Keiichi Katakami, Ambassador Extraordinary and Plenipotentiary of Japan to the European Union, opened the Dialogue by reflecting on the current state of affairs and looking to the year ahead for EU-Japan relations. He highlighted that FTA discussions are in their final phase, with much having already been achieved in a short space of time. At the Antalya G20 Summit in November, Japanese Prime Minister Abe and European Commission President Juncker held a bilateral meeting, with both leaders agreeing that the FTA should be finalised as early as possible in 2016.

For the year ahead, Katakami said that he hoped to see the EU and Japan rediscovering each other as true strategic partners, re-boosting efforts to act together. He added that seeing each other as strategic partners does not only entail a mutually beneficial relationship, but also a relationship of authentic like-mindedness, based on mutual trust and shared commitment to fundamental values, including the rule of law. Above all, this partnership requires a shared determination to contribute to global challenges together. Such a partnership will have benefits for both sides, as well as providing positive spill-over effects globally.

In order to achieve this, he argued that it is time for Japan and the EU to step forward together and start building a new relationship. The FTA/EPA and SPA are important agreements in that regard, providing a solid foundation to lift relations to a higher level, establishing a framework to act together as strategic partners in a rapidly changing and increasingly unstable global environment.

He noted that a new legislation for peace and security was passed in 2015 by the Japanese National Diet, exemplifying Japan’s strong determination to contribute to the peace and stability of the international community. In 2016, Japan will serve as a non-permanent member of the United Nations (UN) Security Council, shouldering great responsibility. Additionally, the country will host the 42nd G7 Summit in May 2016 and chair the China–Japan–South Korea trilateral summit. He highlighted that Prime Minister Abe stated in his New Year address that 2016 will be a year in which Japan truly shines on the world stage. He added that with a number of ongoing international challenges - including an increasingly unpredictable global economy, the fight against terrorism, poverty, development issues and climate change – efforts to build a better world are never-ending and 2016 will be a year in which Japan will fully demonstrate its leadership capabilities with international partners, including the EU.

He recognised that the EU and Japan already have a long history of successful cooperation across a wide range of fields, based on mutual respect and a shared commitment to democracy, human rights and the rule of law. This relationship has been strengthened in recent years, both in the economic field and through cooperative activities such as via Common Security and Defence Policy (CSDP) exercises, cyber and counter-terrorism dialogues. However, the relationship can and must be further developed in order to address new challenges being faced and to be fit-for-purpose in an evolving global environment. While the conclusion of the FTA/EPA and SPA are crucial and will be important tools for enhancing the relationship, Japan and the EU should both look ahead and consider their relationship as part of a bigger picture with strategic points of view, including common security threats. He concluded by saying that 2016 will be a year with opportunities to discuss more concrete measures to address these challenges, including at this Policy Dialogue.

Akio Takahara, Professor, Faculty of Law, University of Tokyo, and Senior Fellow, the Tokyo Foundation, then explored the transforming international order in East Asia and how the EU can cooperate in improving the situation. He stated that the most important world development of recent years has been the rise of China’s “comprehensive national power”, consisting of economic, military, science/technology and national cohesion. While the economic rise has been positive in the sense that other countries have also benefited from this development, there are concerns about the speed of China’s military rise and the country’s actions in the region, which have been disruptive to the rules-based order that was developed following the two World Wars.

On China’s behaviour in the region, Takahara argued that this is related to two aspects of China’s domestic situation. The first of these he termed “pax communista”, characterised by an internal order not supported by rule of law but by the crude power of the Communist Party. This lack of respect for the rule of law extends to the way the country is dealing with the conflicting interests it has with neighbouring nations. The second domestic aspect he highlighted was that the Communist Party makes use of nationalism as an important pillar to uphold its legitimacy to rule. With both a heavily “patriotic” education system and control of the media, citizens are affected by “auto-intoxication”, which effects their attitude to the outside world. The media are also lopsided in their coverage of affairs, particularly when reporting on conflicts with the outside world. From a diplomacy perspective, these factors have led to enormous and dangerous perception gaps between the Japanese and the Chinese.

He stressed that solving these issues requires two different types of policies: engagement on the one side, and security on the other. In terms of engagement, he said that, in order to foster international norms in Chinese society, there is a need for a lot more exchange between Chinese and Japanese citizens. He noted that compared to the 1990s, there are now many more Chinese people with an internationalist outlook, especially the younger generation who are open to new ideas. However, at the same time, there is a growing force of exclusive nationalism in the country. Therefore, it will be crucial to foster engagement through international and youth exchange, not only through governmental action, but also by mobilising civil society. He argued that there are a number of areas in which NGOs from both Japan and the EU could cooperate in influencing China’s behaviour. For example, there is serious coral reef destruction by Chinese fishermen in the South China Sea, which is not being extensively criticised.

Yorizumi Watanabe, Professor, Faculty of Policy Management, Keio University, Tokyo, then analysed the state of play with EU-Japan trade and investment. The EU currently has a trade surplus with Japan: exports to EU from Japan amounted to approximately €54 billion in 2014, while imports to Japan from the EU amounted to €58.6 billion. On investment, in terms of stock investment from Japan to the EU, this was €161.5 billion in 2012 – meaning that Japan is the fourth largest investor in the EU. Stock investment from EU to Japan was €98-99 billion in 2012, making the EU the biggest investor to Japan. However, both trade and investment have declined slightly over the past two years. This reflects a longer-term mutual decline in the relative importance to both countries for trade, despite the increase in both Japan’s import market and the size of the EU.

In order to address this relative decline, he agreed that the EU-Japan FTA will be a positive development. He also highlighted a number of opportunities if this decline is effectively addressed, including potential for further job creation by Japanese companies in the EU. He noted that there are 12 Research and Development (R&D) centres of Japanese automotive companies in five EU countries, which also provide a boost to innovation. He added that a successful FTA can also provide support for further expanding Japan-EU industrial partnerships, with mutual technological benefits. There have also been successful talks between EU and Japanese businesses across a number of sectors on establishing common aims, identifying Non-Tariff Barriers (NTBs) and seeking possible solutions.

He added that Japan currently has fifteen active bilateral FTA/EPAs, representing roughly 22% of Japan’s external trade. With the Trans-Pacific Partnership (TPP) being included, this share will go up to 37%. TPP will have a high duty elimination ratio, will introduce new rules on State-Owned Enterprises (SOEs), labour and environment dispute settlement procedures and will have a user-friendly focus, including on rules of origin, trade facilitation and Small and Medium Enterprise (SME)-related provisions. Further membership is expected, with South Korea, the Philippines, Thailand, Taiwan and Indonesia indicating an interest. On rules of origin, TPP has a built-in accumulation rule to facilitate a supply chain where parts are being produced in different places, which may result in a shift in production to TPP countries. In terms of tariff elimination, he stated that there is a change in mind-set in the Japanese farming community, who are looking to open the Japanese market as well as exporting agricultural products abroad. This kind of change in attitude is a positive thing when looking at establishing an effective Japan-EU FTA.

In terms of how TPP and the EU-Japan FTA may interact with one another, he stated that there are a number of similarities between the two: they are both “mega FTAs” across regions, aiming at high-level market access and effective rule-making beyond World Trade Organisation (WTO) rules and also aiming to establish a global production network by linking the regional value chains across the Pacific as well as between Asia and Europe. However, geo-political considerations feature more prominently in TPP and there is an acknowledged exchange of “sensitivities” – the automotive sector for the US and agriculture for Japan – facilitating the process of negotiations at the highest level from the start. Within the EU-Japan FTA, concessions on Non-Tariff Measures (NTMs) and railroad procurement are unique to the agreement. Nevertheless, the relationship between the two agreements provides an increasing coherence on Japan’s FTA strategy, moving towards an enhanced multilateral regional system with a view to strengthening the WTO.

He concluded by saying that TPP has provided a momentum to other free trade arrangements and hopefully will do the same for the EU-Japan FTA. He noted that Japan is interested in high-quality rules as well as high-level market access liberalisation with the EU as well as across the Asia-Pacific region and hoped that Japan, the EU and the US would increase coherence in restoring the trade multilateralism embodied in the WTO together with like-minded developing economies.

Michito Tsuruoka, Senior Research Fellow, National Institute for Defence Studies, Ministry of Defence of Japan, then explored the security aspects of EU-Japan relations as well as recent changes in Japan’s security and defence policy. He stated that Japan’s new legislation for peace and security represents a historic change in the domestic political context, although it is a very modest change by international standards. It is therefore important to maintain a sense of proportion. For example, it will remain highly unlikely for Japan to engage in combat operations other than for the sake of the defence of its own territory. There have also been huge demonstrations against the legislation, showing the strength of anti-militarism and pacifism amongst the population. Nevertheless, bigger changes will be seen in terms of Japan’s participation in international peacekeeping operations.

He argued that the new legislation sends out two messages: Japan is taking more international responsibility, and is now more prepared and willing to adjust to a changing international security environment. With the new legislation, Japan now has a firmer basis from which to expand its international security engagement and make a “proactive contribution to peace.” In that context, Japan is looking for partnerships both with the EU and member states. He noted that Japan already cooperates on security and defence with the EU and others in various parts of the world. Examples include: the Indian Ocean refuelling operation in the wake of the 9/11 terrorist attacks; sending troops to Southern Iraq as part of rebuilding after the major, US-led combat operation in Iraq; and counter-piracy operations off the coast of Somalia, cooperating with EU forces operating in the same theatre.

He highlighted that, despite the vital importance of US-Japan security and defence cooperation, there is a huge gap between what Japan is prepared to do and what the US may do. As a result, whenever and wherever Japan sends troops, it is more likely that they will be working alongside European forces. Therefore, it is important to consider to what extent (and how) cooperation needs to be institutionalised between Japan and the EU. Both parties are now negotiating the SPA, with more concrete talks beginning on a Framework Participation Agreement (FPA) regarding Japan’s participation in CSDP missions. While these are important discussions, they are not an end in themselves. He argued that there is a need to utilise the tools that will come out of these agreements to move beyond cooperation for the sake of cooperation, to something more concrete.

Julian Wilson, Head of Division Japan, Korea, Australia and New Zealand, European External Action Service (EEAS), then provided an overview of the nature, path and trajectory of EU-Japan relations from the EU perspective. He stated that Japan and the EU are natural partners, which is due to the fact that both parties choose to invest in one another because of a flourishing economic base and because common challenges are faced, which are better coped with when addressed together. As there is rapidly expanding cooperation across security, foreign policy coordination and new agreements, Japan and the EU are on the cusp of cementing this partnership by launching a further period of growth with a new political agreement and FTA, which should set a trajectory for the next three or four decades.

On security, he stated that, prior to 2013, the nature of EU-Japan cooperation was ad hoc. For example, Japan and the EU cooperated during the EU counter piracy Operation EUNAVFOR Atalanta. With Japan’s new security policy coming into force in 2015 - and combined with Prime Minister Abe’s positive attitude towards the EU’s CSDP missions and determination to expand cooperation - the EU hopes to make cooperation more formalised during 2016 and into the future. While the EU remains in essence an economic project, there is a growing role for security because of challenges being faced. However, Wilson stressed that operations only ever occur in cooperation with member states and only where the EU can add value.

He added that, on foreign policy coordination, the EU and Japan have shared values and principles which lead them to be natural partners when coordinating positions on common issues, which may be international, on common themes such as climate change or on individual third country issues. He gave some examples of this: the EU and Japan co-sponsored human rights resolutions related to North Korea put forward through the UN system; on Russia, there was a natural ability to combine on a common international reaction to the situations in Crimea and Ukraine and on the East and South China Sea, Japan and the EU have worked together on peaceful resolutions of disputes.

On the SPA and FTA, he reiterated that there is a very high value of trade between the EU and Japan - €110 billion - with cooperation across 41 sectors. While the relative share of trade has dropped over the past two decades, this is primarily a reflection of the increasing economic growth of China. With cooperation across so many sectors, it is important to resource these relationships in order to realise the advantages that the EU and Japan can have by working together. He expected the FTA and SPA to be finalised this year, although there will be complexities as it moves towards finalisation, including on its relationship with existing agreements like TPP. Nevertheless, he said that the alliance with Japan is one of the most positive and natural that the EU has had and the SPA and FTA will set the path for trade, economic, political and people-to-people cooperation to deepen dramatically over the next three decades.

Discussion

On the question of whether the EU’s historical experience can help to inform reconciliation efforts between China and Japan, Takahara said that in the case of Japan, more needs to be taught to children about the history of the Second World War and, in China, more should be taught on post-war history. For reconciliation to work, the aggressor must apologise, but the victim must also accept the apology. Continuous exchange - particularly among young people from Japan and China – is also very important, and a lot can be learned from Europe in this regard. Wilson said that while no two models are the same, the EU can have a productive impact by continuing to spread its positive message of reconciliation and regional cooperation. It is also important to remain positive about the EU because, despite the massive challenges being faced, the EU as a framework for cooperation makes it a lot easier to find solutions.

On the similarities between Japan and Germany in terms of ongoing discussions on their respective security postures, Tsuruoka said that the international responsibility aspect of the German debate is particularly interesting and should help to inform a deeper debate on this in Japan. Currently, the debate in Japan is too focused on technicalities and there needs to be a broader discussion on what sort of country Japan wants to be. He noted that the general public do not want to see more international engagement because it carries risks and costs, but there is a need to realise the extent to which peace and prosperity in Japan is dependent on a stable world order.

An audience member asked both if it would be possible for third countries to dock on to the FTA/EPA, what possible ways there are to link the FTA/EPA with TPP and whether the EPA is a mixed agreement or an EU-only agreement. Watanabe said that because the FTA/EPA and TPP are - by definition – preferential agreements, they are discriminatory towards third parties. Therefore, although TPP sets some precedents and changed attitudes in certain sectors that will make for a better FTA/EPA, what the US and New Zealand get out of TPP will not be automatically extended to the EU. Wilson added that the EU-Japan FTA is a bilateral agreement with Japan, so is different to the idea of the “moving feast” of the TPP.

Fabian Zuleeg, Chief Executive, European Policy Centre,asked whether there are potentially difficult areas between the EU and Japan when negotiating the FTA and what kind of impacts are expected from the FTA in terms of economic exchange. Wilson said that the difficulties with reaching a conclusion are likely to be bureaucratic, rather than based on differing positions. On the FTA’s impact, he said that the EU-South Korea FTA did not lead to the expected increase in imports from South Korea because of recession in the EU and, as the economy recovers, that is improving. He argued that the EU-Japan FTA will have an overall impact on the value of trade by opening up avenues of investment. Watanabe said that an impact study done by the EU expects an increase in the EU’s GDP of 0.8% due to the Japan-EU FTA, with increase in exports to Japan expected to increase by 32.7% and imports from Japan to increase by 23.5%, creating additional jobs for around 420,000 people. He agreed that investment is one area that will have a dynamic effect on the trade relationship, adding that EU countries will be able to take advantage of the consolidated value chains in Japan and the surrounding region, if the FTA is successfully established.

On Japanese perceptions of the terrorist threat, Tsuruoka said that the general public do not see Japan as a target, although there are threats coming up, such as the Tokyo 2020 Olympic Games. In terms of the security relationship in general, he said that there is an expectations deficit between the EU and Japan because there is not much expectation from the Japanese about what the EU can do in Asia and the EU underestimates Japan as a political and security partner for Europe. Takahara noted that, although there are differences in priorities, these differences are narrowing. For example, Russia is a concern for Japan because the country has been selling state of the art military technology to China. Additionally, recent terrorist attacks have been happening closer to Japanese territory. Wilson said that it is important to understand that Asian countries are very wary about outside involvement in security issues. However, the EU can still have a positive role as an honest broker, as has been seen during the Aceh-Indonesia peace process and relations with North Korea.

On the possibility for trilateral formats for diplomacy, Wilson stated that this can be successful but should happen only when the situation dictates – otherwise, it is an unnecessary bureaucratic project. Tsuruoka added that the idea of a trilateral relationship between US, Japan and Australia or US, Japan and India is becoming more fashionable. When thinking about involving the EU or individual member states in a trilateral security relationship, he said one possibility could be a relationship between Japan, Australia and the UK, because the UK has expressed a greater interest and willingness to be involved in the Asia-Pacific region in their most recent Strategic Defence and Security Review. Additionally, Australia often hosts ships in its port cities. In terms of involving the EU, this would be more difficult because of the issue of transference and the difficulty of gaining a consensus on these types of relationships at an official level. However, more joint exercises and training can be done, especially involving the UK and France.

Zuleeg then asked panel members to reflect on developments that they would consider as being key to successful EU-Japan relations in 2016, besides FTA and SPA. Takahara said that he hoped to see concrete achievements at the G7 Summit and International Conference on African Development, more exchange between academics as well as government officials and civil society, leading to better understanding between the EU and Japan. Watanabe hoped to see the bilateral FTA concluded, with subsequent discussions to further enhance it. He also said there is a need for more coordination between the EU, Japan and the US to avoid discrepancies in policies towards developments such as the Asian Infrastructure Investment Bank (AIIB) and in order to ensure China maintains accountability, transparency and operability with AIIB. Tsuruoka said that developments in Russia will be critical this year. Wilson agreed and hoped for a peaceful year in Afghanistan due to the collaborative efforts of Japan and others; more movement on economically sustainable relations, which necessarily involves China and the WTO; the implementation of climate change actions agreed upon at the Paris Climate Conference (COP21) which will involve Japan, the EU and other partners coming together to work on these issues; and a sizeable contribution from Japanese investors towards the European Fund for Strategic Investments (EFSI).

Zuleeg drew the event to a close by reflecting that there is a potential for deepening relations between the EU and Japan that goes beyond merely economic cooperation. As both Japan and the EU are still struggling with situations of low growth, an ageing population, public debt overhang and a difficult financial system, it will be important to learn from each other on how best to approach these challenges. A big question to be addressed in 2016 in this regard is what the “strategic” aspect of the partnership is – what takes the relationship beyond the normal relationships that the EU has with countries around the world and how can that be fostered?