Perspectives from Around the World

A Multi-Dimensional Partnership between Japan and France

Christian MASSET
Ambassador of France to Japan

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I am very pleased for the opportunity to contribute a column to the RIETI's website and to discuss the lively economic relations between Japan and France. Their dynamism can be highlighted not just in both Japan and France, but also in third markets, where joint Japanese-French projects are instrumental in contributing to growth. 2013 will also be an important year for the relations between France and Japan.

Lively economic relations

Direct investment is one of the channels that many French companies have chosen to develop in the Japanese market. France is the third largest foreign direct investor in Japan, with investments covering a wide range of sectors: from the transport equipment sector to the financial sector, with a large presence of French banks and insurance companies. In total, we estimate that French investors in Japan account for about 60, 000 employees and 9% of total inward foreign direct investment (FDI). The employment figures are broadly comparable, with the number of jobs created by Japanese investment in France at 63,000. Still, Japanese investment deserves to be further encouraged, representing only 2% of our inward FDI.

Industrial partnerships between corporations in both Japan and France are another proof of the dynamism of our relations. In the automobile sector, these partnerships take the form not just of direct capital investment, but also of joint research projects, or joint production in third countries. In the energy sector, we are also very proud of a recent gas project in Australia.

In addition to large corporations, small- and medium-sized enterprises (SMEs) also play their part in this development. In terms of exports from France to Japan, SMEs are relatively better represented than elsewhere in other Asian markets: a fifth of export values is realized by firms with fewer than 50 employees against half as much for other countries in the region. Regarding trade flows, interestingly, both France and Japan claim a trade deficit with one another: careful statistical analysis of trade flows suggests that this discrepancy can be explained not just by traditional free on board (FOB)-current account balance (CAB) differences, but also by the fact that some Japanese exports are routed through Belgium and the Netherlands and accounted as exports to those countries. Beyond this quirk, the main point, however, is to encourage flows in both directions to grow further and each country to gain from comparative advantages in trade.

French financial institutions are also aware of the importance of Japan financial markets: Japan is third in the world in terms of cross-border assets according to the statistics of the Bank for International Settlements. French banks are engaged with their Japanese counterparts and Japanese trading houses to offer innovative project finance solutions, whether on energy or on infrastructure projects.

A common ambition

The economic relations between France and Japan are thus very dynamic, but we should not take these for granted. In particular, we aim to develop them within the economic partnership agreement (EPA) between Japan and the European Union (EU). Both countries will benefit greatly from the agreement, whose negotiations were launched at the EU-Japan Summit in late March 2013. France wants this agreement to be ambitious and based on a mutual opening of markets. The immediate benefit would be for Japan with the lowering of tariff barriers; by contrast, in Europe and in France, the benefit will depend primarily on the removal of non-tariff barriers, including in the public procurement market. With these conditions in mind, we expect the EPA to be a growth driver for both economies: the European Commission estimates that the impact on the gross domestic product (GDP) of the EPA is close to one percentage point of GDP in Europe and an even higher number in Japan (accounting for the respective size of both economies). On the French side, we are convinced of the opportunities of the Japanese market: Trade Minister Nicole Bricq, in her presentation last December on French export strategy, insisted on Japan being a major growth market for French products, in particular in three sectors ("eat better", "better health care", "better communication").

Cooperation between France and Japan extends to global governance issues such as global financial stability and is highlighted by regular contacts between both ministers of Finance and senior financial diplomats. To take two examples, Japan has contributed up to 7% to the European Financial Stability/European Stability Mechanism and also to the increase of the International Monetary Fund (IMF) resources last year by playing a leading role outside Europe.

The relations between Japan and France will also be nurtured by high-level meetings. Soon after his election, the French President, Mr. François Hollande, emphasized the role of Japan as a key partner and insisted on his desire to develop even further the relations between France and Japan in every aspect, be it political, strategic, economic or cultural. The scale and diversity of the fields covered are illustrated by the number of ministers who visited Japan last year. More are expected to come in 2013. Prime Minister Shinzo Abe has also invited President Hollande for a visit that should take place this year. Mr. Louis Schweitzer, the former head of Renault and who was instrumental in engineering the Renault-Nissan alliance, has just visited a number of ministers and high officials in Japan in order to enhance Japanese and French dialogue and to prepare the presidential visit. The success of this dialogue will be demonstrated through the definition and implementation of concrete common projects in the coming years.

April 1, 2013

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