THE EU-JAPAN EPA AND THE QUESTION OF FORMAL AND INFORMAL TRADE BARRIERS FOR EUROPEAN BUSINESSES IN JAPAN.

• Author: Kettunen, Erja

1. Introduction

   The European Union's (EU) long-standing aim to conclude comprehensive free trade agreements (FTA) with its major trade partners was materialized in an Economic Partnership Agreement (EPA) with Japan in 2019. The EU's broad and deep FTAs strive to liberalize not only tariffs but also other types of trade protection, i.e., non-tariff barriers and regulatory barriers to trade (Sampson and Theuns 2023, Young 2017). While regionalism is hampered in the current geopolitical context characterized by rising scepticism towards globalization (Cuervo-Cazurra et al. 2020), global financial crisis (Evenett 2019) and the covid-19 pandemic crisis (Baldwin and Evenett 2020, Evenett et al. 2022), the EU has continued negotiations for comprehensive FTAs with several trade partners. It has sought FTAs particularly with Asian countries since its Global Europe strategy (e.g. Andreosso-O'Callaghan et al. 2014, Brennan and Murray 2015, Fujita et al. 2011, Kawai and Wignaraja 2011, 2013).

   What is noteworthy is that the EU-Japan EPA was relatively rapidly concluded and put into force thus bypassing the earlier concluded EU FTAs with Singapore and Vietnam (DG Trade 2019). The fast pace seems to indicate the importance of the agreement for both the EU and Japan. The EPA is an example of the current trend of countries adhering to faster bilateral trade talks in the context of the slowly advancing multilateral negotiations. While Europe has a long history of engaging in regionalism, Japan has had a notably different path, having been "one of the last hard core multilateralists" (Solis 2010).

   The FTAs have been a means to extend the EU's normative power in trade policy preferences (e.g. Alvstam and Lindberg 2019, Poletti and Sicurelli 2018, Sampson and Theuns 2023, Sicurelli 2015, Zurek 2019), such as non-tariff barriers, the primary example being technical barriers to trade (TBT). They include standards, testing and certifications covered by the WTO Agreement on Technical Barriers to Trade from 1994 (Hanson 2010: 40) and the related conformity assessment procedures that are relevant in the case of Japan. The country is known for its difficult regulatory environment for foreign companies, indicating informal trade barriers, not least concerning complex and slow testing and certification procedures faced by exporters. Formal barriers are exposed by Japanese industrial standards that often do not conform to International Organization for Standardization (ISO). Whereas most countries--and also the EU--have some standards that are not based on ISO, European companies claim this to be frequently the case in Japan. This is despite the EU and Japan having a Mutual recognition agreement (MRA) in force since 2002 to accept each other's conformity assessments for specified industrial products (EUR-Lex 2018). As it turns out, informal trade barriers are often related to the (non-)enforcement in the elimination of TBTs. Agricultural and food imports are furthermore subject to sanitary and phytosanitary (SPS) measures (e.g. Beghin and Bureau 2017). The EU's distinctive aim in FTAs with several countries, including Japan, was to tackle technical barriers to trade (e.g. Romanchyshyna 2020).

   In this paper, we explore the formal and informal trade barriers in Japan before and after the EU-Japan EPA in order to find out whether the barriers are removed according to the agreement. The research question is: How were the challenging trade barriers perceived and negotiated by the EU side and enforced in Japan? In particular, we investigate the technical barriers to trade and the enforcement of the respective commitments of the EPA in Japan based on the reflections from the EU policymakers and business representatives.

   We adopt an eclectic theoretical approach, since the research problem at hand contains aspects related to economic, legal, social and political decision-making and practices at several levels. We proceed from contemporary theories of international trade and investment, but believe that theories within the field of international political economy are highly relevant when it comes to understanding and explaining the process of a preferential trade agreement between two or more parties. Moreover, theories from the field of international business, in which the firm-level approach rather than the nation-state or the economic bloc is adopted as the basic analytical level should play a more significant role than is usually the case. Therefore, a broader aim of the paper is also to stimulate the theoretical debate around the explanation of flows of goods in an era of post-GATT/WTO regimes of trade liberalization and increasing concerns about the process of globalization (see e.g. Cuervo-Cazurra et al. 2017, 2020, Evenett et al. 2022, Kobrin 2017, Meyer 2017, Milanovic 2016, Rodrik 2018).

   Based on the exploration, we argue that despite formal liberalization of cross-border barriers to trade, some informal trade barriers remain. From the viewpoint of European businesses, the EU-Japan EPA still falls short in removing the so-called behind-the-border barriers to trade, especially those related to the enforcement--or the lack of it--of the EPA commitments in Japan. This observation has important implications to theorizing on trade barriers, especially regarding informal barriers that are rooted in social norms and cultural preferences. It is at the same time a tricky issue to distinguish between formal technical barriers to trade that can be identified and legally described in the EPA (in Chapter 7 on Technical Barriers to Trade), and informal barriers to trade that are derived from administrative procedures and practices, consumer preferences and traditional attitudes to foreign companies, goods and services.

   The rest of the paper is structured as follows. We first discuss theoretical and methodological aspects on trade barriers, and present the data and methods of the study. Thereafter, we briefly overview the pre-EPA trade and trade policy imbalances between the EU and Japan as well as the policy context of the EPA negotiations. We then present empirical findings on the European policymakers' and businesses' views on EPA and its enforcement in Japan, and their observations on informal trade barriers. We discuss the implications of our findings on the theorization of trade policies, and conclude by summarizing the main results and ideas for further research.

2. Theoretical and methodological aspects on trade barriers

   Modern theories of international trade and investment have generally paid more attention to non-tariff barriers in general and technical barriers to trade in particular, given the gradual elimination of formal tariffs in the international trade system (see e.g. Krugman et al. 2018, Oatley 2018). In addition, the close connection between trade in goods and services on the one hand, and the driving forces behind foreign direct investment on the other hand has recently attracted increased interest, not least in order to understand the spatial design of global value chains and the novel forms and patterns of globalization (see e.g. Baldwin 2016, Buckley and Ghauri 2004, UNCTAD 2013, WTO 2011). The global value chains have resulted in a significant growth of trade particularly in East and Southeast Asia as part of the region's history of economic regionalization (Kuroiwa and Kumagai 2011, Kuroiwa and Toh 2008, Teh 2015, WTO 2011). This was enabled by agglomeration, i.e., the development of industrial clusters that had good logistical connections with other industrial clusters in the region (Nishikimi and Kuroiwa 2011: 51). At the same time, the gradual elimination of tariffs both globally and regionally eased the functioning of global value chains.

   Theorizing on trade policy revolves around the actors involved and their interests. Literature in international political economy considers the agency of the state and of the broader society, such as economic interest groups in trade policy outcomes, and analyzes what is negotiated, with whom, and why. Traditionally, the focus has been on explaining the forms of trade policy in a world where states protected the interests of domestic industries against foreign industries, i.e., by reciprocal negotiations to reduce tariffs (Young 2016). The contemporary political economy approach to trade policy, adopting a wider lens, acknowledges the multiple agents in formulating trade policy (George Mulgan and Honma 2015). Due to globalization, the value chains in different industries are extended across national borders resulting in a more complex setup for policy. Trade policymaking thus involves a balancing of diverse and partly conflicting interests, and government decision-makers need to respond to sectoral interests but also to advance the broader societal and international interests of the state (ibid.). As part of trade policy, countries and regions have different interests in negotiating FTAs and their contents.

   Nowadays, there is a need to explain the interests of states to conclude deep FTAs in order to ease global production networks and open behind-the-border barriers for multinational enterprises (Young 2016). Research on trade agreements has discussed, for example, national and intra-regional incoherence in policy-making for FTAs (Chin and Stubbs 2011, Jiang 2010) and domestic stakeholder relations in the negotiation processes (Nelson 2012, Soderberg 2012). National policymaking and stakeholder relations mould the contents of FTAs which, eventually, are a product of the negotiation parties' joint decision and acceptance of the commitments.

   2.1. Formal and informal trade barriers

   Broadly taken, there are two types of trade barriers, formal and informal that are distinguished by whether they are based on written or unwritten rules, respectively. Formal trade barriers can be set at multiple scales--international, bilateral and national--and include tariffs and codified...