EU pushes trade deal with Japan in hunt for growth

BRUSSELS Wed Jul 18, 2012 7:36am EDT

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BRUSSELS (Reuters) - The European Union's trade chief called on Europe on Wednesday to start talks on an ambitious trade deal with Japan despite opposition from carmakers, saying that overlooking one of the world's biggest economies would be a "serious mistake".

The European Union is in a race with the United States to sign dozens of free-trade deals across the globe and lock in access to fast-growing economies, especially in Asia, as the 10-year Doha round of global trade talks are deadlocked.

"If growth in the next 20 years is likely to come from Asia, then overlooking Japan would be a serious mistake in our trade strategy," Trade Commissioner Karel De Gucht said in a speech following the European Commission's decision to ask EU countries for a mandate to negotiate with Japan on their behalf.

The decision was expected, as Reuters reported on Monday [ID:nL6E8IG3UZ], and the Commission must still win the approval of the EU's 27 countries to proceed with talks. But there is a consensus at least to start negotiations, diplomats say, and the Commission is treading a careful path by agreeing to halt talks after a year if Japan does not move on opening up its markets.

A deal with Japan, which could be sealed in a couple of years if countries approve the Commission's request for a mandate by the end of this year, could increase the European Union's economic output by almost a percentage point and increase EU exports to Japan by a third, the Commission says.

That could create 400,000 jobs in Europe, an attractive proposition at a time when unemployment in the 17-nation euro zone is a record high and several large EU economies, including Spain and Britain, are in recession.

"Let's be clear: We need these jobs, and we need this growth in the current economic climate," De Gucht said.

There is barely a corner of the world where the European Union is not negotiating trade deals, but the bloc has yet to seal an accord with a major world economy. A deal with Japan would probably follow a pact with Canada that is expected by the end of this year, building on last year's agreement with South Korea.

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

"JAPAN MUST DELIVER"

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.

"I know that there are concerns about the additional competition a deal with this developed economy would bring, and about Japan's current regulatory barriers," De Gucht said.

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, Seoul has increased its sales to Europe by double digits. European manufacturers say the close relationship between carmakers and their suppliers in South Korea makes it hard for foreign parts makers to break into the market there.

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 any free-trade deal with Japan, Asia's biggest car exporter.

The European Union imposes a 10 percent tariff on imported Japanese cars and carmakers fear an influx of Japanese cars if that is lifted. A decision by French carmaker PSA Peugeot Citroen (PEUP.PA) to cut 8,000 job cuts and close an assembly plant has clearly dampened appetite for foreign competition.

But De Gucht said he had told his Japanese counterparts that Europe would not reduce any tariffs before Japan delivers concrete results on regulatory barriers. "This includes the car sector," he added.

(Reporting by Robin Emmott; editing by Rex Merrifield)

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