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SPEECH/97/196

Sir Leon Brittan

Vice-President of the European Commission

Global Partners : Japan and the European Union

National Press Club - EU-Japan Cooperation Week

Tokyo, 29 September 1997

Extracts

Sir Leon Brittan Calls for a Global Partnership between the EU and Japan

The EU and Japan should build on their present good relations to establish a more dynamic, global partnership, said Sir Leon Brittan, Vice President of the European Commission, in a speech in Tokyo on Monday, 29 September. Speaking at the National Press Club, at the start of the EU-Japan Cooperation Week, Sir Leon argued that the EU and Japan share wide ranging common interests and should work more closely together internationally in both political and economic affairs.

Sir Leon said : "Japan is not only a vital economic partner for the EU. It is an established democracy sharing many of Europe's deepest political values, including our commitment to an open international system, both in politics and trade, based on the rule of law and multilateral co-operation. In recent years, Japan has had deeper and more extensive relations with the West than any other Asian country. I believe that Japan plays a critical role in bridging cultural differences and promoting understanding between our two continents. It is striking how many ways Japanese and European interests coincide. There is a firm base for an intensive and constructive relationship between the EU and Japan."

"I sometimes have the impression that Japan seems still to consider the EU as almost exclusively a trade organisation, and feels more comfortable in conducting broader relations bilaterally with the larger Member States. Indeed it is essential for European/Japanese relations that there should be close relations with individual EU Member States. But at the same time, I believe that it may prove to be increasingly advantageous for Japan also to deepen and broaden the relationship with the EU as a whole."

"The introduction of a single currency among a large group of EU members will equip the world's largest trading area with a powerful international currency to match its economic weight. More trade, debt and investment is bound to be denominated in the Euro. It will develop into a major world currency. The EU will therefore become a still more powerful, and united global player and partner."

"There is also no doubt that the EU will expand to include a number of new, rapidly growing economies, in the coming few years. This should be of particular interest to Japan when considering the future investment of Japanese companies in the EU."

"It is evident that our ability to develop the broad ties I hope for in the future will be much greater if we are building on a successful economic relationship, and, on the other hand, consistently undermined if our energies are continually diverted by disagreements in trade."

"We place the highest priority on measures to achieve deregulation of the Japanese economy. We strongly welcome the ambitious reform plans of Prime Minister Hashimoto and will support him as he pursues them in this second term. We welcome the continuing EU/Japan dialogue on deregulation and hope that Japan will introduce a new and far reaching pluriannual deregulation programme, covering all sectors of the economy, and establish a mechanism to monitor implementation of deregulation measures."

"Another area of great concern to European business has been the structure of distribution in Japan. Here again, I welcome the fact that we have entered into a dialogue on this subject, which will provide for examination of sectors as well as considering the problem across the economy as a whole."

Full text

Global partners : Japan and the European Union

I am delighted to be in Japan at the start of the EU/Japan Co-operation Week. The events of this week will demonstrate and reinforce the many facets of our relations: our co-operation in research, science and education; economic trade and investment links and a political relationship which is growing ever stronger. Earlier today I had the privilege of delivering the opening address at the Conference on Co-operation in Science, Technology and Education, which brings together influential members of our research and scientific communities. On Wednesday, at the symposium on political and economic relations, senior figures from the European Union and from Japan will discuss our bilateral relations and other important international questions.

This is also a significant moment in the political life of Japan. I congratulate Prime Minister Hashimoto and all the other incoming Ministers of the new Government. I look forward, in particular, to working closely with Mr Obuchi and Mr Horiuchi, building on the warm and productive relations I enjoyed with their predecessors, Mr Ikeda and Mr Sato, both of whom I thank and wish well. Of course, I am certain to stay in close contact with Finance Minister Mitzuzuka.

I have just attended the meeting of ASEM Economic Ministers in Makuhari. I am particularly pleased by the leading role that Japan is playing in ASEM. This informal grouping, which brings together EU members and a number of our leading Asian partners, has great potential for improving contact and dialogue between our continents in the fields of politics, economics and culture. We have made progress this weekend in a number of areas: in working for a successful outcome to the WTO negotiations on liberalising financial services; in exchanging views on the broader WTO agenda, including China's accession; and on preparing Investment Promotion and Trade Facilitation Plans among ASEM members. I look forward to a successful ASEM Summit in London next April.

Japan is in every sense a key partner for the European Union in Asia and in the world. With the United States, we form the main pillars of the world economy. When so much attention is focused on the growth and potential of China, it is too easy to forget that Japan remains by far the biggest Asian economy. Japan's GDP is almost 10 times larger than that of China. The value of Japanese exports to and imports from the EU is more than twice as great. Although growth in Japan has in recent years been less spectacular than before, we are keenly aware that even relatively modest percentage growth in an economy of this size generates major new trading opportunities.

The European Union is equally important as an economic partner for Japan. The EU is the world's largest trading economy. It is politically stable and economically open. It accounts for over 20% of world exports and imports, and the share of these exports and imports in total EU output is now about 23%. The EU also accounts for 30% of total world stocks of foreign direct investment; and is, of course, a major recipient of Japanese FDI which is so important for our economies.

But Japan is not only a vital economic partner for the EU. It is an established democracy sharing many of Europe's deepest political values, including our commitment to an open international system, both in politics and trade, based on the rule of law and multilateral co-operation. In recent years, Japan has had deeper and more extensive relations with the West than any other Asian country. I believe that Japan plays a critical role in bridging cultural differences and promoting understanding between our two continents.

Indeed it is striking how many ways Japanese and European interests coincide. For each of us, our main and privileged external economic and political relationship is with the United States. We each nurture this relationship. But we also have a common interest in ensuring that the United States remains outward-looking and committed to open and multilateral international behaviour, resisting the temptation to lapse into unilateralism, which is against both our interests. Similarly, Japan and the EU both have a vital interest in the future of China and in the integration of China into the international system. This is obviously near the very top of Japan's international agenda. I believe it should also be higher in European priorities, for there is no more important task for all of us than to encourage a successful process of economic development in China, given its enormous potential to affect international security, political life, trade, and resource and environmental security.

In the coming months, the immediate challenge will be China's accession into the WTO. I am encouraged that other WTO partners have been seeking to make progress on the conditions for China's accession to the WTO. China's accession needs, however, to be on terms that are commensurate with her important role in international trade, now and in the future. In particular, those accession terms must ensure, progressively, that there will be significant reductions in the level of tariffs, in phase-out of quotas and other non-tariff measures, in market access for agriculture and services, non-discrimination by state enterprises and greater access to public procurement. I hope that significant further progress can be made in the coming period towards agreeing such terms. It is important that there is consistency and cohesion in the approach of all the major WTO members, especially Japan, the EU and the US. The EU will be closely involved in further accession discussions and looks forward to a successful outcome.

Russia is also a neighbour of key strategic concern to both Japan and the European Union. We have a strong interest in sharing views on developments in Russia and other states of the former Soviet Union, and in working to strengthen democracy, stability and economic development there. It will be to our mutual benefit that Russia should become a member of WTO on terms which fully reflect both her economic status and the interests of her trading partners.

The shared interests of Japan and the EU lie not only in international affairs. We also face similar domestic economic challenges. We are mature industrial economies confronting new, dynamic competitors in an increasingly global economy. We are managing a difficult transition to becoming post-industrial societies with ageing populations. We have much to discuss, bilaterally and in fora such as the G7 - now the Summit 8 - where Prime Minister Hashimoto has taken the lead in raising some of these issues. For example, how can we maintain the levels of income to which our peoples have grown accustomed, while also supporting our senior citizens and continuing to provide desirable levels of social welfare?

From this brief tour d'horizon, you will see that I firmly believe there is a wide base for an intensive and constructive relationship between Japan and the European Union. This was reflected in the joint Political Declaration of 1991, which continues to serve well as a basis for our ties. We have made quite remarkable progress since then in developing our network of contacts, notably at the annual Summit meetings. The most recent took place in The Hague last June, and was particularly successful. The discussions were warm and open, and we were able to make progress on a number of specific issues to advance our economic relations. I pay tribute to Prime Minister Hashimoto for his role in these achievements. We are a long way now from what I might call the "bad old days", when all we ever seemed to talk about was trade disputes.

And yet I feel that relations between the EU and Japan have not yet fulfilled the full extent of their potential. We are poised to go further, but doing so will require renewed commitment and energy on both sides.

For Japan, the United States remains clearly the most important international partner, in politics, security relations, and economics. In Europe we are conscious that the United States is the privileged interlocutor of Japan. We would like there to be greater balance. I recognise that the European Union is more distant and has had a less direct role in the Asia-Pacific region. I suspect that Japan may also, quite reasonably, find the European Union, with its complex structures and procedures, a rather awkward partner. We Europeans need to do more to explain to Japanese policy makers and businessmen how the EU works, and why it is so important.

On the EU side, we have been preoccupied in recent times with our own very important agenda: creating and managing the single market, EU enlargement, preparing for economic and monetary union, revising our institutional structure. Some of these issues may appear arcane to outsiders. We have also lived through dramatic political change within our continent in the last decade. I readily admit that Europeans did not wake up soon enough to what is going on in Asia and the importance of close involvement there. We need to be more outward looking, and I hope that ASEM will help us to be so.

Perhaps as a consequence of all this, I sometimes have the impression that Japan seems still to consider the EU as almost exclusively a trade organisation, and feels more comfortable in conducting broader relations bilaterally with the larger Member States. Indeed it is essential for European/Japanese relations that there should be close relations with individual EU Member States. But at the same time, I believe that it may prove to be increasingly advantageous for Japan also to deepen and broaden the relationship with the EU as a whole. Let me explain why.

The Member States themselves are determined to continue to build and strengthen the European Union. Our first clear goal is to introduce monetary union within the EU by the target date of January 1999. It is essential that the single currency is introduced in strict compliance with the criteria set out in the Maastricht Treaty. It is even more important in the longer term that the economic convergence implied by adherence to these criteria is sustained, so that the Euro is a strong and stable currency. If we achieve this, and I believe we will, the Euro will have a dramatic impact on the international monetary system.

The introduction of a single currency among a large group of EU members will equip the world's largest trading area with a powerful international currency to match its economic weight. Indeed, the Euro area will have commercial and economic weight comparable to that of the US. Even if international use of the Euro were simply proportional to present use of the Deutsche Mark, some 30% of world exports would be invoiced in Euros. More trade, debt and investment is bound to be denominated in the Euro. It will develop into a major world currency, and a competitor to the dollar and the yen as a global reserve currency, accounting for up to 40% of global financial assets. The EU will therefore become a still more powerful, and united global player and partner.

We are also about to embark on the formal process of further enlarging the EU. Next year accession negotiations will start with a number of applicant countries. We cannot predict exactly how fast this enlargement will proceed. Its pace will be determined by the existing members' judgement of the readiness of applicants to meet objective requirements. But there is no doubt that the EU will expand to include a number of new, rapidly growing economies, in the coming few years. This should be of particular interest to Japan when considering the future investment of Japanese companies in the EU.

The institutional structure of the EU and its Common Policies will also continue to develop. The Intergovernmental Conference, which ended last June, agreed on steps to improve the way the Union conducts its business. But this will not be the high water mark of the European Union's ambition to build strong, common foreign, security and defence policies. We still have further to go and are determined to get there, in spite of the complexities we face. It is in the interests of all of us that Europeans should be able to act rapidly, independently and effectively when the circumstances call for such action.

For all these reasons I believe that, over time, Japan will find increasing advantage in developing the scope of its relations with the EU as a whole. We have recently seen one very concrete example of how we can work together in the EU's accession to KEDO - demonstrating our commitment to security and stability in East Asia. Together with EU Ministers in the Troika, I now enjoy a regular and increasingly detailed dialogue with Japanese Ministers on a range of foreign policy issues, be it the Middle East, Bosnia, Cambodia or Myanmar. We also discuss the big global problems such as drugs, crime or the environment. Encouraged by the example of KEDO, our aim should be to find ways, wherever possible, to agree on joint operational follow up to this dialogue.

But in calling for a wider scope for EU/Japan relations I would not in any sense deny that trade and investment remain at the very core. For that reason, I have saved them to the end of this speech. It is evident that our ability to develop the broad ties I hope for in the future will be much greater if we are building on a successful economic relationship, and, on the other hand, consistently undermined if our energies are continually diverted by disagreements in trade.

The EU has frequently voiced concerns about the persistent trade and current account surpluses of Japan. We have greatly welcomed the reduction in these surpluses in recent years. But it is a matter of concern that this trend has been reversed in the first half of 1997. Japan's current account surplus is forecast to grow to over 2% of GDP by the end of the year. This may be due in part to currency effects. But there is also a sense that these surpluses are linked to macro and micro economic policies pursued by Japan, which raise obstacles to external access to the Japanese market. It seems clear, also, that more emphasis on exporting in order to reverse the recent signs of contraction in Japan's economy is likely to lead to renewed tension in Japan's international trading relationships.

This is why the EU continues to place so much emphasis on the importance of ensuring equality of market access in Europe and Japan. We place the highest priority on measures to achieve deregulation of the Japanese economy. We strongly welcome the ambitious reform plans of Prime Minister Hashimoto and will support him as he pursues them in this second term. I am greatly encouraged by the positive public statements Mr. Horiuchi has made since he assumed office. We welcome the continuing EU/Japan dialogue on deregulation and hope that Japan will introduce a new and far reaching pluriannual deregulation programme, covering all sectors of the economy, and establish a mechanism to monitor implementation of deregulation measures.

Another area of great concern to European business has been the structure of distribution in Japan. Here again, I welcome the fact that we have entered into a dialogue on this subject, which will provide for examination of sectors as well as considering the problem across the economy as a whole. This is an issue which has a major impact on the costs of doing business in Japan for foreign exporters and investors.

Another priority we agreed on in The Hague was the need to accelerate and intensify work on a Mutual Recognition Agreement between the European Union and Japan. Such agreements, which reduce or eliminate burdensome testing and regulatory requirements, can greatly ease the flow of trade in both directions between signatories. The EU has now concluded Mutual Recognition Agreements with a number of its major trading partners including the United States, Canada and Australia. The absence of such an agreement with Japan is anomalous.

I should also draw attention to the large imbalance in foreign investment in Japan as compared with Europe. Greater European investment in Japan is in both our interests. But it will require structural change to achieve this.

Progress on all these fronts is essential if the structure of economic relations between the EU and Japan is to be placed on a healthy, open and truly reciprocal basis. It is in the true interest of both sides that this should be the case. The EU and Japan are, for many reasons, natural partners in the global economy and in international relations more generally. We have many reasons to work together and to develop our relations, both bilaterally and through co-operation in multilateral organisations. I believe that there is now a growing awareness of this on both sides. But a necessary condition of this eminently desirable progress is the resolution of economic and trading problems which have for too long absorbed too much of our attention. While we will both quite rightly strive to defend what we perceive to be our particular interests, let us at the same time commit ourselves to pursue together what we know to be our common interests.


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