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The rules of origin in the EU–Japan relations from the 1980s to the EPA and BREXIT

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Abstract

The recent proliferation of free-trade agreements drew the attention of the general public to their socio-economic effects on the local community. A common misunderstanding among the general public and firms is that, when an FTA is signed by their domestic government with a partner, the goods produced by their domestic firms will benefit automatically from preferential access to the partner’s market. However, this is not the case. This is where the rules of origin come into play. After reviewing the concept of the rules of origin, we will investigate them in the context of the EU–Japan relations, drawing on three cases: (i) the decision of Japanese firms to invest in Europe in the 1980s, (ii) the rules of origin in the EU–Japan Economic Partnership Agreement, and (iii) how the rules of origin between the UK and the EU following BREXIT could affect Japanese investment in Europe.

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Notes

  1. Japanese Government distinguishes between FTA and EPA. For example, the Japan External Trade Organization (JETRO) defines FTA as “an international treaty to eliminate tariffs imposed between countries or regions and to abolish regulation in the field of foreign investments in trade in services,” whereas EPA as “an international treaty to deregulate regulations for investments and for immigration control in addition to the contents of an FTA.” Please refer to https://www.jetro.go.jp/ext_images/indonesia/jiepa/index.html/EPAE.pdf. In this view, EPAs are broader agreements that include the contents of FTAs. However, since many FTAs that have been recently signed are comprehensive agreements more than simple tariff elimination agreements, the distinction between FTA and EPA is not neat. In this paper, we use the terms FTA and EPA interchangeably.

  2. Dumping is defined by the WTO as “a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.” This unfair competition practice may cause harm to domestic producers. If a firm is found to practice dumping, the domestic country can adopt counter-measures, such as the imposition of anti-dumping duties on the products of those firms.

  3. Regulation No. 2176/84 was the EU’s basic anti-dumping regulation in the 1980s. It was amended by Regulation No. 1761/87 and later incorporated into Regulation No. 2423/88.

  4. Article 13:10 was eventually modified in 1994 by Article 13 of Council Regulation (EC) No. 3283/94. Article 13 was then included in Council Regulation (EC) No. 384/96, which was amended by Council Regulation (EC) No. 461/2004. This regulation was repealed by Council Regulation (EC) No. 1225/2009, which was repealed by Regulation (EU) No. 2016/1036 on protection against dumped imports from countries that are not members of the European Union. Article 13 of this regulation states the basic anti-circumvention rules currently in force in the EU. Article 13 defines circumvention as “a change in the pattern of trade between third countries and the Union or between individual companies in the country subject to measures and the Union, which stems from a practice, process or work for which there is insufficient due cause or economic justification other than the imposition of the duty.”

  5. The interests of the agricultural sector in Japan play an important role in the negotiations of the FTAs. Japan adopts mainly two strategies for the protection of the agricultural sector during FTA negotiations: it offers a package of aid and technical cooperation in lieu of marketing opening of the agricultural sector to the developing countries (this is the same tactic that has been used by Japan in the WTO); it demands special treatment for a list of sensitive agricultural products. However, both these strategies have obvious limits in the negotiations with developed countries. For a detailed analysis of the development of the Japanese trade policy in recent years, the interested reader may refer to George Mulgan and Honma eds. (2015).

  6. Year in parenthesis added by the author.

  7. If we consider only the FTAs in force, Japan’s FTA coverage ratio reduces to 22.5% while Korea’s FTA coverage ratio remains at 67.9%.

  8. According to the Mitsubishi Research Institute, between 2010 and 2020, Japan’s domestic market is set to decline by 660,000 units (ACEA 2012).

  9. Kei cars benefit in Japan from special financial and other regulatory advantages. The ACEA estimated that subcompact cars offered by EU manufacturers pay more than three times the tax rate paid by kei cars (ACEA 2017b).

  10. In this case, “year” means, with respect to the first year, the 12-month period from the date of entry into force of the EPA and, with respect to each subsequent year, the 12-month period after the end of the previous year.

  11. JAMA member companies currently operate 14 production plants and 17 R&D centers in the EU, including in the UK. In 2017, those plants’ annual vehicle production totaled 1.51 million units, of which 287,788 were exported globally; in JAMA member companies’ EU-based operations and in related distribution, sales, and other activities, 169,629 people were employed across the EU; JAMA member companies’ purchases of EU-made parts in value terms totaled €15.02 billion (JAMA 2018a, p. 2).

  12. “The concept of accumulation/cumulation or cumulative rules of origin allows products of one country of a free-trade area to be further processed or added to products in another country of that free-trade area as if they had originated in the latter country. In this way, production may be aggregated with other countries’ inputs, thus, offering additional opportunities to source input materials” (World Customs Organization, 2012).

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  1. Graduate School of Economics, Kobe University, 2-1 Rokkodai-cho Nada-ku, Kobe, Hyogo Prefecture, 657-8501, Japan

    Massimiliano Porto

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  1. Massimiliano Porto
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Correspondence to Massimiliano Porto.

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Porto, M. The rules of origin in the EU–Japan relations from the 1980s to the EPA and BREXIT. Asia Eur J 18, 35–55 (2020). https://doi.org/10.1007/s10308-019-00539-1

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  • DOI: https://doi.org/10.1007/s10308-019-00539-1

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