Trading Partners Wanted: looking at Japan

As it stands, arguably one of Ireland’s most important trading and investment partner is the United Kingdom. This has been the case since Independence although the balance has shifted greatly since Ireland entered the EEC in 1973 with the UK no longer wholly dominant despite our reliance on the UK in certain sectors such as beef, timber, pork and much more.

As Ireland’s reliance on the UK as a trading partner has diminished, it has been able to look to a wider market largely thanks to membership of the EU both in terms of exporting to EU member states as well as using EU trade deals to export to third parties.

Following the UK’s decision to leave the EU and the election of Donald Trump as President of the US with a far more protectionist outlook, Ireland must now use its EU membership to develop new markets and make the most of trade deals.

Looking outside the EU for Irish trading partners is crucial, and Japan seems to be a promising economic world power with which a trade relationship would benefit both countries. Japan has the third largest economy by GDP (PPP) totally at approximately 5.42 trillion USD and the fourth largest in the world by GDP (nominal), totalling at 4.12 trillion USD. The country has a population of 127 million and has a very high HDI as well. Diplomacy between Ireland and Japan has been in place since 1957, with both countries having embassies in the other’s capital city. This year will be the 60th anniversary of the start of Japanese-Irish diplomatic relations.

The EU and Japan account for more than a third of the GDP of the entire world. Trade with the EU accounts for 10% of Japan’s trading market, making the EU Japan’s third biggest trading partner after China and the United States.

Irish ties with Japan have great economic potential. Just recently at the EU-Japan summit in Brussels the two economic world powers welcomed an agreement on a new trade deal that will allow for many more economic opportunities for both partners, including Irish companies in Japan. Tánaiste Frances Fitzgerald had stated that this deal is not only a great global economic breakthrough but also a powerful message that international cooperation is an effective tool against protectionism and other global challenges. This trade deal will remove most custom duties that would total €1 billion. Japan will drop tariffs on many European imports and Europe will lower tariffs on Japanese imported cars as well. For Ireland, this has big implications for its largest indigenous industry, the agri-food industry. In fact, the EU Commission estimated that agriculture exports from the EU to Japan can be increased by 33% as a result of the agreement. Along with this, tariffs on beef imports from the EU will be reduced by 38% in Japan, which is significant in Ireland because of the country’s beef industry (Ireland is one of the top ten beef exporting countries in the world). Tariffs will also be eliminated on medical devices and pharmaceutical products, which have significant industries in Ireland as well.

The Japanese car industry is one of the most significant Asian industries in the EU. The new agreement would allow Japanese cars to be much cheaper in Europe. There are already 14 production plants in the EU with an additional 16 research centres for Japanese car manufacturers. Removing tariffs will increase production of cars in Europe and will create more jobs. The EU received a surplus of €1.3 billion after it sold €6 billion in cars to Japan and bought €4.7 billion from Japan.

Without this agreement, which will most likely take effect after the UK leaves the EU, high Japanese tariffs would exist on many European products, especially food products. This results in European products being especially expensive in Japanese markets. Lowering these tariffs will allow European products to be more competitive in the Japanese market and it will be easier for European producers to sell their goods in the country. Also, the Japanese market implements regulations that differ from standard international practices which make it harder for Ireland and the rest of the EU to sell their products there. European sellers have to make separate production lines for Japan because of this.

Japan is the EU’s second biggest trading partner in Asia after China. More than 500,000 people are employed by Japanese companies in the EU. Japan is also one of Ireland’s top markets for goods exports, valuing at over €4 billion a year. The value of goods exports to Japan in 2016 was €2.9 billion while the value of imports from Japan was €1.2 billion. Ireland’s service trade with Japan is also valued at over €4 billion a year. Service exports to Japan were €3.2 billion in 2015 while Japanese service imports were €1 billion. The main Irish exports to Japan are optical instruments and medicines while Japanese imports include medicines and cars. Japan’s foreign investment in Ireland includes ICT, pharmaceuticals, financial and economic services, and life-science research. There are more than 70 Japanese companies that operate in Ireland.

Details of the EU-Japan Trade deal

Brexit affects Japan significantly. After the Brexit vote last year, Japan suggested that the UK maintain the single market and free movement of workers from the EU, but in the case of a hard Brexit, this is unlikely and the UK will have to establish new trade deals with Japan and other non-European states. In the UK, Japanese companies employ approximately 140,000 people. The UK has been a big economic trading partner with Asian countries such as Japan, and Brexit is poised to change that. Because of this, Japan has been looking towards Ireland as a source of Brexit information and as a potential partner to establish companies in. Many of Japan’s European head offices are located in the UK, and Brexit has resulted in the country seriously considering moving them elsewhere in order to preserve the EU law that applies to the companies. Ireland’s lucrative market combined with its proximity with the UK, geographically, politically, and economically, has led Japan to greatly consider more investment in the country, perhaps “replacing” its ties with the UK with a renewed economic relationship with Ireland which would effectively increase Japanese direct foreign investment in Japan. Japan is already prepared to cooperate more with Ireland and is seeking closer ties with the country.

Tánaiste Fitzgerald will be leading a Trade and Investment Mission to Japan later this year in which she will represent Ireland and intensify efforts to further develop the partnership between the two countries. Her main goals will be to reinforce the potential for Irish companies in Japanese markets and look for more investment opportunities in both countries as well as promoting a renewed relationship between Ireland and Japan that battles global protectionism.

We will never have a better trading partner than the UK nor will we ever replace its preeminent role in Irish commerce but it is vital that we seek to further our economic ties with countries all around the world.

 

Senator Neale Richmond is Government spokesman on EU Affairs in Seanad Éireann.

  • Boyne

    All these references to “Ireland” in the article are extremely confusing as it cannot possibly refer to the entire island and surely it must be the Republic or Ireland only, can this be clarified please?

  • Get The Grade Get The Grade

    “Ireland” is the official name for the Republic (as per United Nations).

  • Damien Mullan

    British PM’s refer to ROI as Ireland. If its not a problem for your Conservative and Unionist Party Prime Minister Theresa May, I can’t see how its a problem for anyone else. https://www.youtube.com/watch?v=R1JC9-SOku8

  • Abucs

    I was in Japan last month and was again impressed by its culture and development. Any idea who will be travelling with the Irish delegation and what new opportunities they are looking at?

  • Roger

    By that logic, ‘Northern Ireland’ must leave you puzzled too.

  • Boyne

    The official name is the Republic of Ireland.

  • Get The Grade Get The Grade

    “Republic of Ireland” is official description.