A study by Copenhagen Economics (DK)
For the European Commission (DG TRADE)
1
Japan’s share of EU trade with the world
‐
EU27 Import from Japan
EU27 Export to Japan
9,3%
8,3%
7,9%
7,7%
7,3%
6,3%
5,4%
2000
5,1%
2001
4,9%
2002
4,7%
2003
4,6%
2004
4,2%
2005
5,7%
3,9%
2006
5,5%
3,5%
2007
4,8%
3,2%
2008
2
EU share of Japan's trade with the world (%)
Japan Imports from EU27
Japan Exports to EU27
18,2%
17,6%
17,2%
17,1%
16,3%
15,8%
15,8%
15,6%
15,0%
13,2%
13,6%
13,9%
13,6%
13,2%
11,9%
10,7%
10,8%
9,5%
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF (DoTS)
3
Ratio of EU exports* to destination market GDP
[Xeu->j divided by GDPj]
0,050
0,045
0,040
Exports
0,035
+ € 27 bn
0,030
(+ 44% increase)
0,025
0,020
0,010
Current EU exports
to Japan
0,005
~ € 61 bn
0,015
0,000
Rusia
Canada S. Korea*
China
India
Mexico
USA
Taiwan*
Japan
*) including service exports. Measured in values based on 2004 GTAP data.
4
Import Penetration major economies, 2004
Imports as share of domestic demand
0,20
0,18
0,18
0,18
0,17
0,17
0,16
0,14
0,14
0,14
0,12
0,12
0,10
0,08
0,08
0,08
0,06
0,06
0,04
0,02
CAN
KOR
MEX
EU
CHN
RUS
IND
BRA
USA
JPN
5
Import Penetration, 2004
Imports as share of domestic demand
1,00 0,90 0,87 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0,41 0,29 0,23 0,20 0,19 0,18 0,17 0,12 0,12 0,09 0,08 0,05 0,03 0,03 0,03 0,02 0,01 0,01 0,01 ‐
Japan
Average major economies
6
Distribution of trade across sectors
(as a share of total trade)
30
26
25
25
20
16
15
11
10
5
0
8
7
3
2
1
1
0
0
0
7
Distribution of export across sectors
(as a share of total trade)
18
16
14
12
10
8
6
4
2
16
14
11
10
10
9
9
6
5
4
3
2
1
0
8
Value of exports, 2008
Tariffs faced by EU exports to Japan
Tariffs faced by Japan’s exports to EU
€42.4 bn
€74.8 bn
Average tariff (on traded tariff lines)
‐ simple
3.8
3.8
‐ weighted
1.7
3.4
9
We know the NTMs faced by EU exporters
How do we measure their importance?
How do we measure their impact on trade?
‐ Lists of NTMs identified by EBC and for the RRD
‐ Survey of EU companies operating in Japan
10
Total number of barriers: 100
Number of issues identified
Only solveable with domestic reforms
35
Solvable in combination with domestic reforms
30
25
Solvable with trade policy instruments
10
2
20
3
15
20
19
14
6
1
1
1
Iro
n
3
1
Ae
ro
sp
ac
e
C
he
m
ic
al
s
Au
to
m
ot
iv
e
C
os
m
et
ic
s
ce
ffi
O
1
3
7
Pa
pe
r
2
1
Fo
od
ac
eu
tic
al
s
Ph
ar
m
1
3
ed
ic
al
5
0
1
M
10
11
Conformity assessement problems dominate
Standards
15%
Regulation
21%
Conformity assessment
64%
12
Services sector issues:
NTMs in Japan
number of issues identified
25
20
Solvable with traditional trade policy instruments
1
Solvable in combination with domestic reforms
Only solveable with domestic reforms
15
13
10
14
4
5
1
7
5
3
3
Air transport
Business
services
Construction
1
0
Financial
services
Communication
services
Insurance
1
4
2
1
2
Water transport Other transport
services
13
• Take the trade cost of NTMs by sector
• Estimate a potential reduction in these costs
• Plug this into an economic model
• Calculate impact on trade, output, income
14
1) Quantity approach > gravity model
•Crude: NTM ≈
residuals in equation
•Better: use NTM indicator : dummy or TRI
(used here for services and as checkpoint for goods)
•EU‐US study: TRI based on survey of traders
(used here for NTMs on EU side)
2) Price approach > direct cost survey in Japan
15
TCEs = Trade Cost
Equivalents
n
o
p
Direct cost
measure
from survey
NTM inventory
Gravity model
with Japan
specific factor
Gravity model
with NTM
index from
survey
Global NTM
survey
Business
survey on
Japanese
NTMs
The impact of the NTM
converted into a tariff
equivalent expressing
how many percent the
price abroad increases
as a result of the NTM
Quantification
of NTMs and
calculation of
TCEs
Gravity model
with dummy
variables
Quantification
of NTMs and
calculation of
TCEs
Gravity model
with NTM
index
Quantification
of NTMs and
calculation of
TCEs
TCEs
Scenario
definition and
simulation
16
Survey of EU companies in Japan, in 7 sectors:
– Pharmaceuticals
– Medical devices
– Processed foods
– Motor vehicles, – Transport equipment, – Financial and telecom services
Questions:
• Most important NTMs in their sector
• Sources of NTM costs
• Trade cost estimate
17
Trade cost equivalent, TCE
10%
25%
Remaining barrier
Reduction potential
Other
4%
9%
Common positive and negative list of additives
15%
Introduction of new standards
19%
Review the pricing and reimbursement systems
20%
15%
20%
10%
19%
Use of international standards
5%
24%
0%
Mutual recognition of conformity assessment
2%
NTM estimate for EU pharma exports to Japan
Harmonisation/convergence of regulations
Contribution to barrier reduction
18
Trade cost equivalent, TCE
7%
35%
Remaining barrier estimate
Reduction potential
30%
5%
7%
9%
25%
12%
12%
15%
10%
11%
11%
20%
Other
Review the pricing and reimbursement systems
Introduce third party certification system
Simplification of certification procedures
Suppliers’ declaration of conformity
Speed up the certification process
18%
18%
5%
21%
Mutual recognition of conformity assessment procedures
Harmonisation/convergen
ce of rules and regulations
Use of international standards
0%
NTM estimate for EU medical device exports to Japan
Contribution to barrier reduction
19
Trade cost equivalent, TCE
3%
5%
5%
30%
Remaining barrier
Reduction potential
18%
25%
20%
Other
Review the pricing and
reimbursement systems
Simplification of
certification procedures
9%
18%
23%
15%
Harmonisation/ convergen
ce of rules and regulations
Mutual recognition of
conformity assessment
procedures
Common positive and
negative list of additives
10%
16%
30%
Use of international
standards
5%
Contribution to barrier reduction
0%
NTM estimate for EU processed foods exports to Japan
20
Trade cost equivalent, TCE
12%
Remaining barrier
Reduction potential
10%
3%
3%
5%
23%
Don't know
Implementation of license
system for distribution
Suppliers’ declaration of
conformity
8%
28%
6%
9%
Mutual recognition of
conformity assessment
procedures
Harmonisation/convergen
ce of rules and regulations
Use of international
standards
4%
40%
2%
0%
1%
Contribution to barrier reduction
NTM estimate for EU automobile exports to Japan
21
Japan barriers against EU
EU barriers against Japan
Finance
15,8
11,3
Insurance
6,5
10,8
Business and ICT
2,5
14,9
Communications
24,7
11,7
Construction
2,5
4,6
Personal, cultural, other services
6,5
4,4
Service sector
22
Baseline
Max. scenario
Change in pct.
Goods
Processed foods
2,73
2,74
0,4%
Chemicals (incl. pharmaceuticals)
2,66
2,66
0,0%
Motor vehicles
1,59
1,54
‐3,1%
Transport equipment
0,46
0,46
0,0%
Machinery (incl. medical devices)
3,18
3,20
0,6%
Metals and metal products
1,54
1,54
0,0%
Wood and paper products
2,12
2,13
0,5%
10,77
10,79
0,2%
Finance & insurance
3,53
3,53
0,0%
Transport service
1,05
1,06
1,0%
Business services
18,17
18,20
0,2%
Communications
2,08
2,08
0,0%
Construction
6,12
6,14
0,3%
Personal services
3,70
3,71
0,3%
40,29
40,34
0,1%
100,00
100,14
0,01%
Other sectors (incl. agriculture)
Services
Other services
Total
23
Baseline
Max. scenario
Change in pct.
Goods
Chemicals
2,56
2,57
0,4%
Electrical machinery
1,56
1,65
5,8%
Motor vehicles
2,16
2,43
12,5%
Other transport equipment
0,42
0,45
7,1%
Other machinery
3,54
3,34
‐5,6%
Metals and metal products
1,91
1,90
‐0,5%
Other sectors (incl. agri.)
9,82
9,72
‐1,0%
Finance & insurance
5,39
5,40
0,2%
Transport service
1,13
1,13
0,0%
Business services
9,72
9,74
0,2%
Communications
2,34
2,34
0,0%
Construction
5,67
5,71
0,7%
Personal services
3,45
3,45
0,0%
50,33
50,50
0,3%
100,00
100,31
0,03%
Services
Other services
Total
24
Combined scenario
Min Max
Baseline trade volume
Removing Tariffs
Processed foods
4,3
4,8
0,3
1,0
5,1
5,9
Chemicals (incl. pharma)
9,1
1,0
5,3
10,0
6,3
11,0
Motor vehicles
5,6
0,6
1,8
4,7
2,4
5,4
Transport equipment
0,7
0,1
1,6
2,8
1,7
2,8
Machinery (incl. medical)
6,1
0,4
1,6
3,1
2,0
3,5
Metals and metal products
1,4
0,4
0,9
2,6
1,3
3,0
Wood and paper products
1,9
0,3
1,0
2,5
1,3
2,7
Other sectors (incl. agri.)
10,8
6,1
0,2
0,5
6,3
6,6
Services
21,2
0,4
1,0
2,2
1,4
2,6
Total EU exports to Japan
61,0
14,1
13,7
29,4
27,8
43,4
Reducing NTMs
Min. Max.
25
Baseline trade volume
Removing Min. Tariffs
NTM
Combined scenario
Min Max
Max. NTM
Chemicals
9,0
1,5
2,8
7,6
4,3
9,1
Electrical machinery
8,8
2,2
1,5
4,0
3,7
6,2
Motor vehicles
20,2
15,9
4,2
11,3
20,1
27,2
Other transport equipment
4,4
1,5
0,9
2,8
2,4
4,3
Other machinery
25,0
3,2
‐0,3
‐1,5
2,9
1,7
Metals and metal products
1,3
0,7
0,2
2,5
0,8
3,1
Other sectors (incl. agri.)
3,5
0,7
0,3
0,6
0,9
1,2
Services
16,4
‐0,3
0,5
1,3
0,2
1,0
Total Japan exports to EU
88,6
25,2
10,1
28,5
35,3
53,8
26
Combined maximum scenario
Tariffs
Min. NTM
Max. NTM
European Union
+ 33.2
+ 11.2
+ 9.4
+ 22.1
Japan
+ 18.2
+ 2.8
+ 6.9
+ 15.4
(in € bln/year)
Note: baseline without Doha and EU-Korea FTA
27
• EU and JPN PP markets: about 19% of GDP
• Estimated at 565 bln € in JPN (2007)
• Less than 23% open to EU tenders (high
threshold, low commitments, exception rule)
•In EU: 70% open to JPN tender
28
•Aircraft market in JPN 4.5 bln €: 10% EU, 85% US
•Worldwide: EU/US equal split
•EU exports could go up by 2 bln €
•Railway equipment market in JPN: 2 bln €/y
•EU share: 3%
•Worldwide: EU share = 60%, JPN = 10%
29
• Rules exist, weak enforcement
•JPN ranks low on OECD competition indicators
•Services sectors:
•
Very closed to import competition, • High access costs
• Low productivity growth in services
30
31
Sector
Tariff elasticity
Importer specific factor
Imputed Trade Cost Equivalent (TCE)
EU
Japan
EU
Japan
Chemicals
‐3,315
‐1,292
‐1,296
32%
32%
Pharmaceuticals
insign.
‐1,418
‐1,680
‐
‐
Cosmetics
‐0,639
‐2,076
‐1,713
96%
93%
Machinery
insign.
‐1,663
‐2,914
‐
‐
Electronics
‐5,461
‐0,975
‐2,665
16%
39%
Office
‐2,193
‐1,102
‐2,054
39%
61%
Medical
‐3,250
‐1,289
‐2,127
33%
48%
Automotives
insign.
‐1,673
‐2,500
‐
‐
Aerospace
insign.
‐0,676
‐3,971
‐
‐
Food
‐1,352
‐1,202
‐0,767
59%
43%
Iron
‐6,386
‐1,283
‐2,241
18%
30%
Textiles
‐3,058
‐0,688
‐1,419
20%
37%
Paper
‐5,993
‐1,523
‐2,233
22%
31%
32
Sector
NTB trade costs
US exports to EU
NTB trade costs
EU exports to US
Financial services
11,3
31,7
ICT services
14,9
3,9
Insurance
10,8
19,1
Communications
11,7
1,7
4,6
2,5
14,9
3,9
4,4
2,5
Chemicals
23,9
21,0
Pharmaceuticals
15,3
9,5
Cosmetics
34,6
32,4
Electronics
6,5
6,5
Office & communications equipment
19,1
22,9
Automotive
25,5
26,8
Aerospace
18,8
19,1
Food & Beverages
56,8
73,3
Metals
11,9
17,0
Textiles & clothing
19,2
16,7
Wood & paper products
11,3
7,7
Construction
Other business services
Personal, cultural & recreational services
33
Trade Cost for exports to Japan Baseline
(%TCE)
Lower bound (%‐pt change)
Upper bound (%‐point change)
Food and beverages*
25.0
‐6.0
‐9.0
Chemicals (incl. pharmaceuticals)*
22.0
‐15.0
‐20.0
Electrical machinery
11.6
‐2.6
‐3.9
Motor vehicles*
10.0
‐1.2
‐3.8
Transport equipment (incl. aircraft and rail)*
45.0
‐33.8
‐41.0
Metals and metal products
21.3
‐4.3
‐6.5
Wood and paper products
15.4
‐7.1
‐10.6
Other machinery (incl. medical devices)*
30.0
‐2.9
‐3.9
Air transport
2.0
‐0.9
‐1.3
Water transport
8.0
‐3.5
‐5.2
Finance*
15.8
‐5.8
‐8.7
Insurance
6.5
‐0.8
‐1.2
Business and ICT
2.5
‐2.5
‐3.7
Communications*
24.7
‐12.8
‐19.2
Construction
2.5
‐1.2
‐1.9
Personal, cultural, other services
6.5
‐2.5
‐3.7
34
Trade Cost for exports to EU Baseline (%TCE)
Lower bound (%‐point change)
Upper bound (%‐point change)
Food and beverages
n.a.
‐
‐
Chemicals 18,0
‐7,3
‐12,1
Electrical machinery
4,5
‐1,7
‐2,8
Motor vehicles
16,3
‐3,5
‐5,3
Transport equipment 18,8
‐3,1
‐5,6
Metals and metal products
6,0
‐1,9
‐5,2
Other machinery
n.a.
‐
‐
Air transport
2,0
‐0,4
‐1,1
Water transport
8,0
‐1,4
‐4,5
Finance
11,3
‐2,9
‐7,0
Insurance
10,8
‐2,8
‐5,6
Business and ICT
14,9
‐2,5
‐4,3
Communications
11,7
‐4,3
‐8,2
Construction
4,6
‐1,9
‐2,6
Personal, cultural, other services
4,4
‐1,0
‐2,5
35