The Japan EU Regulatory Cooperation A Key Agenda for a “Living Partnership”
Subjects: EU Trade Agreements Far-East
The last Japan-EU Summit achieved a little noticed but crucial progress. It made a clear call for “further progress in regulatory cooperation” between Japan and the EU—a theme non-existent two years ago. This strong support has been much welcome by the industries of both sides, as amply stressed at the June conference of the Japanese Business Council in Europe.
“Regulatory cooperation” is undoubtedly not a very sexy expression. But, it involves issues that are critical for the daily life of Japanese and Europeans, such as norms imposed on products in order to secure better safety, or regulations ensuring a better functioning of the services markets.
As any modern economy, Japan and the European Union need high-quality regulations. But, as the EU and Japanese economies have evolved in a different economic and legal context during the six last decades, their regulations are often different. Improving or consolidating the quality of the regulations at stake while minimizing the costs of these differences is the core objective of the Japan-EU regulatory cooperation agenda.
This is undoubtedly a very difficult task. But Japan and the EU have the key asset for being successful: they are like-minded partners with similar challenges. In particular, they share the same approach—to start from and to develop what exists at the international level. This feature makes regulatory cooperation with Japan much more promising for the EU than the ones with any other EU large partners (much less willing or capable to adopt this approach).
Two polar examples illustrate the work already achieved by Japan and the EU: the car sector when harmonization is an option for regulatory cooperation, and the medical device sector when harmonization is not an option. Of course, in addition to these cases of managing existing regulations, there is always the option of developing together regulations, an option envisaged by the Japanese and EU industries in robotics for instance.
Regulatory cooperation could first be achieved by harmonizing the partners’ regulations via the adoption of international standards enhancing the competitiveness of the industries and encouraging third countries to adopt these international regulations leading to safer and higher quality products. In the car industry, Japanese carmakers have decided to adopt the norms developed by the UNECE (under the so-called “WP29”) which were enforced by the EU. As of today, Japan has already adopted 37 UNECE regulations (out of 47) and Japanese carmakers are encouraging Asian countries to accede to the UNECE 1958 Agreement. Such a harmonization is undoubtedly a faster process than the one that the EU and the US have to adopt in the car sector because the US car industry is organized on very different regulatory principles than the EU and Japanese industries.
The Japanese carmakers’ decision provides three benefits. First, EU carmakers get a better access to Japanese markets, et vice-versa. Second, as Japan encourages ASEAN countries to follow UNECE-based regulations, EU car makers will be able to get an easier access to the ASEAN countries—a huge benefit since the ASEAN GDP is already half Japan’s GDP and since most ASEAN countries are far to be mature markets for cars. Finally, the EU or Japanese car makers located (now or in the future) in ASEAN countries will be able to operate under UNECE norms in a combined EU-Japan-ASEAN market—a strategic advantage since the combined EU-Japan-ASEAN GDP is roughly 1.5 times the US GDP.
However, harmonization as an option for regulatory cooperation faces severe limits. First and foremost, the endless appetite of modern economies for diversity in goods and services can often be only satisfied by a wide variety of regulations. Harmonization is also under the pressure of almost permanent technological shocks. For instance, the EU five-decade old harmonization efforts in the car sector have recently faced a limit when Daimler refused to enforce a new, less polluting harmonized norm for car coolant because it found that this new coolant was also more flammable. This case illustrates the increasing difficulties to define a norm that is unambiguously better than any alternative norm from all the conceivable criteria (pollution vs. safety in the Daimler case).
When harmonization is impossible, the Japan-EU regulatory cooperation agenda boils down to a key question: despite to being different, are the European and Japanese regulations “equivalent” in their effect? If yes, producers in one country could then be allowed to produce the good or service at stake under the regulations of its own country and to sell it to the consumers of the other country without any additional formality imposed by the importing country.
This “equivalence” approach of the Japan-EU regulatory cooperation is illustrated by the medical devices sector—the arch-typical case of an industry producing a vast array of products (many of them almost tailor-made), from medical imaging to radiopharmaceuticals. This key feature makes harmonization out of reach and probably even undesirable because it would constrain too much innovation. In such a context, the first progress to be made is to agree on common procedures for defining norms or regulations. For instance, in the medical devices sector, Japan and the EU are key partners of an international working group developing a standard set of requirements for the auditing organizations which perform the regulatory audits of the quality management systems implemented by the medical device manufacturers. Other key progresses consist in defining a common table of contents for medical device regulatory submissions (a first step in defining a common data set) or an uniform medical device identification system.
There are a number of other similar initiatives already ongoing in the context of the Japan-EU regulatory cooperation: chemicals, better alignment with international standards in pharmaceuticals, risk assessment of endocrine disruptors and nanomaterials, labeling issues in textiles, information technology (including how to stem further proliferation of forced localization measures) to quote a few.
Of course, this “equivalence” approach cannot be fast and wide-ranging if only because it requires the mutual evaluation of the regulations at stake. But this feature should be seen as an advantage rather than as a cost. It reflects the fact that the only bodies that have the required expertise and legitimacy for answering the critical “equivalence” question are the Japanese and EU regulators in charge of the goods or services at stake—for instance, the Japanese Health Ministry and the EU Commission Directorate General for Health and Consumers (with probably EU Member States regulators) in the medical devices case.
Having regulators as the essential actors of these “discussions” on regulatory cooperation—it is highly inappropriate to talk about negotiations in a regulatory cooperation context—is crucial for three reasons. It makes these discussions an healthy “implicit review” of the quality of the existing regulations in a country by the partner’s regulator, hence inducing the country to look at its own regulations with a more critical eye. Second, these discussions allow to build trust among the regulators from both parties, a decisive element on so delicate topics. Last but not least, the key role of the national regulatory bodies is the best way to get the support of the public opinion which generally trusts much more their regulators than their politicians or officials.
A final remark is needed. Clearly, the regulatory cooperation agenda of Japan and the EU is not of the same nature than the ongoing negotiations on a free trade agreement between these two economies. Rather, it pertains to the “living economic partnership” between Japan and the EU to be developed over time—as the EU Internal Market was developed during the last five decades, and will continue to be. Indeed, this last feature makes the outcome of the regulatory cooperation agenda even more palatable to the public opinion since it underlines that it is an endeavor based on patient and reasoned efforts which eliminate the risks of rough turbulences generated by too hastily cooked negotiations in the trade context.