Ambassador Isticioaia Budura, Ambassador of the European Union to Japan delivers welcome remarks at Fifth EU Asia Top Economist Round Table on 14 November 2014 in Tokyo.

1. Welcome Remarks
Ambassador Isticioaia Budura
Ambassador of the European Union to Japan
Fifth EU Asia Top Economist Round Table
EU Japan Economic Forum
Tokyo, 14 November 2014

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Distinguished ladies and gentlemen,
I would like to thank the organisers for the kind invitation to give an opening address at
this important and topical conference. Having just taken my position in Japan a few
weeks ago, this is an excellent opportunity for me to discuss the EU-Japan Economic
Partnership amongst the distinguished experts in the room for two reasons: Firstly, the
world continues to be fascinated by the development of Abenomics and Prime Minister
Abe's now famous "three arrows". . I will describe shortly how Europe is attempting to
implement "third arrow" structural reforms of our own and how we are also
implementing measures to counter the dangers of prolonged low inflation.
Secondly, it is thanks to an array of new trade negotiations Japan has engaged in as part
of the third arrow of Abe's reforms. One of these is the EU-Japan Free Trade Agreement
negotiations that run in parallel with EU-Japan Strategic Partnership Agreement
negotiations for which I, until my arrival in Japan, was leading on the EU side.
I was happy to note that the Abenomics and the EU-Japan FTA form the first two
sessions of today's forum. The reform agenda with the active trade agenda will have an
impact also on the Foreign Direct Investment, which is the third session of today's
forum. Between the EU and Japan we have seen a steady rise of the mutual investment
stock over the past few years.

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We can only expect this trend to accelerate once the FTA enters into force as I trust we
will have removed many of those barriers to investment that make it sometimes
difficult for investors to establish themselves in a foreign country. I will now start by
briefly touching upon the latest economic developments in Europe to set the scene for
the major themes to be discussed today.
European economic update
The European economic recovery that started in 2013 is ongoing but remains fragile
and the momentum in many Member States is still weak. Over the past 2 years, we
have seen sharply declining bond yields and net export recovery (not just falling imports
but rising competitiveness). However, the economic and employment situation is still
not improving fast enough. Confidence is now lower than in spring, reflecting increasing
geopolitical risks and less favourable global economic prospects. We expect that the
recovery in 2015 will be slow and this reflects the crisis legacy with still high
unemployment, high debt and low capacity utilisation.
Inflation in Europe will remain very low in 2014. As economic activity gradually
strengthens and wages rise, inflation should increase. With the Bank of Japan making
huge efforts to beat deflation, European policy makers have also been paying close
attention as a too prolonged period of low inflation in Europe could entail economic
risks.

4. 4
Since June, the ECB announced several monetary easing measures but ECB President
Draghi also strongly insists that governments should do more to revive growth, urging
politicians to pass structural reforms, including changes to labour and product markets.
So as in Japan, Europe must also work hard on the "third arrow" structural reforms. It is
often overlooked that one of the most important types of structural reforms is that of
trade liberalisation. I am very happy to see that this is one of the major themes of the
conference today.
Despite the current economic challenges, we must also remember the historic progress
that Europe has achieved in recovering from the most difficult of crisis times. Three of
the five euro area member states that requested financial assistance have exited their
program and are able to refinance themselves again in the market, at very reasonable
interest rates.
Meanwhile, the latest example of historic institutional change in response to the
sovereign debt crisis was the recent launch of the Single Supervisory Mechanism. The
European Central Bank has taken on the responsibility for the supervision of euro area
banks, following a year-long preparatory phase which included an in-depth examination
of the resilience and balance sheets of the biggest banks in the euro area. The road to
recovery is a long one but reforms taken during the crisis have created a much stronger
architecture. As I said one of key drivers of recovery will be trade liberalisation.

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Today in Europe, trade is intimately connected to our strategy for creating jobs,
achieving growth and contributing to the economic recovery. Studies indicated that
external trade helped significantly mitigate the impact of the global economic crisis.
Both the EU and Japan occupy central positions in regional and global value chains. As
such, both the EU and Japan should strive to provide opportunities for market entry. In
this sense, it is crucial to allow EU firms in Japan, and vice versa, to enhance their
market presence, and jointly contribute to increased competitiveness, better quality
growth and more fulltime jobs.

6. 6
EU-Japan FTA:
The decision to embark into a bilateral FTA between the EU and Japan in 2013 was
based on the realization that the economic relations between the two trading partners
were not up to the level they should be and that we should try to unleash the
significant untapped potential existing between these two giant economies to further
spur growth.
In the early 90’s Japan was EU’s 3rd largest trade partner. Now it has dropped to 7th
position. A lot of this is of course linked to the fact that emerging market economies,
have diverted big parts of the EU's and Japan's trade.
But the trend could be reversed through the FTA. We estimate that EU exports to Japan
would increase by a third while Japanese exports to the EU would increase by 23%.
Both sides want to conclude an ambitious agreement covering the progressive and
reciprocal liberalisation of trade in goods, services and investment, addressing non-tariff
barriers and agreeing on rules on trade-related issues.
Since we started the negotiations in April 2013, we have completed seven rounds of
negotiations.

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In September this year the Council took stock of the progress achieved during the first
year of negotiation and gave its green light to the Commission to pursue the
negotiations.
The prevailing sentiment is that the both sides have understood each other's visions for
the final agreement, and have started to engage fully on all issues
When it comes to achievements so far, we already managed to exchange initial market
access offers on goods that covers a vast majority of our exports.
We have also recently exchanged offers on services and investment The EU has high
expectations for improving European market access in these areas: the studies
preceding the start of the negotiations clearly pointed out that the degree of
penetration of the Japanese market is particularly low in financial services and
communications services as well as in business services, transport and distribution.
Also progress has taken place in tackling Non-Tariff Barriers, in sectors ranging from
automobiles to food, medical devices or pharmaceuticals.

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This includes harmonising several safety and environmental UNECE standards for
passenger cars, expanding the scope of the EU-JP Mutual Recognition Agreement for
Good Manufacturing Practices in Pharmaceuticals, and allowing for beef exports to
resume from several EU countries.
All in all, regulatory harmonisation has advanced more during one year, than in the past
15 years.
However, since we have so far only finished the first year of negotiations, and while PM
Abe would like to conclude the negotiations in 2015, there still are several outstanding
issues to address.
In terms of challenges for the remaining rounds: while a lot of progress has been made,
there are significant and sensitive issues still to be tackled; for example, market access
offers on public procurement to be exchanged, sensitivity of certain tariffs and their
evident link with the non-tariff barriers (agriculture products sensitive for Japan, cars
for the EU), sensitivity of the railway sector for procurement. All this makes the end of
2015 deadline set by PM Abe quite an ambitious one, albeit possible.

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Now a word on FDI:
In terms of Foreign Direct Investment, Japan has historically invested more in the EU
than the EU in Japan, and this, in a significantly disproportionate way: in terms of FDI
flows Japan has invested on average over the past three years roughly 3 times more in
the EU than the EU has invested in Japan.
The EU remains a major destination for Japan's outward FDI, accounting for about 22%
of Japan's overall FDI, which places the EU next to the US in terms of Japan's FDI
destination.
While, in the 80's, major Japanese exporting companies (car, electronics, machinery)
have shifted production to the EU as a means to counterbalance the appreciation of the
yen and to avoid paying import duties, this wave of major investments is now by and
large over, given the maturity of the manufacturing sector in the EU, and the economic
downturn.
On the other hand, given the shift towards services and the competitive advantage the
EU has in services as well as the ongoing FTA negotiations covering investment, going
forward, one should see a mutual increase in the FDI in the services sector, i.e. also
from EU to Japan.

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To finish it is important to remember that the FTA negotiations between the EU and
Japan are not taking place in a vacuum. The Transatlantic Pacific Partnership (TPP) and
the Transatlantic Trade and Investment Partnership (TTIP) negotiations with the US are
been conducted concurrently, and talks on some key issues - such as market access for
agricultural goods, protection of Geographical Indications for food products and
Investor to State Dispute Settlement rules (ISDS) will have a repercussion on the EU-Japan
FTA negotiations as well.
Concluding words:
I wish all the participants thought-provoking discussions and look forward to hearing
about the conclusions of this forum.