EU opens door to Japan trade talks, new era of deals

Mon Jul 16, 2012 9:23am EDT

* European Commission to seek mandate to start talks

* Japan deal would go beyond tariffs to include services

* Some carmakers worry a deal would be skewed against them

By Robin Emmott and Francesco Guarascio

BRUSSELS, July 16 (Reuters) - The European Union should go ahead with talks on a potentially groundbreaking free-trade deal with Japan despite opposition from carmakers, the European Commission will say on Wednesday, in an effort to revive Europe's stagnant economy.

With the 10-year-old Doha round of global trade talks deadlocked, the European Union is in a race with the United States to sign as many free-trade deals as it can and lock in access to fast-growing economies, especially in Asia.

The European Union executive's 27 commissioners will formally recommend going ahead with the sensitive Japan talks because they believe there is enough support among the bloc's member countries, three diplomats told Reuters.

"The Commission will agree the EU should try for a trade deal with Japan," said one of the diplomats, briefed ahead of Wednesday's meeting dedicated to the issue of Japan talks.

"This is crucial to Europe's future as a trading bloc," the diplomat said.

A deal with Japan would mark the European Union's first trade accord with a major world economy, building on last year's agreement with South Korea. Although several years away even once talks start, it would be part of a new generation of sophisticated trade deals that go beyond tariff reduction to take in intellectual property rights, services and regulation.

EU governments are expected to support the Commission at the next leaders' summit in October, giving it the mandate to negotiate with Japan on behalf of the bloc's members. A first round of talks could start early next year.

Europe's exporters are looking abroad as a 2-1/2 year debt crisis drives unemployment to record highs and saps demand at home. With many economies in recession, EU leaders put trade at the centre of their hunt for growth at a summit last month.

The European Union says that signing trade accords with more than 80 countries where negotiations have already begun -- from Canada to India -- could create 2 million new jobs and make a 275 billion euro ($340 billion) contribution to Europe's economy.



CARMAKER CONCERNS

Barring Greenland and Mongolia, there is barely a corner of the world where the EU executive's team of negotiators is not trying to deepen trade ties. Some kind of broad agreement with the United States or China is not out of the question -- perhaps along the lines of an investment agreement.

"It's about getting a snowball effect," said one EU diplomat who is involved in trade. "One door opens another, and another."

A free-trade agreement with Japan is not assured, however, and the European Parliament must sign off on any final agreement. Issues such as public procurement, ranging from building roads to supplying software, and openness to car imports are potential conflict areas.

Japan allows foreign bidders on less than 3 percent of public contracts, and efforts by Germany and France to get Tokyo to show a willingness to open up have so far failed, say industry lobbyists who are pushing for a trade agreement.

Italian and French makers of autos and autoparts, struggling with weak demand at home, say that if the South Korea-EU trade deal is anything to go by, they will not have the access they hoped for in Japan and do not welcome more competition at home, when households are cutting back on big-ticket purchases.

Since the South Korea agreement came into effect on July 1 last year, South Korea has increased its sales to Europe by double digits, while Europeans say the close relationship between carmakers and their suppliers makes it hard for foreign parts makers to break into the market.

ACEA auto industry association President Sergio Marchionne, who is also chief executive of Fiat, said last month South Korea's increasing car exports were a "warning sign" ahead of a free-trade deal with Japan, Asia's biggest car exporter.

"We are ready to go ahead with Japan talks, but we will not be able to continue if there is no movement on auto market access," said one Italian diplomat involved in trade strategy.