Europe’s automakers worried by Japan free-trade agreement

Europe’s automakers are concerned that a proposed free-trade agreement between the European Union and Japan will benefit Japanese carmakers at their expense, industry association ACEA says.

“We are supportive of trade agreements that are equal, that offer the opportunity to export,” said ACEA General Secretary Ivan Hodac, adding that any deal was likely to favor Japanese automakers under existing conditions.

ACEA proposes changes to current rules that include a Japanese requirement for alterations to EU-registered vehicles before they can be sold in the country. Japan has its own safety and environmental standards rather than international ones adopted by the EU, which makes it costly for foreign automakers to get their products approved for sale in the market.

Additionally, the organization is demanding that European carmakers should enjoy the same tax breaks as their Japanese competitors for smaller vehicles. Currently, so-called ”Kei” cars, which make up a third of sales in Japan, have tax advantages for engines that do not exceed 0.66 liters. Most smaller European models do not satisfy these criteria for tax exemption however.

Japan’s auto market is dominated by domestic manufacturers. In total, foreign carmakers have never exceeded a market share above 5.8 percent in Japan.

“We are of the opinion that a free-trade agreement with Japan would allow a one-sided advantage for Japan and allow the Japanese auto industry to export their overcapacity to Europe,” said Bernhard Mattes, Ford’s Germany boss. “Therefore, politicians must suspend the negotiations with Japan when it doesn’t comply with its promises to dismantle non-tariff trade barriers.”

The head of the German auto industry association (VDA), Matthias Wissmann, says the European Commission needs to “negotiate insistently” to ensure that automakers and dealers get good access to the Japanese market.

Japan is the world’s third-largest economy and the EU’s seventh largest export market, buying 69 billion euros ($89.68 billion) worth of European goods in 2011. For Japan, the EU ranks as its third-biggest market with shipments of 6.5 trillion yen ($68.79 billion) in 2012.

The European Commission has said a free-trade deal could lift the economic output of both markets by almost 1 percent each.

The first round of formal talks is expected to begin this month. EU trade negotiators have been told to end the talks after a year if Japan does not show sufficient willingness to bring down its non-tariff barriers.