAMA）

Market share in Japan

The Japanese government initiated the review in order to open up the Japanese beef market to

Europe.

Prime Minister Noda informed French Prime Minister Fillon in

October 2011 of his intention to review the import ban on beef (in line with scientific studies).

On 19 December 2011, the Ministry of Health, Welfare and Labour asked the Food Safety Committee（FSC) to review the assessment of the health impact of food (including beef from France, the Netherlands, United States and Canada) with a view to reassessing its measures to combat BSE (from home and abroad) on the basis of the latest scientific knowledge.

Following this request, the FSC decided on 22 December 2011 to have experts start re-examining the matter.

Decision to reconsider beef import ban

Source: MOFA, MHWL, FSC

Substance of Japan’s EPA

Trade in goods Trade in services Investment

Go

vernm

ent P

rocu

remen

t

Intellectu

al Pro

perty

Co

mp

etition

Imp

rovem

ent

Of B

usin

ess Enviro

nm

ent

Co

op

eration

En

ergy and

Min

eral Reso

urces

Market A

ccess

SPS/TB

T

Mu

tual R

ecogn

ition

Market A

ccess

Natio

nal Treatm

ent

MFN

Treatm

ent

Mo

vemen

t of N

atural P

erson

s

Natio

nal Treatm

ent

MFN

Treatmen

t P

roh

ibitio

n o

f perfo

rman

ce req

uirem

ents

Disp

ute Settlem

ent b

etween

state an

d in

vestor

ASEA

N

Vietnam ○ ○ ○ ○ ○ ○ ○ ○ ○

Philippines

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

ASEAN ○ ○ ○

Brunei ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Indonesia ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Thailand ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Malaysia ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Singapore ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Latin

Am

erica

Chile ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Mexico ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Euro

pe

Switzerland

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

FTA+ elements in FTAs Japan concluded

Source:Dr.Yorizumi Watanabe , Keio University

Automotive

- Toyota: CEO of Toyota Motor Europe is French.

The CEOs of most sales companies are local individuals.

- Nissan: The CEO of Nissan Motor Manufacturing is British.

- Honda: The CEOs of the main sales companies (Spain, Austria, UK, Czech) have been local individuals since 2010.

ICT

- Panasonic: Panasonic Europe appointed a European (French) CEO in 2009.

- Hitachi: Hitachi Europe appointed a European (British) CEO in 2004.

- NEC: The CEOs of almost all sales companies are local individuals.

- Fujitsu: The CEOs of Fujitsu Services and Fujitsu Technology Solutions are Europeans (British and German).

Most Japanese companies based in Europe appoint Europeans as top executives.

European CEOs in Japanese companies in Europe

Source:Japan Machinery Center for Trade and Investment

PSA – TOYOTA Motors

PSA – Mitsubishi Motors

Daimler – TORAY Isagro – SUMITOMO Chemical

FIAT – Toshiba Areva – Mitsubishi Heavy Industry

etc.

Expanding Japan-EU industrial partnerships

Source: METI

EU and Japanese industries have started talks on an EU-Japan EPA. - Establishing common aims for an EU-Japan EPA - Identifying NTBs for both sides and seeking possible solutions or the enhancement of market access

Automotive: ACEA-JAMA

Business Europe - Keidanren

- Meeting of chairmen in July 2011 (Agreed on starting the discussion on EU-Japan) - B-B dialogue with the participation of 7 sectors in March 2012

- Meetings in September and December 2011 - Discussion of non-tariff Issues such as safety standards, zoning

ICT: Digitaleurope - JEITA - Meeting of chairmen to discuss trade policy in September 2011 - Publication of a joint statement for promoting EU-Japan EIA in November 2011 - Discussion of non-tariff issues (ex. environmental regulations, intellectual property, movement of people, etc. )

Successful EU-Japan sectoral talks

Railway: EU railway manufacturers - Japanese railway companies - Meeting in October 2011 organised by JR East and Tokyo Metro in response to a request from the EU side - Exchanging views constructively on enhancing market access (ex. Japan’s non-discriminatory procurement.) Source:Japan Machinery Center for Trade and Investment

Potential of Japan’s Market

High performance of European companies in Japan

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Direct Investment Income in Japan ( by region) :Balance of Payment[BOJ]

(100 mil JPY)

EU,

63%

USA,33%

Others,4%

0

50,000

100,000

150,000

200,000

250,000

00FY 01FY 02FY 03FY 04FY 05FY 06FY 07FY 08FY

(100 mil JPY) Sales in Japan ( by main foreign investers) : Survey of Trands in Business Activities of Foreign affiliates[METI]

Europe,55.3%

USA,24.3%

Others,20.4%

Sales in Japan (by main foreign investors) Survey of trends in business activities of foreign subsidiaries (METI)

Direct investment income in Japan (by region) Balance of payments (BOJ)

Source: METI

Popular European products on the Japanese market

Missed opportunities by European companies

(2010) 60,765

(1990) 33,855

Source: Ministry of Finance

China: 13413

US: 5911

EU(27): 5821

Australia: 3948 S. Korea: 2504

Indonesia: 2476

Taiwan: 2025

Malaysia: 1987

Other: 22681

Trade Statistics of Japan

(billion Yen)

Total Value 179% China 775%, EU(12⇒27) 127%, Australia 289% S. Korea 148%, Indonesia 136%, Malaysia 255%

Although the Japanese import market has been growing, the EU has been losing share even though the number of EU member states has increased.

China: 1730

US, 7586

EU: 5071

Australia: 1787

S. Korea: 1690

Indonesia: 1821

Taiwan: 1232

Malaysia: 780

Other: 12158

Source:METI

Addressing Non-Tariff Measures

- As a first step, the Government Revitalization Unit (GRU) of the Japanese government determined to reform the following regulations.

- These regulatory reforms were approved by the Cabinet on 8 April 2011.

- The GRU released its Interim Report for “Items on Regulatory and Institutional Reform” on 13 April 2012.

1) Automotive zoning - On March 2012, the MLIT sent off for local governments the “Technical Guideline” for the standards to mitigate impacts on the surrounding environment.

- The interim Report of GRU also proposed to follow-up the issue.

2) Liquor wholesale license

- MOF (National Tax Agency) settled on the draft for reform and carried out the public comment procedures. The new Official Notice will be carried into effect on September 2012.

3) Food safety - food additives - The interim Report of GRU proposed to follow-up for the 15 unauthorized items.

3 items adopted in the special meeting on NTMs

Source: Cabinet Office (GRU)

- The administrative notice of the Explosive Control Act was revised in February 2012 in order to enable pyrotechnic safety devices for autos to be exempted from this act under certain conditions.

- MLIT sent off for local governments the “Technical Guideline” for the standards to mitigate impacts on the surrounding environment on March 2012.

- The interim report of the GRU on 13 April 2013 proposed about the harmonization of automobile standards (UNECE Regulations, High pressure gas container).

Progress on other NTM issues

Source: Cabinet Office (GRU), METI

Automotives

Medical Devices / Pharmaceuticals

- The interim report of the GRU on 13 April 2013 also proposed some measures as followings; Separation of regulations for medical devices from regulations for pharmaceuticals under the Pharmaceutical Affairs Act. Utilize private third-party certification bodies and accelerate the authorization procedures for medical devices already authorized in other countries. Elimination of “Vaccine Gaps”

<all measures: within FY 2012 >

Japan’s contribution to Europe

21

Number of employees: over 446,000 * Sales: 220 billion EUR Intraregional procurement： 39 billion EUR

Japanese subsidiaries in the EU

*Number of employees by Japanese subsidiaries UK 132,532 Netherland 89,551 Germany 61,965 Belgium 29,612 France 24,519 Italy 16,540 Spain 13,854

Huge job creation by Japanese companies in Europe

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2005 2006 2007 2008 2009 2010

108,247 (23.7%)

141,338 (26.4%)

164,341 (26.6%)

146,058 (23.7%)

161,117 (23.6%)

148,506 (22%)

103,602

128,021

150,434 144,060

161,822 173,379 176,399

186,004

197,054 204,584

212,772 205,246

USA

Asia

EU

Others

Source: Bank of Japan

(100 million yen)

Total: 456,054

Total: 534,760

Total: 618,584

Total: 617,400

Total: 682,097

Total: 676,911

The EU: No.１ investor in Japan €60 billion

Japan: No.3 investor in the EU €140 billion

(2010) MOF，BOJ balance of payments statistics

Survey of Overseas Business Activities as of 2009 , METI

Source: METI

Toyota

@Burnaston

Honda

@Swindon

Toyota

@Valenciennes

Nissan

@Barcelona, Avila,

Cantabria Mitsubishi Fuso

@Tramagal

Suzuki

@Esztergom

Toyota

@Walbrzych

Toyota

@Jelcz Laskowice

Nissan

@Sunderland

Toyota

@Kolin Honda

@Swindon

Nissan

@London

Honda

@Offenbach

Isuzu

@Gustavsburg

Mazda

@Oberursel

Mitsubishi

@Trebur

Toyota

@Koln

Subaru

@Ingelheim am Rhein

Isuzu

@Tychy

Toyota

@Nice

Nissan

@Cranfield,Barcelona,

Madrid,Brussels,Bruhl

Subaru

@Zaventem Toyota

@Zaventem,

Bernaston

: Production Facilities : R&D Facilities

・Production: 13 plants in 8 countries

・R&D: 12 centres in 5 countries

・Employment: 146,000 people

・Purchases of EU Parts*:€10.96 billion

(*In FY 2010)

Toyota

@Ovar

Mitsubishi

@Born

Japanese Automakers’ Production/R&D Facilities in the EU

Source:JAMA

Spain

Austria

Belgium

Czech

France

Germany

Hungary

Italy

Netherlands

Slovakia

Ireland

Sweden

UK Poland

Denmark

Spain 15 / 2,812

Poland 11 / 3,662

UK 35 / 30,575

Germany 26 / 21,132

France 28 / 6,010

Italy 14 / 1,552

Netherlands 12 / 2,157

Denmark 2 / 347

Austria 7 / 1,725

Belgium 6 / 2,380

Romania

Bulgaria 1 / 12

Czech 9 / 4,760

Finland

Finland 2 / 416

Hungary 5 / 2,935

Ireland 4 / 562

Luxembourg

Luxembourg 1 / 42

Portugal

Portugal 3 / 327

Slovakia 6 / 5,162

Slovenia

Slovenia 1 / 10

Greece

Greece 1 / 2

Bulgaria

Romania 2 / 37

Others

- / 14,733

Sweden 7 / 708

Numbers in the boxes: Operations of companies that are members of JEITA (Japan Electronics and IT Industries Association)

/ Employees of companies that are members of JEITA (Japan Electronics and IT Industries Association)

• More than 140 operations

in 22 countries

• More than 100,000 employees

in 22 countries

Japanese IT Companies’ Operations and Employment in the EU

Source:JEITA

Issue date Amount Target Country Purchase by Japan

Jan. 25, 2011 €5.0 bn Ireland €1.025 bn 20.5%

Jun. 15 5.0 Portugal 1.1 22.0

Jun. 22 3.0 Portugal 0.55 18.3

Nov. 7 3.0 Ireland 0.3 10.0

Dec. 13 2.0 Ireland/Portugal 0.26 13.0

Jan. 5, 2012 3.0 Ireland/Portugal 0.3 10.0

Jan. 17 1.5 Ireland/Portugal 0.12 8.0

Feb. 21 2.0 Ireland /Portugal 0.1 5.0

Mar. 6 3.4 Ireland/Portugal 0.16 4.7

Total 27.9 3.915 14.0

Japan is the biggest origin of funds for ESFS securities, after the euro zone

countries (according to ESFS data).

Japan’s large contribution to EFSF securities

Source:MOF

Benefit of the EU-Japan FTA

Possible benefit of FTAs for the EU

Nominal GDP (US$ 1 trillion)

(2010)

FTAs’ Impact on EU’s real GDP

(%)

Japan India Canada Korea Malaysia Singapore

5.5 1.6 1.0

0.2 0.2

0.12 0.07 0.03 0.04

Source: World Bank

0.00

Source: World Bank

*EU’s real GDP: US$ 16.25 trillion (2010)

1.7

0.09

Source: RIETI (estimated by Dr. Kenichi Kawasaki) ※Considered only tariff elimination, not NTM and spillover effects

Source:RIETI

New direct investment in Mexico by Japanese Automakers following implementation of the Japan-Mexico EPA

Mazda: Salamanca City (2013-)

Honda: Celaya (2014-)

Vehicle Production by Japanese Automakers in Mexico

(2004-2010 84% increase)

Manufacturer Location

Honda El Salto

Toyota Tijuana

Nissan Aguascalientes

Civac (Cuernavaca)

Isuzu Cuautitlan

Hino Silao

Japanese Automakers’ Production Facilities in Mexico

335336

372711

456089

547877 541761

443843

616791

300000

400000

500000

600000

700000

2004 2005 2006 2007 2008 2009 2010

In units

Source: Marklines Database

Japan-Mexico EPA takes effect (April

2005)

Surge of investment in Mexico after Japan-Mexico EPA

+

EU Japan

Export Effects (Tariffs)

+€14bn +€25bn

Export Effects (NTMs)

+€29bn +€28bn

Welfare Effects +€33bn +€18bn

- real gains by reducing regulatory differences.

- estimates that trade flows could increase by €43 billion for the EU and €53 billion for Japan. e.g.) - EU motor vehicle exports to Japan +84% or + €4.7billion

- EU pharmaceutical exports to Japan +60-100% or + €3.4billion

- EU medical device exports to Japan +51% or +€1.1billion

- The study uses information on the trade costs of regulatory barriers obtained through a survey of European firms operating in Japan.

“Assessment of barriers to trade and investment between the EU and Japan” (3 February, 2010) prepared for the European Commission, DG Trade, by Copenhagen Economics

Summary of impact

Benefit of EIA for EU and Japan through Reducing Tariffs and NTMs

Source: Copenhagen Economics

29 29

Projected sales in 2020:

16.3 million units

Projected sales in 2020:

4.3 million units

EU Auto Market Japanese Auto Market

Projected sales in 2020:

17.0 million units (+742,000 units / 4.6% increase)

Projected sales in 2020:

4.4 million units (+97,000 units / 2.2% increase)

European brands: +48,000 units (+25.1%)

Japanese brands: +47,000 units (+1.2%)

Implementation of

an EU-Japan EIA

Implementation of an EU-Japan EIA will facilitate automotive market expansion

in the EU and Japan, bringing benefits for both European and Japanese brands.

European brands: +470,000 units (+3.9%)

Japanese brands: +177,000 units (+9.2%)

Impact of EU-Japan EIA on automotive industries (report by Mitsubishi Research

Institute)

EIA benefits EU automotive sector more

Source:JAMA、Mitsubishi Research Institute

100

110

120

130

140

150

160

170

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU Production

Japan ⇒ EU vehicle exports

Average currency rate (Yen/Euro)

Un

its

Currency rate

(Yen)

nn

nn

Strong

Weak

Japanese automakers’ EU production and exports to the EU, 2000-2010

Source: JAMA; Mitsubishi UFJ Research and Consulting

From 2000 to 2007, exports of vehicles from Japan to the EU dropped slightly, while Japanese automakers’ production in the EU nearly doubled, despite the fact that the Japanese yen depreciated against the euro by nearly 60% during that period. Although currency rates can be a critical factor in pricing, directly affecting cost competitiveness,

history shows that factors which should favour increased exports do not necessarily do so. Japanese automakers are committed to contributing to the further growth of the European auto

industry, and therefore we are confident that tariff reduction via an EU-Japan EIA will not lead to increases in exports from Japan.

Surge in Japan’s car exports? Not likely.

Japan’s Innovation Efforts

France Japan Germany UK China Korea

ＧＤＰ (2010, in € billion)

ＧＤＰper capita(2010, €)

Patent application (patented)

Patent application (patented)/100,000 people

R&D Expense, 2009 (€ million)

Nobel Prize Winners in Science (‘00-’10)

Expense for Consumption, 2009 (€ billion)

Consumption per capita, 2009 (€)

License fees paid, 2010 (€ million)

License fee received, 2010 (€ million)

4 9 6 8 0 0

Sources ・World Bank

・IMD World Competitiveness Yearbook 2011

・Agence francaise pur les investissements internationaux(AFII)

・World Intellectual Property Office (WIPO)

Exchange Rate; 1 US dollar= 0.72862 euro

Hong Kong is not included in the column of China