Assessing Quality and Impacts of Major Free Trade Agreements

The presentation made in this session covered the issues noted below. The presentation undertook a qualitative assessment of Japan's FTAs and EPAs from the perspective of users. The number of preferential certificates of origin issued, a document necessary for the utilization of preferential treatment under EPAs, was used to examine the level of utilization.

Are Japanese companies, the potential users of EPAs, actually using the EPAs concluded by the Japanese government?

If they are not using the EPAs, what is the reason for this?

The Takahashi Presentation addressed the subject of the "Use of Preferential Treatment under FTAs" and was based on a questionnaire survey conducted in 2006 with the cooperation of the Chambers of Commerce and Industry of Osaka, Kobe, and Kyoto, and JETRO Osaka. Professor Takahashi made the following points.

The survey showed that the level of EPA use was extremely low. In the case of the Japan-Singapore EPA, as of November 2002, only 3.8% of the members of the Chambers of Commerce surveyed had used the EPA. The corresponding figures for the Japan-Mexico and Japan-Malaysia EPAs were 12.5% and 5.5%, respectively. It can be argued that it is still premature to consider the Japan-Malaysia EPA because so little time has passed since its inception.

Regarding the use of the three EPAs, the leading reasons for hesitation were a lack of interest, a lack of necessity, and a lack of applicable transactions. Many companies also said that they did not know how to use the preferential treatment.

Japan's three EPA partners (Singapore, Mexico, and Malaysia) are not principal trading partners for Japan, so that there is a mismatch between actual and desirable EPA partners.

It appears that most companies do not yet have a clear idea of the benefits generated EPAs. But there are some cases in which these benefits are contributing to corporate profits. Furthermore, the procedures have to be simplified, given the high costs related to complicated procedures.

Among those countries that are very likely to become Japan's EPA partners in the near future, the companies surveyed identified Vietnam, ASEAN, South Korea, India, and Indonesia as desirable EPA partners for Japan. On the other hand, little interest was shown for Brunei, Chile, and Switzerland.

Mr. Okayama responded to the Takahashi Presentation with the following comments.

Concerning the promotion of the use of EPAs, it is necessary to provide greater information on the contents of the EPAs concluded by Japan, and to inform and educate the public on how to use EPAs. Also, it is necessary to provide information on FTAs concluded by other countries, in particular by countries that are Japan's EPA partners.

Concerning the system of preferential certificates of origin, it is necessary to provide information concerning EPAs, preferential certificates of origin and rules of origin not only to exporters but also to parts and components manufacturers that do not directly export their products. This information should be provided not only to export staff but also to staff members in the procurement and financial departments. The distribution of the system-related cost burden should be discussed with the intent to lower the cost of acquiring preferential certificates of origin.

Concerning the content of agreements, the following actions are necessary: revision of the concession tables based on HS2007 and the rules of origin for individual items, responding to voluntary reductions in MFN tariffs by EPA partners after the enforcement of an agreement, and allowing for a publicity period for informing companies prior to the enforcement of an agreement.

Concerning international organizations, the following actions are necessary: international harmonization of preferential certificates of origin by the WTO, unified interpretation to eliminate disparities in judgments on tariff categories by the WCO, promotion of capacity building activities, and easing of conditions pertaining to the direct shipment principle.

The following questions were received from the floor.

I do not understand why the Japanese government does not provide concordance tables for different HS codes. If differences in HS codes exist between Japan and Mexico, why not compile concordance tables?

Regarding the problem of transparency in Japan's rules of origin, we can see one example in the case of tires. In Japan, the inner rim size is measured, while in Mexico, the outer rim size is measured. These cases can be resolved by moving to another HS code digit.

What is the level of use of certificates of origin in the EPAs of various countries?

The following responses were given to the above questions.

Differences in interpretation of HS codes by the customs authorities of Japan and Mexico are currently being examined. We have asked companies to investigate whether these differences come from judgments made by customs authorities, or that they are simply the result of mistakes made by customs brokers. When the results of this study become available, we will probably consult the Mexican government authorities through the Japanese government.

HS codes have been revised from the 2002 edition to the 2007 edition. However, because there are no clear rules or definite patterns between the two editions, it is extremely difficult to automatically transpose the codes. Another problem is that the Japanese EPA concession tables are based on HS 6 digits, while the Mexican and Malaysian tables are based on 8 digits and 9 digits, respectively. Because of these extremely technical aspects, the problem is not easy to solve.

We do not have detailed data concerning the level of EPA and certificate of origin use in various countries. We have asked a number of countries, but no one seems to have statistical data on the coverage ratio of certificates of origins in the total volume of exports.