European Auto Makers Sound Alarm on EU-Japan Trade Talks

LONDON – European auto makers, already struggling with the region’s debt crisis, are dismayed by the European Union’s decision, made public late last week, to begin negotiations with Japan for a free-trade agreement.

“Independent studies have shown that this deal is a one-way street as far as the automobile industry is concerned,” says the ACEA, the EU auto makers’ trade association.

Ivan Hodac, the ACEA’s secretary general, points to an assessment made by consulting firm Deloitte that shows while EU car exports to Japan could increase by 7,800 units annually by 2020, additional Japanese units to the EU might amount to 443,000.

“The consequent reduction in automobile production in the EU by the same amount would lead to between 35,000 and 73,000 job losses,” he says.

The ACEA says it realizes there is political pressure to open negotiations with Japan, but “there is no justification for exposing the automobile industry, a major pillar of the EU economy, to an unbalanced FTA with a major competitor just a year after a similar deal with South Korea.”

Earlier this year, the auto makers’ group published data showing that from the day the South Korea deal took effect July 1, 2011, to May 31, of this year, the Asian country exported about 400,000 passenger vehicles to the EU, up 40% from prior-year. During the same period, South Korea imported only 73,000 European units, up 13%.

As a result, the ACEA has two major demands regarding the current FTA discussions: Ensure that vehicles manufactured and type-approved in the EU are accepted in Japan without further testing or modification, and that European small cars are given the opportunity to compete on equal terms with Japanese kei (0.66L mini) cars.

The ACEA stresses that kei cars currently enjoy fiscal and other benefits that “exclude imports from 35% of the domestic market.”

However, the Japanese government reportedly is thinking of charging the same tax for regular cars and minivehicles alike, which could mean the demise of the kei cars.

Nevertheless, Hodac says Europe should not approve EU tariff reductions on imported Japanese cars unless these key demands are met.

It is likely that any major benefits enjoyed by EU brands in Japan will be at the luxury-car end of the market. The German car manufacturers’ federation, VDA, failed to respond to calls or emails for comment. But the U.K.’s Society of Motor Manufacturers and Traders says, “Japanese automotive companies are critical investors in the U.K. automotive industry.”

“Nissan, Honda and Toyota are all significant employers in the U.K., accounting for more than 50% of our vehicle manufacturing,” an SMMT spokesman says.

The FTA negotiations have to be fully assessed before the impact on the automotive sector can be understood. However it is important that key non-tariff barriers be eliminated, the SMMT says. These are an obstacle to a truly reciprocal agreement that could maximize trade opportunities.

Last year, VDA President Matthias Wissmann indicated concerns about non-tariff barriers in Japan at the Tokyo auto show. “There are indeed no import tariffs in Japan, but the non-tariff trade barriers remain high,” he said at the time.

In Japan, by contrast, the auto industry has broadly welcomed the news of progress in the FTA discussions with Europe, even though analysts say any improvement in business for auto makers in Europe is likely to be minimal.

Akio Toyoda, chairman of the Japan Automobile Manufacturers Assn., released a Nov. 30 statement in which he says JAMA "warmly welcomes the decision by the EU's 27 member states to grant negotiation authority to the European Commission in talks to be launched on an envisaged EU-Japan free-trade agreement."

Toyoda, who also is president and CEO of Toyota, says Japan's auto industry has cultivated a number of fruitful partnerships with their counterparts in Europe, based on the principles of competition and cooperation.

"We are convinced that an EU-Japan FTA will provide a key impetus in promoting robust trade, investment and industrial cooperation between the two sides, thereby also fueling growth and expansion of the automobile industries in both Japan and Europe," he says.

(Japan’s) domestic industry would do "everything in its capacity" to advance the dialogue and would support the Japanese government in the initiative, Toyoda adds.

Japanese auto makers appear less enthused about the prospects of an immediate increase in their operations in Europe. A Honda spokesman tells WardsAuto the company exported a mere 17,432 units to Europe between January and October of this year, compared with 109,844 to the U.S. in the same period and about half that number to other countries in Asia.

"Most Japanese firms are losing a small amount or making a small profit in Europe at the moment,” says Chris Richter, deputy head of research for CLSA Asia-Pacific Markets in Tokyo. “And while an FTA might make them more competitive, I would not think (the EU) will be a major target market for them.

"The trade pact with South Korea has helped that nation's car firms get more of a foothold in Europe, but Japanese companies have their hands full in the markets where they can potentially make money," he adds. "That means the U.S., Southeast Asia and, hopefully sometime soon, back in China again."

Japanese auto makers in China have been the subject of consumer boycotts since October, when the two countries became engaged in a territorial dispute over islands in the South China Sea.

The European auto market is tough for all auto makers, Richter points out, due to intense competition. Another hindrance to Japanese brands is the strong yen, making exports more expensive.

"It would be hard for Japanese firms to make a lot of money in Europe if the local car firms can't do it," he says, referring to the region’s plunging sales and overcapacity. "Perhaps the biggest benefit of an FTA would be to convince Japanese firms that they need to retain their presence there, instead of scaling back."

– with Julian Ryall in Tokyo