Auto industry sceptical about benefits of EU/Japan Free Trade Agreement

The European Automobile Manufacturers’ Association (ACEA) believes that the preparatory ‘scoping exercise’ for this free trade agreement has been insufficient and does not create the right conditions for launching bilateral negotiations. The ‘automotive roadmap’ – one of the outputs of the scoping exercise – is too vaguely-worded, and lacks clarity in terms of the precise methods to be used to dismantle non-tariff barriers and the timelines for this to happen.

The free trade agreement would require the EU to dismantle the existing 10% customs duties, representing a saving of €1.2bn a year for Japanese manufacturers and €1,500 for every Japanese car imported. “This would trigger a higher flow of cars into the EU. Car production could go down by some 160,000 units as a result, leading to job losses,” stated Ivan Hodac, Secretary General of ACEA.

“If Europe cuts tariffs, Japan must remove non-tariff barriers. Otherwise we don’t have a level playing field,” went on Hodac. “Reducing tariffs is easy; removing non-tariff barriers is far more time-consuming and complicated.”

The auto industry specifically requests that EU type-approved vehicles should be able to enter and be sold on the Japanese market without modifications. This is not the case today. “European cars are amongst the safest and cleanest in the world, so there is no reason why a car that is suitable for EU consumers should not be suitable for Japanese consumers,” said Mr Hodac.

Another major concern for the industry are the so-called ‘kei’ cars, which are very small cars unique to the Japanese market. “Kei cars enjoy a number of special financial and other benefits,” explained Mr Hodac. “They consequently hold over 35% of the market share – which means that EU manufacturers are effectively locked out of a huge chunk of the Japanese market.

Either these advantages should be made available to similar European small cars, or they should be removed.” Japan is not a growth market even for domestically-manufactured vehicles, and the outlook is gloomy. According to the Mitsubishi Research Institute, between 2010 and 2020 Japan’s domestic market is set to decline by 660,000 units. Therefore, this free trade agreement represents an opportunity for the Japanese to shore up export levels into the EU, thereby compensating for their own declining market and helping maintain their employment levels in the sector.

Hodac: “The trade agreement risks being used by the Japanese as a tool for passing on productive capacity that cannot be absorbed at home to the EU, a market which increasingly has its own issues of overcapacity.” On the other hand, it is highly doubtful that a free trade agreement would help the EU automobile industry make stronger inroads into Japan, where EU-produced vehicles currently represent just 4% of total market share. It would also be likely to worsen the current trade deficit of the automotive sector, which currently stands at over €5bn in Japan’s favour.

“With or without the free trade agreement, our industry will export fewer cars to Japan than today, given the demographics in the country.” ACEA therefore believes that until there is a clear roadmap and strong commitments from the Japanese government that non-tariff barriers will be eliminated, it is premature to enter into trade negotiations with the Japanese partners. “The principle of reciprocity must be respected,” insisted Hodac.