Paper short abstract:

We discuss the international political economy context of the EU-Japan EPA, formal and informal trade barriers, and the response of European businesses in Japan to the EPA, and find that this broad and deep agreement remains short of tackling informal trade barriers in Japan.

Paper long abstract:

This paper considers how the issue of formal and informal trade barriers is addressed in the European Union's recent Economic Partnership Agreement (EPA) with Japan, and whether it reflects the aims of the businesses in norm-setting for international trade. The aim is to analyze the international political economy context of the EU-Japan EPA, its impact on the institutional business environment in Japan, and to assess the contested issues from the viewpoint of European businesses. An eclectic theoretical approach is adopted to study the economic, legal and political aspects of trade barriers at several levels. Whereas formal trade barriers, such as tariffs, quotas and codified non-tariff barriers are easily discernible, the more subtle informal trade barriers include unwritten rules related to norms, social codes, and business cultures. Based on interviews of trade policy officials as well as the Foreign Chambers in Japan's Business Confidence Survey of European firms in Japan, we observe that the EPA includes challenging issues related to technical barriers to trade and the regulatory environment in Japan. Our findings on the EPA, its international context and the response from businesses have a number of implications to the theorizing on trade barriers. First, the case strengthens the view that trade barriers are mainly removed through bilateralism, as the recent changes in international political economy undermine the previous long process of globalization. Second, the broader global political economy context of trade talks is complex and subject to quick changes. The EU-Japan EPA talks were triggered by outside events, such as the changing US trade policy and the 'Korea effect'. Third, the imbalances in EU-Japan economic relations - in trade, investments, and pre-EPA trade policies - point to the informal barriers to trade and inward FDI in the Japanese institutional environment. Fourth, technical barriers remain the stickiest formal barriers to trade in Japan, with the national industrial standards as the prime example, as indicated by the responses from European businesses. While the broad and deep EPA represents a degree of success in the European aims in addressing the 'behind-the-border' barriers, its ultimate success will depend on its grassroots level enforcement.