Japan faces the challenges of recovering and reconstructing from the aftermath of the Great East Japan Earthquake and of achieving rebirth with a view to realizing sustained growth. To overcome these challenges, it is crucial to further expand and strengthen trade and investment relations with overseas countries and regions by such means as concluding economic partnership agreements. As the EU is one of the most important partners for Japan, Keidanren has long advocated, both at home and abroad, the necessity of concluding an economic partnership agreement (FTA/EPA) with the EU.

In the EU which is in the midst of a sovereign debt crisis and economic sluggishness, there has been growing recognition that external trade should be promoted as a core component of its growth strategy. In July the European Commission decided to ask its Member States for their agreement to open negotiations for an FTA/EPA with Japan by citing that it would greatly contribute to generating growth and creating jobs in the EU.

Against this backdrop, and now that the discussions among the EU Member States over the start of negotiations are at their most important phase, I paid a visit to Europe together with Chairman of Board of Councillors Fumiaki Watari and Vice Chairmen Katsuaki Watanabe, Nobuo Katsumata, Mutsutake Otsuka, Masayuki Oku, Hitoshi Ogita, and Yoshio Nakamura. During the period from 11 to 18 October, we visited with political and economic leaders of the EU and three major Member States, namely, Germany, France, and the United Kingdom.

We reported on such matters as the progress made with industrial dialogues which Keidanren has been promoting in order to build a win-win relationship between Japan and the EU through the conclusion of an FTA/EPA. We also explained anew about the significance of a Japan-EU FTA/EPA and called for launching negotiations without delay. In addition, with regard to the current status of the European debt crisis and the future outlook for its resolution, we were able to meet in person with political and business leaders, policymakers, and experts and hear their views.

Based upon the above, as mission leader I set out my observations below.

I. Japan-EU FTA/EPA

1. Significance of a Japan-EU FTA/EPA

At each of our visits, we highlighted the following points with regard to the significance of a Japan-EU FTA/EPA. Our explanation, which included specific cases of individual industries and companies, was well received at many of the places we visited, and I believe that we gained considerable understanding regarding the points we made.

1. (1) Contributing to the EU economy through direct investment and related activities
   During the mission, we explained that, while Japanese exports to the EU have declined as a result of the sluggishness of the EU economy, direct investment into the EU by Japanese companies is on the increase. Based on their philosophy of "produce where there are markets," Japanese companies have been contributing to the EU economy by such means as establishing production and R&D facilities in the EU, creating jobs (as of the 2010 fiscal year, Japanese affiliates in the EU employed about 470,000 people), and procuring parts and components locally. We also emphasized that a Japan-EU FTA/EPA would enable Japanese businesses to build more efficient supply chains centered on the EU. This in turn would make the EU even more attractive as a destination for investment, thereby boosting investment and creating more employment opportunities in the EU, and increasing the likelihood of innovation being generated through industrial cooperation between Japanese and European companies.

2. (2) Creating business opportunities in third-country markets
   In March this year, Keidanren and BUSINESSEUROPE jointly hosted a sector-to-sector meeting between Japanese and European industrial associations. One of the outcomes of the event was that those who attended the meeting agreed to the necessity of working on governments to make concrete steps towards the harmonization and mutual recognition of product regulations and standards, as one of common challenges to all industries. For companies to survive and succeed in global markets, it is critically important how new regulations, standards, and rules are set up and which countries partner together to create them. As Japan and the EU both share common values and boast a high technological level, it is Japan and the EU that are the most suitable partners for this work. Our mission emphasized that there would be huge potential for new business opportunities if a Japan-EU FTA/EPA were utilized as the foundation for making business rules and harmonizing regulations and standards in a way that could be applied to third-country markets, including emerging economies.
   President José Manuel Barroso of the European Commission remarked that an agreement between Japan and the EU would send a message beyond the boundaries of our two regions to the world at large, and noted the necessity of enhancing the rules in each bilateral relationship that exists among Japan, the EU, and the United States.

3. (3) Securing access to the Asia-Pacific market
   We explained that Keidanren aims to see the realization of the Free Trade Area of the Asia-Pacific (FTAAP) in 2020, and is lobbying for Japan's participation in negotiations for the Trans-Pacific Partnership (TPP) agreement as one of pathways to the FTAAP. We are also promoting a Japan-China-Korea FTA and a Regional Comprehensive Economic Partnership in East Asia encompassing ASEAN+6 as another pathway. While in Brussels, we were asked by both government and private-sector representatives to explain Japan's position on the TPP. Together, the FTAAP and a Japan-EU FTA/EPA would create a free trade area that accounts for approximately 90% of world GDP. We pointed out that, if such an area were achieved, EU companies would be able, by way of the Japan-EU FTA/EPA, to secure access to the massive Asia-Pacific market.

2. Promotion of communication between Japan and the EU

During our mission to Europe in July last year, we proposed dialogues between Japanese and EU industry to the EU and individual Member States' leaders, and subsequently encouraged Japanese industrial associations to promote dialogues with their European counterparts. This time we explained our views that the stepping-up of efforts to promote these dialogues would help build a win-win relationship between Japan and the EU. Many comments were heard from the EU side, requesting that Japan take necessary steps to address issues such as non-tariff measures in the automotive field and procurement in the railway industry. Looking at the progress made in industrial dialogues over the past year, it has become increasingly clear to me that one of the most efficient ways to find appropriate solutions for these issues is for people knowledgeable about the current situation within their industry, including the regulations and institutions, to be engaged in dialogue, thereby stimulating the government to take action quickly.

This is illustrated by the fact that the Policy on Regulatory and Institutional Reform, which was adopted by the Japanese government on 10 July, addresses many issues of concern to the EU relating to non-tariff measures in Japan. The fact that the Japanese government has taken a decision of this kind in a short period, even before negotiations have started, is attributable to the lobbying by the business community based on the industrial dialogues.

In addition to the aforementioned decision by the European Commission in July, a stronger voice is being heard from the European business community to call for progress in a Japan-EU FTA/EPA, as illustrated by the joint statement issued by 10 European industrial organizations on 19 September. As set out in item 3 below, at each place we visited we heard many comments in support of starting negotiations. We were strongly encouraged to see that, compared with when the previous mission was sent last year, the attitude was more positive—both in government and in the private sector—towards getting FTA/EPA negotiations with Japan under way.

Nevertheless, there are certainly also countries and industries that remain cautious or skeptical towards starting negotiations. At the European Commission, it was strongly stated that, in order to get a green light from the Member States and make smooth progress in the negotiations, the regulatory and institutional reforms promised by the Japanese government during the scoping exercise must be implemented according to the stated timeline. At the same time, some of the anxiety and unease in the countries and industries that are cautious or skeptical towards starting negotiations still continue to be based on misunderstanding and fixed ideas. I felt strongly that, in parallel with continuous efforts to further promote industrial dialogues, it will be vital to deepen the intensity of communication with the EU at various levels in order to bridge the perception gaps.

3. Messages and reactions by the leaders of the EU and the Member States

The key messages and reactions concerning a Japan-EU FTA/EPA by the leaders of the EU and the Member States the mission visited are summarized below. Based upon these, Keidanren will continue to lobby for a prompt start of negotiations.

1. (1) EU (European Council President Herman van Rompuy, European Commission President José Manuel Barroso, Trade Commissioner Karel De Gucht, BUSINESSEUROPE)
   President van Rompuy expressed the intention of making efforts to get a green light from the Member States to start negotiations, and commented that amid the prevailing uncertainty caused by the European debt crisis he wished to take every possible opportunity, including FTA/EPAs, to help achieve growth in the EU. President Barroso expressed the expectation that negotiations would begin by the end of this year, and pointed out that it is extremely important for non-tariff measures to be eliminated by the end of March 2013. Commissioner De Gucht also emphasized its importance.
   At BUSINESSEUROPE, which represents 41 national federations in 35 European countries, I gave an explanation to the directors general and other officials about the significance of a Japan-EU FTA/EPA as mentioned above, asking them for their support for starting negotiations.

2. (2) Germany (Minister of State to the Federal Chancellor Eckart von Klaeden, Chancellery's Director General of the Economic and Financial Policy Division Lars-Hendrik Röller, Minister of State Michael Link of the Federal Foreign Office, State Secretary Anne Ruth Herkes of the Federal Ministry of Economics and Technology)
   Minister of State von Klaeden expressed support for the earliest possible start of negotiations for a Japan-EU FTA/EPA, and made a comment that progress in Japan on the elimination of non-tariff measures and the improvement of access to the government procurement market would encourage the German business community to shift to a more positive stance. Director General Röller explained that Chancellor Angela Merkel intends to play a constructive role in the process currently under way. Minister of State Link commented that, when making the final push towards starting negotiations, key factors would be a good relationship between Keidanren and the Federation of German Industries (BDI), and also industrial dialogues. He also emphasized the importance of the further encouragement of industrial dialogues as "good medicine" against protectionism. State Secretary Herkes pointed out that it is essential to dispel the stereotypical notion that Japan is a "closed country," and expressed her recognition that, since the elimination of non-tariff measures would take some time to achieve, it would be the EU side that would pay a higher price for an FTA/EPA at its initial stage.
   The German business community may not necessarily be unanimous in agreeing to the start of negotiations, as was stated by Minister of State von Klaeden. As Germany is a nation that has pursued development by championing and adhering firmly to free trade, however, I strongly believe that we can gain the understanding of its business community.

3. (3) France (Minister of Foreign Affairs Laurent Fabius, Minister of Foreign Trade Nicole Bricq, MEDEF)
   Minister of Foreign Affairs Fabius stated his belief that a Japan-EU FTA/EPA would be desirable for France as well, and commented that the agreement should be balanced with regard to the benefits for both the Japanese and EU sides, including non-tariff measures. Minister of Foreign Trade Bricq said that France was basically favorable towards a Japan-EU FTA/EPA, but that the results of the scoping exercise were unsatisfactory. Moreover, she referred to Japan's procurement in the railways field, beef imports, designation of food additives, and regulations in the field of pharmaceuticals such as vaccines. She also explained the French government's guiding principles in concluding FTA/EPAs in general, including whether they have a positive impact on employment in France.
   MEDEF President Laurence Parisot stated that, although they basically support free trade, there were differences of opinion within the French business community with regard to a Japan-EU FTA/EPA. In the discussions, specific requests with regard to cars, railways, and beef were raised by MEDEF members.
   The Hollande administration regards Japan as a strategic partner. It has, for example, appointed a special government representative for its relations with Japan. In order to gain the understanding of the French government, we intend to explain in greater detail the significance of an FTA/EPA that will create a win-win relationship for both Japan and the EU.

4. (4) The United Kingdom (Prime Minister David Cameron, Secretary of State for Business, Innovation and Skills Vince Cable)
   We were very much encouraged to hear from Prime Minister Cameron that he would continue to strongly support a Japan-EU FTA/EPA. He also touched upon the importance, for the purpose of persuading other Member States, of vigorously calling attention to the progress that Japan had made in abolishing non-tariff measures and pursuing regulatory reform, and said that he himself would make statements to that effect in the European Council and other forums. Secretary Cable acknowledged the considerable progress that had been made in Japan since last year in such spheres as regulatory reform. He also expressed his recognition that, while it is still necessary to persuade some Member States, the EU is now ready to start negotiations.

II. The European Debt Crisis

The European debt crisis is having a negative impact on the Japanese economy. Japanese exports to the EU are decreasing and its exports to China are also declining in parallel with the fall in China's exports to the EU. These difficulties are being compounded by the historically high appreciation of the yen. We hope that the European debt crisis will be settled quickly. Although some measures, such as the decision by the European Central Bank to make unlimited purchase of government bonds, eased tensions for some time, according to the views expressed by those whom we met during the mission, fundamental solution of this crisis requires (i) additional efforts by crisis-hit eurozone Member States to implement reforms that will enhance their competitiveness, and (ii) the further deepening of European integration in the four dimensions of bank supervision (banking union), budget control (fiscal union), coordination of economic policy (economic union), and reflection of the will of the people (political union). We have the impression that a considerable amount of time will be necessary to overcome these challenges. Furthermore, it is not necessarily clear to us how the EU will feed its growth after it emerges from the crisis.

The EU has traditionally developed itself through deepening its integration and enlarging its membership. The process of deepening has achieved the single market and monetary union, and is now advancing to the next stage in order to overcome the present crisis. As is stated above, however, it will take some time to do this. Under such circumstances, it is FTA/EPAs that can serve as substitutes for the deepening and enlarging as means of opening up the future of the EU. FTA/EPAs will create a seamless business environment between the EU and external countries and regions. Since a Japan-EU FTA/EPA is expected to have a greater economic impact than any other FTA/ EPA the EU has ever concluded, its early conclusion is important for stimulating growth and employment and for laying the institutional foundation for competition and cooperation.

The news that the EU had been awarded the Nobel Peace Prize was announced during our visit to Europe. The award proves nothing else but that the process of integration, that has been strenuously pursued based on a pledge to renounce war, has contributed to peace and democracy. I sincerely hope that the EU will turn the present crisis into an opportunity to strengthen its functions and achieve further development.