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Commentary
Tokyo's New Economic Diplomacy and The Japan-EU Free Trade Agreement
Giorgio Starace
15 ottobre 2018

The Economic Partnership Agreement (EPA) signed by the European Union and Japan on July 17th2018 in Tokyo, represents the most significant development in the context of global economic-commercial relations in recent years. It is an agreement that guarantees benefits to Italy and, at the same time, provides an important message in a historical global context characterized by renewed commercial tensions and protectionist tendencies.

The implementation of the agreement will create one of the largest free trade areas in the world, equivalent to 30% of world GDP and 40% of global trade. Japan, the third largest economy in the world, produced 4.3% of world GDP in 2017 and represented 4% of the export market share, the fourth largest exporter in the world and fifth in the importing countries' ranking. The scale of the Japanese economy and Tokyo’s economic and trade policy make the country a key strategic partner for both major world economies and emerging countries.

The finalization of the EPA with the EU is considered a priority in the context of the new economic diplomacy of the Japanese Government, following the positive conclusion of the CTPP-11 negotiations (without Washington). Tokyo has maintained a propelling role in the context of the RCEP negotiation, which involves ASEAN countries, China, South Korea, India, Australia and New Zealand. The scope of the RCEP agreement, which should be defined by 2018, equals that of the EPA (45% of the world population and 39% of global GDP). Japan accepted the start of negotiations with the US on a bilateral trade agreement during the last summit Japan-US summit on September 27th, and has already obtained the suspension of penalties applied to aluminum and steel and the automotive sector.

The outlook for the Japanese economy is excellent: in the second quarter of this year GDP has increased by 3% on an annual basis and investments have registered the seventh consecutive quarter of growth. In a very positive scenario, the repercussions of the trade war between the United States and China could influence the trend of Japanese exports to China, which represent about 10% of the Chinese market share.

Despite the uncertainties due to these trade disputes, the International Monetary Fund's forecasts confirm a positive outlook for Asia and the Japanese economy, which should continue to grow in 2018 and 2019 (1.2% and 0.9% respectively). Despite the current struggles of international trade, Japan guarantees foreign investors an attractive and stable business climate overall, thanks to the consistency and continuity of the current government, which has strengthened its position after the election successes of 2016 and in the wake of Abe's reconfirmation at the helm of the LDP Party for the next three years.

For Italy, Japan is an essential partner to promote consolidation of its most advanced and innovative companies in international markets, as well as start-ups in the areas of AI, the Internet of Things, ICT and robotics. Japan is also a market where it is possible to strengthen the internationalization of the most traditional sectors of Made in Italy excellence, such as agri-food, fashion and design in an area of ​​the world where intra-regional trade is growing at very high rates, destined to produce, in just a few decades, over 50% of world GDP.

The conclusion and application of the EPA will allow our country to further strengthen trade relations with Tokyo, also in light of a widespread appreciation of the Japanese consumer towards Made in Italy in all sectors. In 2017 we had an exchange rate well above 10 billion euros, with a surplus in favor of Italy, and, according to data from the Japanese Ministry of Finance, our exports continue to grow in 2018, in line with the performance of 2017, over 20 percentage points. In the first six months of the year, according to data from the Japanese Ministry of Finance, the total Italian exports to Japan exceeded 5 billion euros. If this trend were to be confirmed in the second half of 2018, Made in Italy in Japan would touch the figure of 10 billion euros and would place Italy as second on the list of supplier countries.

In terms of investments, Italy-Japan relations are solid and are enriched by a process of financial transactions already under way, i.e. the acquisition of Ansaldo STS and Ansaldo Breda by Hitachi, or that of Del Clima owned by De Longhi by Mitsubishi.

We must bear in mind that, while the EPA will place Italy in a position of advantage vis-à-vis many third countries, on the other hand, competition between all EU Member States will increase, equally affected by the envisaged trade liberalization. In this scenario, Italy must work hard as a team for new and more structured promotional actions so as not to allow important slices of the Japanese market to be conquered by our European competitors.

The steady growth of our exports to Japan and the interest with which the latter looks to Italy as a commercial and industrial partner are excellent prerequisites for consolidating the Italian presence in Japan in view of the entry into force of the EPA, also with the perspective of the 2020 Olympics strongly in mind.

The Italian Embassy in Japan is already working in this direction, together with all operators involved.

Contenuti correlati: 
EU-Asia Relations: What's Good, What's Bad, What's Next?

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Giorgio Starace
Italian Ambassador to Japan

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