Japan Trade Talks Encourage EU, But Automakers Leery

BRUSSELS – Japan has been delivering sufficient concessions in automotive-related negotiations over a free-trade agreement with the European Union to ensure the talks continue, EU Trade Commissioner Karel de Gucht says.

Since negotiations opened in March 2013, Japan has agreed to adopt “the large majority of the United Nations Economic Commission for Europe regulations as such,” de Gucht tells WardsAuto.

Europe follows these international vehicle regulations to the letter and, while Japan’s standards often mirror them, there are important differences that could impede the sale of European cars in Japan. If they were formally recognized by Japan, however, these specifications would save EU automakers from special testing and having vehicles type-approved in Japan.

Four UNECE-based regulations of special concern to the Japanese government are under continued discussion in negotiations, but even this fact is “hinting” the talks are heading in the right direction, de Gucht says.

His department is preparing a report on overall progress over the five rounds of trade negotiations held thus far. The report is a response to a condition imposed by EU countries that requires a review one year into negotiations to assess whether Japan’s measures to remove non-tariff barriers and to open government procurement are satisfactory.

The European Commission report is expected to be presented at a technical meeting of EU national trade experts scheduled for May 23.

“If no objection will come forward, as I expect, we will move forward to increase the ambition” of the talks, Commission President Jose Manuel Barroso said May 7 after meeting in Brussels with Japanese Prime Minister Shinzo Abe.

Cut in Japan Sales Tax Sign of Progress

Officials with ACEA, the European automakers’ trade group, tell WardsAuto they agree Japan has made some progress toward eliminating measures that put EU vehicles at a disadvantage in the Japanese market.

One sign of progress has been the reduction, effective April 1, of a vehicle sales tax in Japan. This has been reduced to 3% from 5% for registered automobiles while for kei cars, the small Japanese cars that EU automakers claim are being given preferential tax treatment, the tax was cut to 2% from 3%.

The remaining 1% tax differential between these vehicle types should be eliminated in October 2015 if the levy is abolished outright in line with current Japanese government plans, according to ACEA.

Even so, differences in taxation between kei cars and subcompact cars will remain, ACEA spokeswoman Cara McLaughlin says.

A separate tax based on the size of new kei cars’ engines will increase in April 2015 from to

¥10,800 ($105) from ¥7,200 ($70). ¥“But relative to their engine size, kei cars will still pay a lower level of registration tax than subcompact cars,” McLaughlin says, noting the equivalent tax for subcompact cars with an engine capacity 0.66 and 1.0L will remain at ¥29,500 ($287).

 “To be proportionate to engine size, the basis on which the automobile tax is calculated, the kei-car tax would need to rise to ¥19,470 ($190),” she estimates.

ACEA claims this shows measures taken by Japan since commencing FTA negotiations with the EU do not go far enough to scale back kei cars’ advantages relative to subcompact cars.

 “The government of Japan should commit to further changes in taxation and other regulatory reforms, notably overnight off-road parking requirements and motorway tolls, so that European subcompact cars can compete on an equal footing with kei cars in the Japanese market,” McLaughlin says.

The ACEA also disagrees with Japan’s proposed amendments to UNECE regulations regarding prevention of fire risks and approval of devices for indirect vision.

“ACEA cannot accept amendments whose benefits have not been demonstrated or which would introduce optional requirements to enable Japan to retain its unique national requirements,” McLaughlin said.

Such measures restrict European cars in the Japanese market and their elimination is essential to achieve the EU’s ultimate objective that a vehicle manufactured and type-approved in the region will be accepted in Japan without further testing or modification, she adds.

Despite these unresolved technical issues, Abe said in Brussels he hoped the FTA would be concluded by next year.

“This FTA is likely to be one of the most important trade negotiations in the years to come,” Barroso said after meeting Abe. However, Barroso cautioned that “a high level of ambition” was needed to resolve areas such as market access and non-tariff barriers to trade.