Keidanren's Committee on Europe dispatches the mission to Europe each year in light of the importance of the Japan-Europe relationship. This year from July 6 to 11, the Keidanren Mission traveled to Madrid and Barcelona, the two major cities of Spain in southern Europe, as well as Oslo, the capital city of Norway in northern Europe. It was my great pleasure to lead the mission comprised of 21 companies and 35 members.

During our visit we were able to grasp the situation of the local economies as we observed the cities and met with important political and business figures. We also held fruitful discussions on a wide range of important topics, including the possibility of developing economic relations with two countries that envisage the conclusion of the Japan-EU EPA (Economic Partnership Agreement) and how to respond to Brexit now that the withdrawal negotiations have begun. My impressions of the mission are as follows.

The Spanish economy gains more competitiveness
— Conclusion of the EPA is expected to expand the collaborative relationship with Japan

Spain has finally managed to overcome the economic crisis suffered since 2008 by executing structural reforms after 2012 such as fiscal consolidation and labor market reforms. In 2015 and 2016, Spain's GDP expanded at a rate exceeding 3% and GDP growth of nearly 3% is expected to continue in 2017, with the number of unemployed persons declining gradually. Catalonia, which centers around Barcelona and accounts for 20% of Spain's domestic economy, has achieved an economic growth rate surpassing the national average and continues to actively attract foreign companies by leveraging its high educational standards and solid infrastructure. Although reducing the youth unemployment rate remains a nationwide issue, we could feel the growing confidence of the Spanish people, in both the public and private sectors, in their country's improving economic situation. Unlike in the past, Spain this time has been able to maintain a positive current account balance during the economy's recovery phase, and we believe this is evidence of Spain's improving export competitiveness.

Concerning the bilateral relationship with Japan, His Majesty King Felipe VI of Spain visited Japan in April this year as a national guest only a few years after the event commemorating the 400th anniversary of Spain-Japan relations. This visit to Japan was followed by Keidanren's recent mission to Spain. And next year will mark the 150th anniversary of establishing diplomatic relations between the two countries. In each place we visited, people stressed that now is the time to strengthen the two countries' relations even further, and we believe this comes from the recognition that potential expansion of the two nations' economic exchanges has not been fully realized. While Spain is ranked 5th among EU countries and 14th in the world in terms of economic size, its import-export trade with Japan ranks down the list in 30th place. At the same time, Spain is the third largest sightseeing destination in the world, receiving around 70 million inbound tourists each year. We learnt a great deal from Spain since Japan also aims at making itself an attractive travel destination.

In the autumn of 2016, direct flights between Madrid and Narita began service once again, and there are many voices expecting increased numbers of visitors, not only for sightseeing but also business. Furthermore, strong interest has been expressed by both Japanese and Spanish businesses in working together in third-country markets, centering on the infrastructure field in Latin America, North Africa, Asia, and other regions. An agreement in principle on the Japan-EU EPA was reached on July 6 during our mission's visit to Madrid. We hope this positive step will contribute to turning the many concrete business opportunities into reality.

Regarding the Japan-EU EPA, the Spanish government and business community welcome the agreement in principle, and we felt encouraged to hear from Spanish people that the Japan-EU EPA will surely play a significant role in supporting free trade amid the recent trends of anti-globalization and protectionism. We also received word from His Majesty King Felipe VI to the effect that the possible conclusion of the Japan-EU EPA is epoch-making, and that relations between the two countries are expected to deepen even further in the future. From the Keidanren side, we proposed to the Spanish business community that Japan and the EU capitalize on this agreement to prepare for three areas of cooperation, namely "regulatory cooperation," "third-country market cooperation," and "digital cooperation," thereby expediting the early ratification and enforcement of the EPA.

Concerning the issue of Brexit, since Spain has relatively stronger links with the UK than other countries in continental Europe, some voices were heard from the Spanish people expecting the country to maintain a close relationship with the United Kingdom. But our delegation found the attitudes of Spain toward the withdrawal negotiations with the UK to be fully consistent with the EU's position. The Spanish central government and the government of Catalonia are currently working together to attract the London-based EMA (European Medicines Agency) to Barcelona. This drew the attention of our delegation members, and we will continue to watch the situation closely as an actual move envisaging post-Brexit Europe. According to the EU's schedule, the next location of the EMA will be decided in November this year.

The Norwegian economy aims to break its dependency on oil
— Conclusion of an FTA with Japan is called for

Norway has always fulfilled its domestic electricity demand through hydroelectric power, while exporting its rich oil and natural gas resources abroad and putting the income generated into the nation's public pension fund. Backed by the country's sound fiscal position, Norway's economy has performed steadily for the most part. But hard hit by the recent decline in crude oil prices and other factors, the country is now aiming to diversify its industrial base to break its dependency on oil. At the moment, prominent candidates expected to direct the economy away from oil remain within traditional industries such as sustainable fish farming, the renewable energy field, including solar power and off-shore wind power generation, and the CCS (Carbon Capture and Storage) industry that utilizes the nation's cutting-edge technology. Even now, Norway seems eager to attract more overseas investment to its ocean-related industries that continue to generate about 70% of its export income as well as promote joint R&D projects with foreign institutions in this field. As far as we understand, Norway is adopting a strategy to deepen its specialty as an ocean nation, rather than pursue unconventional areas.

Concerning the agreement in principle on the Japan-EU EPA negotiations, both the public and private sectors in Norway made positive comments welcoming Japan's leadership in propelling free trade. At the same time, Norway expressed the strong expectation of concluding an FTA (Free Trade Agreement) with Japan. Japan is one of the major trading partners that Norway has yet to sign an FTA. Norway believes that trade and investment with Japan have great room for expansion. The delegation members were briefed on how Norway wants to increase the number of FTA partners as much as possible amid concerns of spreading protectionism. Also in relation to the Japan-EU EPA, it was explained that Norway wants to start FTA negotiations with Japan immediately to avoid being placed at a disadvantage in the Japanese market.

In response to this, I thanked the Norwegian side for their strong interest in enhancing the economic relationship with Japan and promised to convey their request to the Japanese government. Furthermore, we stated that the key to starting FTA talks lies in whether the two countries can share the common outlook that the FTA will produce a win-win outcome. I believe it essential that the two countries firmly recognize their respective strengths and weaknesses. It was also brought to our attention that Norway will soon begin FTA talks with China.

While Norway has twice voted down its accession to the EU in past national referendums, Norway has established close economic ties with the EU through the EEA^#1 (European Economic Area) Agreement as a member of the EFTA^#2 (European Free Trade Association). It was explained that the Norwegian people are mostly satisfied with their relations with the EU through the EEA Agreement; at the same time, we also sensed the effort constantly being made to secure access to the 500 million-large EU market, which is one hundred times greater than the Norwegian market of 5 million people. This made us think about the strenuous efforts the UK will have to make as it attempts to establish a new bespoke relationship with the EU without following an off-the-shelf agreement like the EEA.

Since Brexit also means the UK's exit from the EEA Agreement, the Norwegian business community expressed their concern whether Norway will be able to seamlessly enter into a new agreement with the UK or effectively put into place appropriate transitional arrangements. This concern is similar to those expressed by the Japanese business community over Brexit.

(Translated from the article in "Gekkan Keidanren (Monthly Keidanren)," September 2017 issue)

Notes

1. The European Economic Area (EEA) brings together the EU member states and three of the EFTA states (Iceland, Liechtenstein and Norway). It was established by the EEA Agreement, an international agreement which enables these three EFTA states to participate fully in the single market, and covers the four freedoms, that is, the free movement of goods, capital, services and persons, plus competition and state aid rules and horizontal areas related to the four freedoms.
2. The current EFTA member states are Switzerland, Norway, Iceland and Liechtenstein. Norway, Iceland and Liechtenstein are also parties to the European Economic Area (EEA) Agreement with the European Union, while Switzerland has signed a set of bilateral agreements with the EU.