Enlargement of the European Union The Implications for by liaoqinmei



                                       EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN


     INTRODUCTION                                                                3


2    MACRO-ECONOMIC BENEFITS OF ENLARGEMENT                                      7




6    OTHER EFFECTS OF ENLARGEMENT FOR JAPAN                                     15

7    ACCESS TO STRUCTURAL AND REGIONAL FUNDS                                    18

8    SCHENGEN AGREEMENT AND WORK PERMITS                                        19

9    AGRICULTURE                                                                20

10   CONCLUSIONS                                                                21

     Annex 1: ACCESSION COUNTRY PROFILES                                        23

     Annex 2: GLOSSARY OF TERMS AND ABREVIATIONS                                28

                                                 EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

                        IMPLICATIONS FOR JAPAN

On 1 May 2004 the European Union (EU) will undertake an historic enlargement, and welcome in
ten new members. This new wave of enlargement is unprecedented in terms of its geographical
expansion, the increase in population, and the predicted economic growth it will bring about.

This paper explains the key issues concerning the forthcoming EU enlargement and highlights the
implications it will have for Japan1.

European integration
The Treaty of Rome establishing the European Economic Community (EEC), and the European
Atomic Energy Community (EAEC) were signed by France, Germany, Italy, Belgium, the
Netherlands and Luxembourg in March 1957. The EEC and EAEC, with these six original Member
States, were the precursors of today's European Union.

European integration has delivered more than half a century of stability, peace and economic
prosperity. It has helped to raise standards of living, created a large internal market, launched
monetary union and the euro and strengthened the Union's voice in the world.

Today, after four waves of accessions (1973: Denmark, Ireland and the United Kingdom; 1981:
Greece; 1986: Spain and Portugal; 1995: Austria, Finland and Sweden) the EU currently has 15
Member States - the accession of ten eastern and southern European countries in 2004 will bring the
total to 25.

Ten new Member States
The accession negotiations with the 10 acceding countries were concluded at the Copenhagen
European Council in December 2002, and in Athens on 16 April 2003, the Accession Treaty was
signed. The ten countries that will join the EU next year are Cyprus, the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia.

These new Member States will bring the creative energy, the hopes and expectations of 75 million
new citizens into a Union of 450 million citizens in total, making enlargement one of the most
important opportunities for the European Union at the beginning of the 21st century.

Benefits for third countries
Non-EU countries such as Japan will significantly benefit from EU enlargement in many ways, not
least economically. A single set of trade rules, a single tariff, and a single set of administrative
procedures will apply across the whole of the Single Market of the enlarged Union. This will
simplify dealings for foreign firms doing business with the EU, including those from Japan, and
improve conditions for investment and trade. Enlargement will also give a boost to economic
developments and growth in the new Member States.

This positive outlook was confirmed at the 12th Japan-EU Summit held in Athens on 1- 2 May 2003.
In the Joint Press Statement Prime Minister Koizumi welcomed EU enlargement, predicting that it
would “lead to the stability and prosperity of the EU and the world at large”.

Ensuring the proper functioning of the enlarged single market
In order to integrate such a large number of new members, the EU has had to prepare itself by
adopting important institutional changes. This was done after lengthy negotiations at the Nice

 As a general guide to enlargement, this document does not legally engage the European

                                                   EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

European Council in December 2000. The Nice Treaty, outlining the necessary institutional
prerequisites for enlargement, was ratified by all Member States and entered into force on 1 February
2003. The European Convention has made further proposals for institutional change which are
designed to help the EU face the challenge of improving decision-making with ten new members.

The candidate countries
Accession negotiations continue with Bulgaria and Romania, which the EU hopes to welcome in
2007. Turkey is also a candidate country although accession negotiations are not yet underway. If
certain political conditions are met, the EU will open accession negotiations some time after
December 2004. Croatia applied for membership in 2003, but is not yet officially considered to be a
“candidate country”.

The acquis communautaire
From the date of accession, the new Member States will apply the EU’s Common Commercial Policy
in its entirety, including the Common External Tariff, EU preferential trade agreements, WTO
commitments and EU trade defence measures. They will also adopt internal market rules and benefit
from the “four freedoms” (i.e. freedom of movement of goods, services, persons and capital) set out
in the Treaty. In short, the new Member States must adopt and implement the entire body of
legislation of the European Communities, referred to as the acquis communautaire (see section 3

Key Dates in the Enlargement Process

1993            Copenhagen European Council approves EU enlargement for countries of Central and
                Eastern Europe, and defines the criteria for membership
1990-1996       Conclusion of Association Agreements (Europe Agreements) with states of Central and
                Eastern Europe
1994            Essen European Council approves pre-accession strategy
1994-1996       Ten states of Central and Eastern Europe apply for EU membership
1998            Accession negotiations start with Hungary, Poland, Estonia, Slovenia, Czech Republic and
                Cyprus. Malta reactivates its application for EU membership
1999            Berlin European Council agrees on ‘Agenda 2000’ and a financial perspective for EU
                enlargement. Turkey accepted in the EU enlargement process on the basis of the Copenhagen
2002            Copenhagen European Council concludes accession negotiations with Cyprus, Malta,
                Slovakia, Czech Republic, Poland, Hungary, Slovenia, Estonia, Latvia and Lithuania
2003            Signature of the Accession Treaty in Athens, on 16 April 2003

Referendums on EU Accession in future Member States
With the exception of Cyprus, all countries joining the EU in May 2004 will have held national
referendums to vote on the question of EU accession. All those that have held referenda by
September 2003 have achieved a “YES” vote in favour of joining the EU. At the time of writing,
only the referendum in Latvia remains to be held, on 20 September 2003.

             Country                      Date of referendum                        Result

               Malta                        8 March 2003                        YES (53.6%)
             Slovenia                       23 March 2003                       YES (89.6 %)
             Hungary                        12 April 2003                       YES (83.8 %)
             Lithuania                     10-11 May 2003                       YES (91.1%)
             Slovakia                      16-17 May 2003                       YES (92.7 %)
              Poland                       07-08 June 2003                      YES (77.5%)
            Czech Rep.                     13-14 June 2003                      YES (77.3%)
              Estonia                     14 September 2003                     YES (66.8%)
              Latvia                      20 September 2003                          -
              Cyprus                                           no referendum


Figure 1: Map of the enlarging European Union

                         Source: Audiovisual Library, DG Enlargement, European Commission

                                                   EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Enlargement will create an even larger market than before, allowing freer movement of goods and
services; it will extend the single set of rules for business to a wider area; and it will raise the
standard of rules in force across the region. As a result, there will be many new opportunities for
Japanese business.

1.1    A larger market
Non-EU countries will benefit from a bigger Single Market and simplified and enhanced access to
the markets of the new Member States.

N   In trade terms, there are currently no internal borders between the Member States of the EU and
    the harmonisation of regulations and standards ensures a freer circulation of goods and services
    than is possible within some non-EU countries. Enlargement will extend these characteristics to
    the acceding countries.
N   With a population of over 450 million after enlargement, the EU will reinforce its position as the
    biggest consumer market among developed countries.
N   The enlarged EU will account for some 19% of world trade and a quarter of world Gross
    Domestic Product (GDP). It will be the source of 46% of world outward Foreign Direct
    Investment (FDI) and host to 24% of inward FDI.

1.2     A single set of rules for business
Enlargement will extend the EU’s trade policy regime to the acceding countries. The current system,
featuring a single trade regime for the EU and a different regime for each of the future Member
States, will disappear. A single set of trade rules, a single tariff, and a single set of administrative
procedures will apply right across the enlarged Union. This will greatly simplify the dealings that
Japanese operators have within Europe.

N   Beyond the simplification of procedures, enlargement will bring a range of immediate and
    tangible economic benefits to Japan. These will arise out of the accession countries adopting the
    same open standard of treatment of third countries that the current EU applies.
N   The "one standard for all" principle of the single market on technical regulations will be extended
    to the acceding countries.

1.3     A more open economy with a high standard of rules
The high standard of treatment currently afforded to investors in the EU will be applicable
throughout the enlarged Union. Freedom of establishment for inward investors will be extended to
the new Member States. This means that the right of establishment and free movement of capital will
be applicable to all companies set up in the new Member States, irrespective of their ownership.
Japanese and other foreign investors will benefit from the fact that:

N   They will receive enhanced levels of intellectual property rights (IPR) protection in the new
    Member States due to these countries’ adoption of EU Directives in this field. The Europe
    Agreements already contain an obligation for the acceding countries to join the relevant
    international conventions in this area and bring levels of IPR to a similar level to that afforded in
    the EU.
N   No accession country is a member of the WTO’s Government Procurement Agreement (GPA).
    Upon accession, all new Member States will automatically be subject to the GPA via
    membership of the European Community (EC), and they will apply the EC legislation on public

                                                  EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

     procurement. Bidders established in the EU, either in current Member States or the acceding
     countries, cannot be discriminated against by reason of nationality.
N   Current EU commitments to Japan under the GPA will not be affected and Japanese goods,
    services and suppliers may benefit from new opportunities in the enlarged EU.
N   The harmonisation of legislation gives all companies a regulatory framework based on existing
    laws and standards with which they are already familiar. As barriers to trade fall and the ongoing
    huge infrastructure investments come to fruition, intra-EU trade is expected to flourish even

1.4     New Opportunities for Japanese Business
Enlargement also opens new opportunities for successful export economies like Japan. Japanese
entrepreneurs can benefit from developments in Europe through the obvious advantages of being
locally present in a market of nearly half a billion consumers with no impediments to free trade,
agreed standards and harmonised legal frameworks and regulation.

N   Particularly in areas where Japan has an international comparative advantage, such as in
    manufacturing, automotive, consumer electronics, portable phones and IT - to name just a few -
    Japanese companies will be in a favourable position. Japan will gain from their faster growth
    rates and increasing living standards, driven by the existing backlog demand of 75 million new
    customers in the accession countries.
N   Indeed, based on earlier examples of EU enlargement, as in the cases of Ireland (1972), Spain
    (1986), and Finland (1995) strong growth impetus is expected in the new Member States.
    Dynamic development will, however, not be limited to these countries alone. It will also extend
    through the entire European Union and its neighbouring regions.
N   Production in any of the new Member States now can serve customers in all areas of Europe. A
    state of the art transportation network – which is currently being built with the help of
    multibillion euro investment funds (see section 7 below) - will further facilitate distribution
    across the continent.
N   Prospects of accession have already translated into a considerable reduction in associated country
    risk. Japanese companies have already profited from the reduction of the risk premium demanded
    by international creditors.
N   Building upon their comparative advantage of lower labour costs and upgraded infrastructure, the
    accession countries will enable cost efficient production and facilitate access to all Member
    States and serve as a gateway to other eastern European countries and Russia.

2.1     Facts and figures
Enlargement is a positive-sum game for all the parties involved. It will be beneficial for the acceding
countries, the current EU members and non-EU countries like Japan, who trade with and invest in the

Due to its size, the EU is extremely important for the acceding countries. Two-thirds of all acceding
countries’ exports go to the EU. Conversely, accession countries are also important for the EU. The
population of the 10 acceding countries accounts for 20% of the population of the EU’s 15 current
Member States. Their economic weight represents 5% in monetary terms, but 10% in purchasing
power parity of the EU-15 economy, and this will certainly grow over time.
Although it may take some years for the new Member States to catch up with current EU income
levels, enlargement is expected to increase the growth of GDP. According to some estimates, this
additional increase could be between 1.3 and 2.1 percentage points annually over the decade 2000-

                                                         EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

As mentioned in section 1 above, the experience of past EU accessions offers encouraging prospects
for the new Member States. For example, when Ireland joined the EEC (European Economic
Community) in 1973, its GDP per head at current market prices was just 58.8% of the EU average.
By 2001, it had risen to 111.7%.

Due to the effects of enlargement, existing Member States could also see an increase in their level of
GDP, possibly by 0.7% on a cumulative basis over the coming decade. Furthermore, the extension of
the Single Market from 378 million to 453 million consumers should stimulate economic growth and
provide new opportunities for business throughout Europe.

2.2      Enlargement mechanisms
Enlargement will bring down remaining barriers and simplify regional trade. As a result, trade is
expected to expand, especially in those sectors for which trade liberalisation under previous trade
agreements was incomplete, such as agricultural products. Much of the increase is expected to be in
intra-industry trade.

Financial market integration has made progress with the modernisation of the banking sector in the
acceding countries, particularly with the help of foreign banks and the improvements in the
efficiency of financial intermediation.

Foreign Direct Investment (FDI) has also played a role in the transformation of the economies of the
acceding countries, not only as a tool for modernisation of the manufacturing sector, but by
complementing domestic savings and supporting demand. FDI flows have anticipated enlargement
and increased more rapidly in the acceding countries than in the EU: between 1995 and 2001, inward
FDI grew by 138% in the EU, and by 269% in the acceding countries.

2.3     Exchange Rate Mechanism (ERM) II and the adoption of the euro2
All but three of the current EU Member States (Denmark, United Kingdom and Sweden) have
adopted the euro in place of their former national currencies. The new Member States have also
expressed the intention eventually to join the Eurozone. The EU Treaty clearly defines the path for
full monetary integration of the acceding countries. They will not be able to adopt the euro
immediately upon accession, but will first have to comply with the relevant EU Treaty requirements,
including the exchange rate criterion, which foresees a minimum 2-year participation in the
Exchange Rate Mechanism (ERM II) 3.

Upon accession, the new Member States will participate in European Monetary Union (EMU) with
the status of "Member States with a derogation" from adopting the euro. This status is confirmed in
the Accession Treaty. It means, inter alia, that the acceding countries will take part in the European
System of Central Banks.

New Member States will have to treat their exchange rate policy as a matter of common concern.
This implies that they should avoid rates that are inconsistent with economic fundamentals, excessive
exchange rate fluctuations and competitive devaluations. They are expected to join ERM II at some

 For more detailed information about the euro please see the Europa website,
http://europa.eu.int/euro/entry.html, or the website of the European Commission Delegation in Tokyo,
  ERM II, like ERM, gives national currencies an upper and lower limit on either side of a central exchange rate
within which they can fluctuate. This stabilizes exchange rates, and helps to control inflation. ERM II features
(i) stable but adjustable central rates to the euro for the participating currencies (with standard fluctuation bands
being +/-15% around the central rate); and (ii) a common procedure for the main decisions relating to the
conditions of participation in the mechanism (central rate and fluctuation band). Joining the mechanism is
voluntary, subject to agreement on the central parity and fluctuation band.

                                                      EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

point after accession. Furthermore, new Member States will have to regard their economic policies
as a matter of common concern and hence will be subject to the EU’s policy co-ordination and
surveillance procedures.
For the next step, which is the adoption of the euro, the Treaty requires that new Member States
achieve a high degree of sustainable convergence, assessed against the convergence criteria laid
down in the Treaty.


3.1      Compliance with the acquis communautaire and transitional arrangements
In order to determine the conditions under which each country will join the EU, negotiations have
been held with all the acceding countries. From the day of accession, new Member States will accept
the acquis communautaire, the detailed laws and rules adopted on the basis of the EU's founding
treaties. Close monitoring is being conducted in order to ensure that all ten acceding countries
continue to respect these criteria4.

The negotiations focused on the terms under which the applicants will adopt, implement and enforce
the acquis communautaire, and, notably, the granting of possible transitional arrangements which
must be limited in scope and duration. Under similar arrangements in previous accession negotiations,
new Member States have been able to phase in their compliance with certain laws and rules by a date
agreed during the negotiations. The negotiations were successfully closed for all 10 acceding
countries in December 2002. The Treaty of Accession is currently in the process of ratification.
It is not possible in this brief publication to include every chapter of the negotiations, or to list all the
specific transitional arrangements agreed with each accession country. Below are the chapters and
transitional arrangements most relevant to Japanese interests5.

Free movement of Goods (Chapter 1)
The principle of free movement of goods is one of the cornerstones of the Single Market, and
requires a common regulatory framework to ensure products can move freely from one part of the
Union to another just as they would within the boundaries of an individual country. This means that
basic technical standards, product certification and metrological definitions must be governed by
rules established at European level.

Without the full application of the EU legislation in this area from the first day of accession, the
internal market would not function properly. The EU therefore expects acceding countries to apply
the acquis communautaire at the latest by the date of accession.

Transitional arrangements: The EU has accepted transitional arrangements concerning the renewal
of marketing authorisation for pharmaceuticals with five countries (Cyprus: until 31.12.05; Lithuania:
until 1.1.07; Malta: until 31.12.06; Poland: until 31.12.08; Slovenia: until 31.12.07) and concerning
medical devices for one country (Poland: until 31.12.05).

Freedom of movement for persons (Chapter 2)

  Bimonthly monitoring reports have been produced by the European Commission (and presented to the
Member States) and will be followed by a comprehensive Monitoring Report in November 2003. Certain
transitional periods will apply in specific cases and transitional periods have been requested by accession
countries for the application of acquis agreed after 1 November 2002.
  The latest assessment of each accession country's compliance with the acquis under this chapter heading, can
be found in the 2002 Regular Report, at: http://europa.eu.int/comm/enlargement/report2002/index.htm

                                                    EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

All nationals or citizens of EU Member States are automatically also citizens of the European Union.
Every citizen of the Union has the right to travel and remain and live freely on the territory of any or
all Member States. This includes the right to take part in European Parliament and municipal
elections in his/her place of residence. The acquis covers the four broad areas of mutual recognition
of professional qualifications, citizens' rights, free movement of workers and co-ordination of social
security schemes.

For all the accession countries (except Malta and Cyprus), a common transitional arrangement has
been put forward with regard to the free movement of workers. The general right to free movement
between countries of the EU is open to all and is not affected by the transitional arrangement agreed
for workers. Thus, there are no additional restrictions on movement, for example, for study or
residence purposes. However, movement for purposes of work, as an employee, is restricted for up to
seven years. The current Member States are, however, free to apply the restrictions or not on a
national level.

The essential components of the transitional arrangements are as follows: a two year period during
which national measures will be applied by current Member States to new Member States.
Depending on how liberal these national measures are, they may result in full labour market access.
Following this period, reviews will be held, one automatic review before the end of the second year
and a further review at the request of the new Member State. The transition period should come to an
end after five years, but it may be prolonged for a further two years in those Member States where
there are serious disturbances of the labour market or a threat of such disruption6.

Freedom to provide services (Chapter 3)
The acquis in this chapter relates to financial services, such as banking, insurance and investment
services and securities markets. It contains a number of Directives, including on the protection of
personal data and the free movement of such data; special rules concerning the freedom of
establishment and the freedom to provide services for craftsmen, traders and farmers; self employed
commercial agents, and Information Society directives on the provision of information in the field of
technical standards, regulations, and rules.

Transitional arrangements: Cyprus: Exclusion of co-operative credit and savings societies until end-
2007; Estonia: Lower levels of bank deposit guarantee and investor compensation until end-2007;
Hungary: Exclusion of two specialised banks; lower level of investor compensation until end-2007;
Latvia: Exclusion of credit unions; lower levels of bank deposit guarantee and investor compensation
until end-2007; Lithuania: Exclusion of credit unions; lower levels of bank deposit guarantee and
investor compensation until end-2007; Poland: Exclusion of credit unions and a specialised bank;
lower level of investor compensation until end-2007; Slovakia: Lower level of investor compensation
until end-2006; Slovenia: Lower level of capital requirements for savings and loan undertakings until

Free movement of capital (Chapter 4)
The definition of free movement of capital covers much more than cross-border payments and
transfers of money. The Treaty establishing the European Community not only prohibits all
restrictions on movement of capital between Member States, but also, in general, between Member
States and non-EU countries. The Member States can, however, retain certain restrictions in relation
to countries outside the EU. This includes the transfer of ownership of assets and liabilities, such as
investments in companies and real estate or portfolio investments.

 Please refer to the following webpage for more complete and precise information on the chapter on freedom
of movement for persons: http://www.europa.eu.int/comm/enlargement/negotiations/chapters/chap2/index.htm

                                                     EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Furthermore, the chapter covers the area of payment systems, and includes the two Directives on
cross-border credit transfers and on settlement finality, as well as the Directives on prevention of
money laundering.

Transitional arrangements: Several accession countries have been granted transitional periods on
foreigners’ rights to investment freely in real estate. Particular attention is also given to the proper
implementation and enforcement of the Directive on prevention of money laundering. Transitional
periods have been agreed for the acquisition of secondary residences (5 years: Cyprus; Czech
Republic; Hungary; Malta) and for the acquisition of agricultural and forestry land (7 years: Czech
Republic; Estonia; Hungary; Latvia; Lithuania; Slovakia; 12 years: Poland)7. Additionally, Slovenia
has the possibility to resort to the general economic safeguard clause for seven years in real estate.

Competition Policy (Chapter 6)8
The competition acquis covers issues such as State monopolies of a commercial character, rules
applicable to undertakings, public undertakings and undertakings with special or exclusive rights.
The control of mergers is based on the EC Merger Regulation 4064/89 (as amended). Part of the
acquis on State aid is addressed under other Chapters, namely transport, agriculture and fisheries.
The Directives concerning the liberalisation of the energy, transport and telecommunications and
information technologies sectors are also addressed under separate chapters.

All accession countries will phase-out incompatible fiscal aid according to their respective timetables
(but at the latest by 2011), and some will have a transitional period to restructure their steel industry
(Czech, Poland and Slovakia). Also, Malta will phase out aid under its Business Promotion Act by
the end of 20089.

Transport Policy (Chapter 9)
The road transport-related acquis covers a vast area of social, technical, fiscal, safety and
environmental requirements. The railway acquis calls for a further opening of national railway
markets to competing railway undertakings from other Member States. In aviation, issues of market
access, safety and infrastructure organisation have to be addressed. In maritime transport, the
enforcement of the maritime safety acquis remains a major task.

Taxation (Chapter 10)
The EU acquis in this chapter mainly covers indirect taxation, in particular the Value Added Tax
(VAT) and excise duties regimes, while the acquis on direct taxation is limited to legislation on
corporate taxation.

Employment and social policy (Chapter 13)
Employment and social policy covers areas where there exists substantial secondary legal acquis at
EU level, such as health and safety issues, labour law and equality of treatment between women and
men, as well as areas such as social dialogue, employment and social protection where convergent
policies are being developed, on the basis of the EC Treaty. In these areas there are no legal
obligations to implement precise policy measures but a very important general obligation to co-
ordinate the respective policies in order to develop a homogenous social framework in line with the
principle and rules of the EU Treaty10.

  For details of more specific arrangements, please see the chapter on Free Movement of Capital in full, at
  See also section 6 below
  For more details of these transitional arrangements, please see the Competition Policy chapter:
   For a comprehensive list of the transitional arrangements, please see the chapter on Employment and Social
Policy in full at: http://www.europa.eu.int/comm/enlargement/negotiations/chapters/chap13/index.htm

                                                        EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Telecom, IT and Postal Services (Chapter 19)
The overall objective of the EU’s policy on telecommunications is to promote the competitiveness of
the EU market and to stimulate investment in an environment of rapidly developing technologies.
The telecommunications sector is now a high growth area in the European economy in its own right,
as well as an important stimulant for the economy as a whole.

Environment (Chapter 22)
The environmental acquis covers a wide range of measures, mostly in the form of Directives,
covering issues such as environmental quality protection, polluting and other activities, production
processes, procedures and procedural rights as well as products 11 . Apart from horizontal issues
(environmental impact assessments, access to information on environment, combating climate
change), quality standards are set for Air, Waste management, Water, Nature protection, Industrial
pollution control, Chemicals and genetically modified organisms, Noise and Nuclear Safety and
Radiation Protection (safety issues arising from the use of nuclear energy are part of the energy

Consumer protection (Chapter 23)
The acquis for the chapter on consumers and their protection is composed of the following areas:
misleading advertising, product liability, doorstep sales, consumer credit, dangerous imitations,
package travel and holiday tours, product safety, unfair terms in consumer contracts, time-share,
distance selling, comparative advertising, prices on foodstuffs and guarantees for sale of consumer
goods and injunctions.

Justice and Home Affairs (Chapter 24)
EU policies on Justice and Home Affairs aim to maintain and further develop the Union as an area of
freedom, security and justice. Perhaps the most practical component of the EU’s Justice and Home
Affairs policies is the Schengen Agreement (see section 8 below), which results in the lifting of
internal border controls for EU citizens as well as non-EU nationals. However, accession to the EU
will not immediately lead to the lifting of border controls between existing and new Member States.
As with previous enlargements, this will be the subject of separate Council Decisions some time after
accession, based on a careful examination of the legal and practical readiness of the new Member
States, in particular the efficiency of the control of their external borders.

Customs Union (Chapter 25)
From the first day of accession, the customs administration of the new Member States will have to
manage and control their borders, which will then be external borders of the EU, in the interest of the
EU population and trade operators 12 . The acquis in this field consists mainly of a number of
instruments ensuring the functioning of the Customs Union and the effective protection and control
of its external borders. (Hungary and Malta have certain transitional measures13).

   For specific transitional measures, please see the chapter on Environment Policy in full, at:
   See section below on the Common Customs Tariff
   For more details please see the chapter on Customs Union Policy in full, at:

                                                      EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN


Upon accession, the new Member States will have to adopt the Common Customs Tariff (CCT) for
trade in goods14. There have been fears expressed by some countries outside the EU that this will
result in an increase in accession countries’ customs tariffs to the rest of the world. While it is true
that the tariffs of some products’ (e.g. agricultural) in a few new Member States will go up, the
average weighted industrial tariffs of the acceding countries are in general higher than the estimated
average 3.6% for the EU. This also applies to agricultural tariffs as a whole. The overall level of
tariff protection in the acceding countries will decrease after enlargement. Current average tariff in
the EU is around 4% while the average tariff in the 10 acceding countries is around 9%.

An example of tariff decreases can be seen in the case of Hungary, Japan’s main trading partner
among the acceding countries (accounting for 50% of Japan’s total trade with the 10 countries).
Hungary’s average tariff level (on all products) is currently 11.7%. Hungary’s tariff protection will
therefore diminish significantly upon its accession to the EU.

This applies to an even greater extent in the case of Poland, which is Japan’s second largest trading
partner among the future member states (20% of Japan’s total trade with the 10 countries): its
external tariff protection will be reduced upon accession from the current 15.1% to the EU level.
Thus, in most cases Japanese business will benefit from lower tariffs in their trade with the ten new
Member States.

In the case of services, providers in Japan and other non-EU countries will benefit from the
implementation of the single market in acceding countries, where they will get the same treatment as
in the rest of the EU.

4.1     WTO compensation
As discussed in section 2 above, the integration of new Members into the EU will contribute to the
expansion of world trade. Should other WTO Members estimate that they are negatively affected,
they can seek compensation according to WTO rules. The EU will, of course, fully comply with its
obligations under the relevant WTO rules.

4.2    Friendship agreements and trade agreements
In the early 1990s, Poland, the Czech Republic, Slovakia and Hungary concluded Friendship,
Commerce and Navigation Agreements (FCNs) with Japan. Some parts of these agreements are
incompatible with EU membership obligations.

However, the accession countries have an obligation to bring all their international agreements into
conformity with the acquis communautaire by the date of accession. This principle also applies to the
FCNs concluded between Japan and accession countries.

                       Friendship, Commerce and Navigation Agreements (FCN)

Why are these FCNs incompatible with EU membership?
The incompatibilities of FCNs concluded between acceding countries and Japan rest on the fact that, inter
(i) they regulate trade between the signatories, a prerogative, which candidate countries will lose upon

 The CCT applies to the import of goods across the external borders of the EU and the tariff is common to all
EU members.

                                                        EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

(ii) they extend MFN treatment for all Japanese investments made on their territory, without any substantive
REIO (Regional Economic Integration Organisation) clause, hence constituting openings which could
facilitate the circumvention of investment rules in the EU. In particular, most of the sectors for which the
acquis will require new Member States to grant a more favourable treatment to European investments as
compared to non-European have not been excluded.

Will this renegotiation of the FCNs be disadvantageous for Japan?
Although there may be concern from Japan that such a change to the current investment regime could serve to
be detrimental to its interests, from an economic point of view, investment agreements play only a minor
role in attracting FDI. One should remember in particular that Japan and the four future EU Member States
with which it has investment agreements are members of the OECD and have liberalised their investment
regimes under the binding OECD Codes of Liberalisation. In addition, other factors, in particular the rule of
law, independence and efficiency of the judiciary, market size, infrastructure, economic stability and
regulatory costs, play a more significant role in attracting foreign investors. Following accession, investments
in the new Member States will be as liberalised and protected as in the current ones.

The EU is committed to avoiding the circumvention of Single Market rules after accession. It has
therefore helped acceding countries identify all provisions incompatible with the acquis, in order for
these to be renegotiated or denounced. Incompatibilities rest in the fact that the FCNs regulate trade
between acceding countries and Japan, a prerogative which will belong to the EU after enlargement.
In addition FCNs provide for Most Favoured Nation (MFN) treatment to Japanese investments
without excluding those sectors for which the acquis requires Member States to grant a more
favourable treatment to European – and also exceptionally to other – investments as compared to
non-European ones. It therefore follows that FCNs in force with Japan will have to be renegotiated
or terminated before accession.

Under the Europe Agreements (i.e. the pre-accession agreements setting the framework for relations
between the candidate countries and the EU), acceding countries adapted their legislation to the
existing EU rules. In the field of competition policy, it was required that companies and public
authorities become accustomed to a competition discipline similar to that of the EU well before
accession. In general terms, conditions for foreign investors will therefore not significantly change
with the accession of the new Member States. This is because, under the Europe Agreements, future
Member States are required to implement EU state aid rules.

Nevertheless, Japanese investors will benefit from the increased legal certainty associated with EU
membership. At institutional level, the responsibility for State aid control will shift from the
countries’ own authorities to the European Commission. The European Court of Justice in
Luxembourg will be in charge in case of disputes.

5.1      Tax holidays
Tax holidays constitute an operating aid, which is incompatible with EU Competition rules and with
the Europe Agreements, if they are granted on a discriminatory basis to give local companies a
competitive advantage. Therefore, at accession, tax breaks will have to be discontinued or modified
so as to bring them into conformity with EU legislation.

However, even if specific tax holidays do not amount to an unlawful state aid under EU competition
rules, they are still considered to be incompatible with the principles of the Code of Conduct for
Business Taxation. This code of conduct is designed to combat “harmful tax competition” in the
European Union and to detect tax measures that unduly affect the location of business activity in the
Community. The principles of the Code of Conduct stipulate that measures cannot be targeted merely

                                                   EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

at non-residents and/or cannot provide them with a more favourable tax treatment than that which is
generally available in the Member State concerned.

All measures recognised to be “harmful” were to be eliminated in principle by 1 January 2003 and in
any case by no later than 1 January 2005 (for companies benefiting from “harmful” schemes on
31 December 2000). The incompatibility of tax holidays should not come as a surprise to the
beneficiaries, since this concerns mostly large multinational companies which are generally well-
informed about the incompatibility of the measures with European Community legislation.

However, as part of transitional arrangement, tax holiday measures can continue to be applied
unchallenged following accession, until the moment when the maximum aid level is reached (i.e.
when the cumulated tax exemptions reach a pre-determined percentage of the eligible investment
costs, typically 75% or 50%, depending on whether the investments have been carried out before or
after 1 January 2000).

5.2      Transitional measures
The question of transitional arrangements has been approached with the aim of preserving the
integrity of the Single Market after enlargement, while at the same time allowing the possibility of
constructively addressing specific problem areas for the acceding countries. They have been accepted
under the condition that they must be exceptional, limited in time and scope, and accompanied by a
plan with clearly defined stages for the application of the acquis communautaire.

As regards fiscal aid, e.g. tax breaks, tax holidays, and tax credits as well as offshore arrangements, a
series of negotiated measures has been agreed. The European Commission worked closely with the
acceding countries to find arrangements whereby these aid measures can be brought into line with the
acquis communautaire within a reasonable period of time.


6.1       Trade Defence Instruments (anti-dumping, anti-subsidy and safeguards)

Upon accession, the 25 Member States of the enlarged EU will constitute one single market with one
single set of trade defence rules applied at EU-wide level. This implies that the acceding countries
will no longer apply trade defence action on a national basis. All measures taken by the acceding
countries will disappear and the on-going investigations by acceding countries will not continue.

The set of laws and measures currently applicable in the current 15 Member States will be
automatically applicable in the acceding countries. The EU investigations which are on-going will
continue to be pursued - except for those related to the exports from the acceding countries.

Enlargement will not automatically render current trade defence measures inappropriate in the EU25
context. In cases where enlargement does change the fundamental economic factors, economic
operators can request that measures are reviewed.

The EU does not expect any increase in TDI cases after enlargement, for both legal and economic

Given that EU trade defence action is very limited, and even more so regarding Japan, enlargement
will have no impact for Japan in this field.

                                                          EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

                                        Trade Defence Instruments

Trade defence instruments exist to counter unfair trade practices by third countries when exporting to the
EU. Such unfair trade practices normally emanate from distortions in third countries (due inter alia to
imperfect competition or high tariff or non-tariff barriers).

The EU is a very prudent user of trade defence instruments. Only 0.5% of total imports into the EU are
under measures and less than 0.1% of Japanese imports are under measures.

Trade defence measures are imposed only if strict legal and economic criteria are fulfilled. The EU
criteria are even stricter than those of the WTO. Such strictness will continue to apply after enlargement
where new Member State action is replaced by EU-wide action. So will also the traditionally
conservative use of safeguards by the EU.

Enlargement will not automatically vary the economics on which current EU-15 trade defence measures
are based. One way to illustrate this is that the total industrial activity in all candidate countries is lower
than 10% of that of the EU-15—so the economics of the EU-15 context would also apply for many cases
in the EU-25 context.

For cases where enlargement changes the economics, general or enlargement-specific reviews can be
requested in order to adjust or abolish measures. It is the EU’s firm policy to have TDI measures
exclusively where unfair trade is causing injury to the EU industry.

Contrary to the belief of certain parties, no increase in TDI cases by the EU is a priori expected after
enlargement. Indeed, the economics in most cases will mean that if there is no trade problem today at EU-
15 level, the picture will not be very different at EU-25. Also, the requirements of the EU law are much
higher than those currently applicable in any of the new Member States.

6.2      Bilateral Agreements: the Mutual Recognition Agreement (MRA) and the Agreement
concerning Co-operation on Anti-Competitive Activities.
Mutual Recognition Agreements enable reciprocal recognition of the results of conformity
assessment. Through an MRA, an exporting party is given the authority to test and certify products
against the regulatory requirements of the other party, on its own territory, before exporting. In cases
where countries require mandatory third-party certification of specific products, each importing party
agrees, under the terms of the MRA, to recognise the tests, certificates and approvals issued by
agreed conformity assessment bodies of the exporting party. Thus, products can be exported and
enter the other party's market without undergoing additional procedures.

The EU- Japan Mutual Recognition Agreement (MRA) is intended to reduce the cost of certifying
products for conformity with the two parties’ technical regulations. The products covered are in four
specific areas: pharmaceuticals, chemicals, telecommunication equipment and electrical equipment.
The agreement potentially covers trade worth an estimated euro 21 358 million a year (2.83 trillion
Yen at September 2003 rates), and mean annual savings for exporters of up to euro 400 million (53
billion Yen). The Agreement came into force on 1 January 2002 and will extend to new Member
States after accession.

The extension of the MRA to ten more Member States offers new possibilities to Japan as products
certified under the terms of the MRA will circulate freely in these countries. There will be no need to
amend the body of the agreement, though minor amendments will need to be introduced to the

                                                        EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

                               Mutual Recognition Agreements (MRAs)

What are the benefits that will arise out of the adoption of the acquis by the new Member States?
The trade facilitation advantages of access to non-EU markets which MRAs have brought to EU exporters
will extend to New Member States. Conversely, the same kind of advantages would accrue to the
exporters of the third countries with which the EU has concluded MRAs as regards their exports to the
new Member States.

What does implementation of the Common Commercial Policy (CCP) by acceding countries entail?
New Member States will automatically participate in international agreements to which the EU is a party.
This includes MRAs, with the ensuing obligations to have in place a suitable mechanism for the
designation of Conformity Assessment Bodies (CABs) if they have the intention to designate them.

Their actual ability to do so, in certain MRAs (e.g. Switzerland), has been built up already before
accession by the conclusion of a Protocol to the Europe Agreements on Conformity Assessment (PECAs)
between the EU and most acceding countries. These are based upon the implementation of the acquis
communautaire and are designed to align the conformity assessment systems of the acceding countries on
the EU one. In other MRAs, new Member States will need to demonstrate, through the procedures set up
in the MRAs, knowledge of the regulatory requirements of the third party in order to designate CABs.

How will the obligations towards third countries be respected?
The obligations of the MRAs will become immediately applicable upon accession in the new Member
States. From the first day of their accession, the new Member States will be obliged to accept certificates
issued in Japan in accordance with the MRA, just as they will be obliged to accept certificates from each
other and from the current 15 Member States. Furthermore, the MRAs include safeguard mechanisms to
ensure that the CABs and the competent authorities have the necessary and adequate technical
competence: verification visits, peer reviews, etc. These will also automatically apply to new Member
States upon accession.

A further point specific to third countries is that MRA co-signatories could question the technical ability
of new Member State’s CABs to certify products to the technical requirement of the importing country.
New Member States will need to demonstrate knowledge of the regulatory requirements of the third Party
in order to designate CABs. However, the mechanism of the PECAs and the Community’s technical
assistance are designed to solve this problem in the context of the Internal Market, and will therefore also
address it in the cases of MRAs based on the acquis communautaire.

On 10 July 2003 the European Community and the Government of Japan signed an Agreement
concerning Co-operation on Anti-Competitive Activities15. The agreement should contribute to the
effective enforcement of the competition laws of Japan and the EU through promoting cooperation
and coordination between their competition authorities.

Under the agreement, the EU and Japan may request the other party to start enforcement actions
against anti-competitive behaviour carried out in the territory of the other party. It enhances
international co-operation in the fight against cartels and provides for regular contacts in order to
discuss policy issues and enforcement efforts and priorities.

As the agreement has been concluded by the European Community, no changes will be necessary on
the accession of the 10 new Member States, as there is no change in the contracting party. According
to Article 1.2(b) of the Agreement, the European Commission will have to send the Government of
Japan an updated list of national competition authorities.

  A copy of the Competition agreement can be found on the following webpage:

                                                   EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

6.3       Dialogue between the EU and Japan

In addition to the official bilateral agreements that exist between the EU and Japan, there are also a
number of non-legal agreements in which the new Member States will participate after accession:

The EU-Japan Action Plan16
Since December 2001, the EU and Japan have been implementing the Action Plan, which has four
main objectives: promoting peace and security, strengthening the economic and trade partnership,
coping with global and societal challenges, bringing together people and cultures. Implementation of
the Action Plan is reviewed at each EU-Japan Summit.

Regulatory reform dialogue
The EU and Japan have been actively participating in each other’s regulatory reform efforts since
1995 through an intensive two-way discussion on deregulation. They cooperate closely, exchanging
lists of proposals for regulatory reform on an annual basis and engaging in a series of high-level and
expert meetings. New Member States will therefore be able to propose regulatory reform measures
via the European Commission, and Japan will be in a position to propose regulatory changes in the
new Member States.

EU-Japan Business Dialogue Round Table (EUJBDRT)17
In order to provide a more focused and proactive business input into EU-Japan relations, the EU-
Japan Business Dialogue Round Table (EUJBDRT) was created in 1999 by merging the EU-Japan
Industrialists Round Table and the EU-Japan Business Forum. The board members of 44 leading EU
and Japanese enterprises meet for a Round Table discussion once a year to review issues affecting
trade, investment and industry, and to make policy recommendations to the EU and the Japanese
Government. The EUJBDRT is co-chaired by two senior business executives, one from each side.

Asia-Europe Meeting (ASEM)
ASEM (the Asia-Europe Meeting) is an informal process of dialogue and cooperation bringing
together the fifteen EU Member States and the European Commission, with ten Asian countries
(Brunei, China, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Thailand, and
Vietnam). The ASEM dialogue addresses political, economic and cultural issues, with the objective
of strengthening the relationship between our two regions, in a spirit of mutual respect and equal
partnership. The ongoing process includes Summit-level meetings every second year, Ministerial-
level meetings in the intervening years (although now normally once a year) plus a range of meetings
and activities at the working level. New participants are admitted by a consensus decision of the
ASEM Summit.

In some of the acceding countries, certain sectors, such as industry, services, transport, the
environment and agriculture, lag behind current Member States. Accordingly, great effort is being
made by the EU to upgrade these sectors. Transport infrastructure provision in the acceding countries,
for example, is below average levels in the EU, in terms of both quantity and quality. In order to

   The text of the EU-Japan Action Plan can be found at:
   The homepage of the Business Dialogue Round Table is at www.eujapan.com/europe/roundtable.html.

                                                  EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

bring them up to the EU standard, the EU is investing a huge amount of funds developing national
networks and connecting them to the trans-European networks.

The Instrument for Structural Policies for Pre-accession (Ispa) was developed by the European
Commission to help the central and eastern European countries comply with EU environmental and
transport standards. With an annual budget of around € 1 billion, Ispa's approach is similar to that of
the Cohesion Fund, which finances projects designed to improve the environment and develop
transport infrastructure in lower-income Member States. Japanese companies established in the EU
can bid for contracts under the rules currently applicable for projects financed by structural funds.

Ispa is one of three pre-accession instruments to aid the countries in preparation for accession over a
seven-year timeframe (2000-2006) and is accompanied by Sapard (support for the modernisation of
agriculture and for rural development) and Phare (support for institution building, developing
community programmes, regional and social development and industrial restructuring/SME

With accession, all the new Member States will become beneficiaries of the EU’s Regional Policy.
For the years 2004-2006, an amount of €22 billion is set aside for assisting regional development in
the new Member States. One third of this amount is earmarked for the Cohesion Fund that supports
(similarly to the pre-accession instrument ISPA) major investments in transport and the environment
that are of national and EU significance, such as railways, highways, waste and wastewater treatment.
About €14 billion is foreseen for the four Structural Funds that operate rather on a regional level. The
Structural Funds support the development of regional infrastructure and investments that create or
safeguard jobs (European Regional Development Fund), human resource development (European
Social Fund), rural development (European Agricultural Guarantee and Guidance Fund) and the
development of areas dominated by the fishery industry (Financial Instrument for Fishery Guidance).

Detailed information on the EU’s Regional Policy can be obtained from the Inforegio website

8.1      Increased mobility of Japanese nationals travelling to new Member States and within
the European Union
The new Member States will have to apply Regulation n° 539/2001. This regulation lists those third
countries whose nationals must be in possession of visas when crossing the EU’s external borders
and those whose nationals are exempt from that requirement. Japanese nationals are exempted from
the visa requirement, and will thus be able to travel to all new Member States for a stay not
exceeding three months without being submitted to visa formalities, from the day of accession
onwards. Travelling to the new Member States will thus now be possible under the same conditions
as to current Member States.

The only difference between the existing and the new Member States will be that there will still be
checks at internal borders between current and new Member States and between new Member States
as well. In contrast, there are no checks at internal borders within the territories of the existing
Member States applying the Schengen acquis (all existing member States except United Kingdom
and Ireland). Schengen does not deal with work permits; for new Member States, as for current
Member States, work permits for Japanese and other non-EU nationals continue to be dealt with
under national policy and legislation.

8.2       Residence permits and work permits

                                                  EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Both the new Member States and the current Member States will have to adapt their national rules to
the harmonised standards on admission of third country workers, which will be provided for under a
proposed EU Directive. This will facilitate the life of Japanese citizens who are seeking admission
for employment in the enlarged EU. As this Directive is not yet in force, the situation of present and
new Member States does not differ.

On 11 July 2001 a proposal for a Council Directive dealing with “the conditions of entry and
residence of third-country nationals for the purpose of paid employment and self-employed economic
activities”18 was adopted by the European Commission. It is now under discussion in the European

The proposed Directive determines common definitions, criteria and procedures regarding the
conditions of entry and residence of third-country nationals for the purpose of paid employment and
self-employed economic activities and pursues the following aims:
N laying down common criteria for admitting non-EU nationals to employed activities and self-
    employed economic and opening different options for demonstrating compliance with these
    criteria (e.g. “green card programs”, income thresholds, “employers contribution” for recruiting
    third country nationals);
N providing procedural and transparency safeguards, in order to assure a high level of legal certainty
    and information for all interested actors;
N providing a single national application procedure leading to one combined title, encompassing
    both residence and work permit within one administrative act (“one stop shop”), in order to
    simplify and harmonise the divergent rules currently applicable in Member States;
N providing for a harmonised minimum set of rights of third country nationals whilst respecting
    Member States’ discretion to limit economic migration.

Once this Directive is adopted and implemented it will provide for more harmonised and transparent
rules for Japanese and other non-EU nationals who want to work in the EU. This will directly benefit
Japanese corporations operating in Europe, as their staff will be able to travel and work more freely
in an enlarged EU of 25 Member States.

The EU will support agriculture in the 10 acceding countries as it does in the current Member States
in two ways: it supports the incomes of farmers and it provides funds for rural development.
Modernisation of the agricultural sector in the acceding countries, in terms of infrastructure,
investment and labour, will be aided through the integration of new members into the Common
Agricultural Policy (CAP). The 2003 reform of the CAP aims to decouple direct payments from
market support measures and reduce the overall level of support in an EU of 25 members. The de-
coupling of direct payments will encourage farmers in both the present and new Member States to
further improve market orientation.

The new Member States will have the option of simplified administrative procedures for direct
payments. The proposed rural development measures will help to implement EU food safety and
quality standards, thereby improving consumer confidence in farm products from the new Member

In order not to hinder restructuring, direct payments in the new Member States will be phased in over
ten years (2004 – 2013). New Member States may top up the direct payment to a limited extent.
Income support measures other than direct payments (i.e. supporting the prices that farmers receive
     COM 2001(386)

                                                  EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

for their products) will be available to farmers in the new Member States in the same way as to those
in the current 15 EU Member States. Farmers in the new Member States will have immediate access
to the CAP’s market-related measures. The prices that farmers receive for their products will be
supported in the same way as in the existing EU-15 (i.e. through a variety of measures such as
intervention, import duties, export refunds, withdrawal from the market, private storage). These
measures act as a stabilising mechanism for farm product prices and farmers’ incomes.

In order to tackle the many structural problems that exist in rural areas of the acceding countries, an
enhanced rural development policy has been agreed upon that is both greater in scope and in relative
financial terms than that available in the existing EU Member States under rural development policy.
A wide variety of rural development measures will be co-financed by the EU. A special flat-rate aid
for semi-subsistence farms has been agreed to help transform those farms that produce largely for
their own consumption but have the potential to become commercially viable units. This will provide
additional income support during the restructuring period.

A new “meeting standards” measure has also been introduced to provide additional support to
farmers and the processing industry in the accession countries in upgrading their holdings or
practices to meet EU environmental, hygiene, welfare, food safety and occupational safety standards.


This paper has highlighted some of the many positive outcomes expected as a result of the
forthcoming EU Enlargement. It has shown that these benefits are not limited to the Member States
of the enlarged EU, but will also benefit non-EU countries that have strong economic relations with
the EU, such as Japan.

In addition to economic growth and job creation in both current and new Member States, the
enlargement project will also promote cultural diversity and a better understanding of other peoples.

More important, though, is the fact that enlargement of the EU is progressively reuniting the
continent, divided in the aftermath of the last world war, and thereby contributing to peace and
security in the wider region.

Japan will certainly share these benefits. The Single Market of the enlarged Union will have a single
set of trade rules, a single tariff, and a single set of related administrative procedures, thereby
significantly simplifying and speeding up dealings Japanese individuals and companies have within
Europe. This is expected to facilitate and increase trade and investment flows between the regions.

With the pent up demand of 75 million new customers in the acceding countries, Japanese companies
will be in a favourable position, especially in industries such as manufacturing, information
technology, automotive and consumer electronics, where Japan has an international comparative
advantage. This will be enhanced further by the strong growth impetus predicted in the acceding
countries, as witnessed in the earlier examples of Ireland, Spain and Finland.

The state of the art transportation network, currently being built with the help of a multibillion euro
investment fund, will further facilitate distribution and enable production in any of the new Member
States to serve customers in all European cities.

Successful export economies like Japan can particularly benefit from the developments in Europe by
being locally present in a market of half a billion consumers with no impediments to trade, with

                                                   EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

agreed standards and harmonised legal frameworks and regulation. Japanese companies which have
had the foresight to invest already in the accession countries (see some examples in Annex 1), where
economic growth rates are likely to exceed the EU average for some years to come, will find that the
advantages of investing in such economies will be locked in even more tightly with accession. For
new entrants, the size and diversity of the enlarged Single Market will create greater opportunities for
trade and investment.

                                                             EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

                       ANNEX 1 : ACCESSION COUNTRY PROFILES

Capital city: Nicosia (pop 193,000)                           Bilateral trade with Japan:
Currency: 1 Cyprus Pound (CYP)=100 cents = €1.7074            Cypriot exports to Japan: ¥461 million
(€1 = 0.5877 CYP)                                             Imports from Japan: ¥42,945 million
Key indicators (2001):                                        Main import / exports to Japan:
Population (thousand): 762                                    Cypriot exports to Japan: Clothing, frozen fish, fruit
Land area: 9251 km2                                           products.
GDP (billion): €10.2                                          Imports from Japan: Automobiles, vessels, trucks, air
GDP per capita: €15100 (in PPS: €18500)                       conditioners.
Growth of GDP: 4.1 (provisional data)                         Japanese inward investment:
Exports of goods and services in % of GDP: 47                 ¥11.2 billion (Cumulative total as of March 31, 1997)
(provisional data)                                            Major investment projects of Japanese companies:
Inflation rate (2002): 2.8%                                   Data unavailable
Passenger cars per 100 inhabitants (1999 / 2001): 34 / 37     Major industries:
Mobile telephones per 100 inhabitants (1999 / 2001): 20 /     Tourism, food, beverages, textiles, chemicals, metal
41                                                            products, wood products
Internet users per 100 inhabitants (1999 / 2001): 12 / 20     Bilateral trade agreements: n.a.

For more information, please see the Japanese Ministry of
Foreign Affairs website with information about Cyprus:
http://www.mofa.go.jp/region/europe/cyprus/index.html or
the website of the Cypriot Ministry of Foreign Affairs:

     Czech Republic
Capital city: Prague                                       Bilateral Trade with Japan:
Currency: 1 Czech Koruna (CZK) = 100 halire =              Czech exports to Japan: $100 million (1995)
€0.03165                                                   Imports from Japan: $350 million (1995)
(€1 = 31.6455 CZK)                                         Main import / exports to Japan:
Key indicators (2001):                                     Czech exports to Japan: hops and malts, glass and glassware,
Population (1000s): 10283                                  ferroalloys and alumina ingots, chemical products,
Land area: 78866 km2                                       microbreweries and machinery equipment.
GDP (billion): €63.3                                       Imports from Japan: include mainly passenger cars and other
GDP per capita: €6200 (in PPS: €13300)                     automobiles, consumer electronics, advanced technologies, etc.
Growth of GDP: 3.3%                                        Japanese inward investment:
Exports of goods and services in % of GDP: 71%             Y10.5billion (new FDI in 2001)
Inflation rate (2002): 1.4%                                Some major Japanese investment projects:
Passenger cars per 100 inhabitants (1999 / 2001): 33 /     Toyota (Cars): $850.2 million; Matsushita (Electronics): $100
34                                                         million; Denso (Air-conditioners): $100 million; Toray
Mobile telephones per 100 inhabitants (1999 / 2001):       Industries (manufacture and processing of polyester textiles):
19 / 68                                                    around ¥ 10 billion; Asahi Glass Co. (plate glass manufacture)
Internet users per 100 inhabitants (1999 / 2001): 7 / 14   ¥5.8 billion.
                                                           Major industries:
For more information on Czech Republic, please visit       Metallurgy, machinery and equipment, motor vehicles, glass,
the website of the Czech embassy in Japan:                 armaments
http://www.embassy-avenue.jp/czech/index.htm               Bilateral Trade agreements:
                                                           Friendship, Commerce and Navigation Agreement

                                                                 EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Capital city: Tallinn (pop 420,500)                            Bilateral trade with Japan:
Currency: 1 Estonian Kroon (EEK) = 100 cents = €0.063898       Exports to Japan (2002): €12,7 million
(€115.65=1 EEK)                                                Imports from Japan (2002): €194,8 million (Japan is Estonia's
Key indicators (2001):                                         7th import partner)
Population (1000s): 1364                                       Main imports / exports to Japan:
Land area: 45227 km2                                           Exports to Japan (2002): wood and articles of wood 28,9% of
GDP (billion): €6.2                                            the total exports to Japan; furniture and associated articles
GDP per capita: €4500 (in PPS: €9800)                          19,6%; machinery and mechanical appliances 16,9%; footwear
Growth of GDP: 5.0%                                            10,6%; food products, animal products 9,8%.
Exports of goods and services in % of GDP: 91%                 Imports from Japan in 2002: electronic equipment, machinery
Inflation rate (2002): 3.6%                                    and mechanical appliances (63,5%); vehicles and associated
Passenger cars per 100 inhabitants (1999 / 2001): 33 / 30      transport equipment (26,7%); optical, photographic equipment
Mobile telephones per 100 inhabitants (1999 / 2001): 27 / 54   (4,2%).
Internet users per 100 inhabitants (1999 / 2001): 14 / 32      Japanese inward investment:
                                                               $2891,000 (end 2002)
                                                               Major Japanese investment projects:
For more information about Estonia, please visit the website   Primarily Japan has invested in wholesale and retail sale trade,
of the Estonian Embassy in Japan: http://www.estemb.or.jp/     and foodstuffs.
                                                               Major industries:
                                                               Timber, food processing, machine production
                                                               Bilateral trade agreements:

Capital city: Budapest (pop 2 million)                         Bilateral trade with Japan:
Currency: 1 Forint (HUF) = 100 Fillér = 0.003763 EUR (€1       Exports from Japan (1999): $649 million
= 266.7 HUF)                                                   Imports: $299 million
Key indicators (2001):                                         Main import / exports to Japan:
Population (in 1000): 10188                                    Exports from Japan: chemical products, equipment, and
Land area: 93030 km2                                           machinery
GDP (billion): €58.0                                           Imports from Japan: machinery, processed chemical products,
GDP per capita: €5700 (in PPS: €11900)                         and foodstuffs.
Growth of GDP: 3.7%Exports of goods and services in % of       Japanese inward investment:
GDP: 61%                                                       Approximately ¥62.8 billion (to March 1999)
Inflation rate (2002): 5.2%                                    Some major investment projects of Japanese companies:
Passenger cars per 100 inhabitants (1999 / 2001): 22 / 24      Japanese investments are in manufacturing, particularly
Mobile telephones per 100 inhabitants (1999 / 2001): 16 / 31   assembly of vehicles, production of parts, and assembly of
(provisional data)                                             electronic goods for home and entertainment uses. OKI
Internet users per 100 inhabitants (1999 / 2001): 6 / 15       Systems Hungary Kft (printers): net sales of HUF 1.2bn for year
                                                               ending March 31 (projected); Suzuki Motor Corporation,
                                                               established in 1991, manufacture and sales of passenger cars;
                                                               amount of investment around ¥31 billion. Mitsubishi
                                                               Corporation will build a USD 20m, 24-hectare industrial park in
                                                               Ujhartyan (30km southeast of Budapest); Denso Corporation
For more information on Hungary, please see the website of     (manufacture of diesel injection pumps) has invested around
the       Hungarian         embassy       in      Japan:       ¥11 billion. Sanyo Electronic, around ¥4 billion for the
http://www2.gol.com/users/huembtio/                            manufacture of mobile phone batteries.
                                                               Major industries:
                                                               Mining, metallurgy, construction materials, processed foods,
                                                               textiles, chemicals (especially pharmaceuticals), motor vehicles
                                                               Bilateral trade agreements:
                                                               Friendship, Commerce and Navigation Agreement; Air Service
                                                               Agreement (17.3.1995)

                                                                   EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Capital city: Riga (pop 874,100)                                 Bilateral trade with Japan:
Currency: 1 Lat (LVL)=100 santims = €1.5364 (€1 = 0.65           Export from Japan: $1820 million (2000)
LVL)                                                             Imports to Japan: $3120 million
Key indicators (2001):                                           Main imports / exports (with all countries :
Population (in 1000): 2355                                       Exports: timber and processed goods, fibres, metals, metal
Land area: 64589 km2                                             processed goods, chemical products
GDP (billion): €8.5                                              Imports: machine tools, electronic machinery, minerals,
GDP per capita: €3600 (in PPS: €7700)                            chemicals, metals, fibres
Growth of GDP: 7.7%                                              Japanese inward investment:
Exports of goods and services in % of GDP: 45%                   Data unavailable
Inflation rate (2002): 2.0%                                      Major investment projects of Japanese companies:
Passenger cars per 100 inhabitants (1999 / 2001): 22 / 25        SMC Pneumatics Latvia SLA
Mobile telephones per 100 inhabitants (1999 / 2001): 11 / 26     Major industries:
Internet users per 100 inhabitants (1999 / 2001): 4 / 7          Timber, textiles, oil transit, food
                                                                 Bilateral trade agreements:
For more information, please see the website of the Japanese     n.a.
Ministry of Foreign Affairs:
http://www.mofa.go.jp/region/europe/latvia/ ,
 or the website of the Latvian Ministry of Foreign Affairs:

Capital city: Vilnius (pop 590,100)                              Bilateral trade with Japan:
Currency: 1 Lithuanian Litas = €0.28962 (€1 = 3.45 LTL)          Lithuanian exports to Japan (2000): $12.5 million
Key indicators (2001):                                           Imports from Japan: $102.3 million
Population (1000s): 3478                                         Main import / exports to Japan:
Land area: 65300 km2                                             Exports to Japan: skimmed milk powder (47.5%), timber
GDP (billion): €13.4                                             products (13.9%), furniture (8.6%), optical, measuring, medical
GDP per capita: €3800 (in PPS: €8700)                            and surgical equipment (4.0%), glassware (2.4%) and chemical
Growth of GDP: 6.0%                                              products (2.3%).
Exports of goods and services in % of GDP: 50%                   Imports: means of transport and equipment (51.9%), machinery
Inflation rate (in 2002): 0.4%                                   and mechanical appliances (25.9%), plastics (6.8%), and
Passenger cars per 100 inhabitants (1999 / 2001): 29 / 32        optical, measuring, medical and surgical equipment (6.6%).
Mobile telephones per 100 inhabitants (1999 / 2001): 9 / 28      Japanese inward investment:
Internet users per 100 inhabitants (1999 / 2001): 3 / 7          $164,800 (cumulative total 1992-2000)
                                                                 Major investment projects of Japanese companies:
For more information about Lithuania, please visit the website   Siemans – Yazaki (Wiring Technologies): €25 million in 2001
of      the     Lithuanian      embassy       in       Japan:    Major industries:
http://www2.gol.com/users/lithemb/frames/frames.html             Textiles, Oil Processing, Timber and Agricultural Products
                                                                 Bilateral trade agreements:

                                                                  EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

Capital city: Valletta (pop 92,000)                             Bilateral trade with Japan:
Currency: 1 Maltese Lira (MTL) = €2.2167 (€1 = 0.47             Maltese exports to Japan: ¥1,074 million
MTL)                                                            Imports from Japan: ¥13,461 million
Key indicators (2001):                                          Main import / exports to Japan:
Population (in 1000): 393                                       Maltese exports to Japan: Oil, switch plug, fish, etc.
Land area: 316 km2                                              Imports from Japan: Integrated circuits, automobiles, trucks
GDP (billion): €4.0                                             Japanese inward investment:
GDP per capita: €10300                                          $1.453 million (cumulative total as of March 31, 1997)
Growth of GDP: -0.8%                                            Major investment projects of Japanese companies:
Exports of goods and services in % of GDP: 88%                  Data unavailable
Inflation rate: 2.2% (provisional data)                         Major industries:
Passenger cars per 100 inhabitants (1999 / 2001): 47 / 50       Tourism, Electronics, the Malta Freeport (duty free container
Mobile telephones per 100 inhabitants (1999 / 2001): 6 / 61     transhipment port) Financial Services, The Malta Dry-docks.
Internet users per 100 inhabitants (1999 / 2001): 8 / 25        Bilateral trade agreements:
For more information, please see the website of the Japanese
Ministry            of            Foreign            Affairs:
http://www.mofa.go.jp/region/europe/malta/, or the website of
the     Maltese        Ministry    of     Foreign    Affairs:

Capital city: Warsaw (pop 1.75 million)                         Bilateral trade with Japan:
Currency: 1 Polish Zloty (PLZ) €0.2233; (€1= 4.48 PLZ)          Polish exports to Japan: $74 million
Key indicators (2001):                                          Imports from Japan: $150 million
Population (in 1000): 38638                                     Main import / exports to Japan:
Land area: 312685 km2                                           Polish exports to Japan: Chemical products, animal materials
GDP (billion): €196.7                                           Imports from Japan: Electrical, machinery, auto
GDP per capita: €5100 (in PPS: €9200)                           Japanese inward investment:
Growth of GDP: 1.1%                                             $564 million (cumulative total as of the end of 1998)
Exports of goods and services in % of GDP: 28%                  Major investment projects of Japanese companies:
Inflation rate (2002): 1.9%                                     Isuzu Motors Ltd. (automotive industry ) $193 million;
Passenger cars per 100 inhabitants (1999 / 2001): 24 / 27       Bridgestone Corp. (tires) $120 million; Toyota (automotive
Mobile telephones per 100 inhabitants (1999 / 2001): 10 / 25    industry) $95 million; NSK-RHP Europe Ltd. (machinery
Internet users per 100 inhabitants (1999 / 2001): 5 / 10        industry) $70 million; Matsushita (electrical engineering ) $53
                                                                Major industries:
For more information, please visit the website of the Polish    Machine building, iron and steel, coal mining, chemicals,
embassy in Japan: http://www.poland.or.jp/                      shipbuilding, food processing, glass, beverages, textiles
                                                                Bilateral trade agreements:
                                                                Friendship, Commerce and Navigation Agreement; Air Service
                                                                Agreement (4.3.1996)

                                                                  EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

            Slovak Republic
Capital city: Bratislava (pop 452,000)                          Bilateral trade with Japan:
Currency: 1 Slovak Koruna (SKK) = € 0.02411 (€1 = 41.61         Slovak exports to Japan: $2 billion
SKK)                                                            Imports from Japan: $2.6 billion
Key indicators (2001):                                          Main import / exports to Japan:
Population (in 1000): 5397                                      Slovak exports to Japan: Machinery, electric appliances
Land area: 49035 km2                                            Imports from Japan: Chemical products, glasswork
GDP (billion): €22.8                                            Japanese inward investment:
GDP per capita: €4200 (in PPS: €11100)                          ¥1,075 million (cumulative total as of 1997)
Growth of GDP: 3.3%                                             Major investment projects of Japanese companies:
Exports of goods and services in % of GDP: 73%                  Panasonic AVC Networks (video recorders and DVD players);
Inflation rate in 2002: 3.3%                                    Matsushita (electronic components)
Passenger cars per 100 inhabitants (1999 / 2001): 23 / 24       Sony Corporation, established in Trnava in 1996 the
Mobile telephones per 100 inhabitants (1999 / 2001): 12 / 40    manufacture of printed circuit boards etc (investment of around
Internet users per 100 inhabitants (1999 / 2001): 11 / 17       ¥ 700 million)
                                                                Major industries:
                                                                Metal and metal products; food and beverages; electricity, gas,
                                                                coke, oil, nuclear fuel; chemicals and manmade fibres;
For more information about the Slovak Republic, please see      machinery; paper and printing; earthenware and ceramics;
the website of the Slovak Republic in Japan:                    transport vehicles; textiles; electrical and optical apparatus;
http://www.embassy-avenue.jp/slovakia/index.html                rubber products
                                                                Bilateral trade agreements:
                                                                Friendship, Commerce and Navigation Agreement

Capital city: Ljubljana (pop 330,000)                           Bilateral trade with Japan:
Currency: 1 Slovenian tolar (SIT) = €0.004321 (€1 =             Slovenian exports of Japan: ¥2.7 billion
239.578SIT)                                                     Imports from Japan: ¥10.7 billion
Key indicators (2001):                                          Main import / exports to Japan:
Population (in 1000): 1992                                      Slovenian exports of Japan: food, textile, ski
Land area: 20273 km2                                            Imports from Japan: machinery, cars, chemicals
GDP (billion): €20.9                                            Japanese inward investment:
GDP per capita: €10500 (in PPS: €16000)                         ¥228 million (cumulative total as of March 31, 1999)
Growth of GDP: 3.0%                                             Major investment projects of Japanese companies:
Exports of goods and services in % of GDP: 60%                  Toyota (automotive industry)
Inflation rate (2002): 7.5%                                     Major industries:
Passenger cars per 100 inhabitants (1999 / 2001): 43 / 44       Textiles, leather goods, wood and timber processing, chemical,
Mobile telephones per 100 inhabitants (1999 / 2001): 33 / 76    rubber and plastics processing, metal processing, machinery
Internet users per 100 inhabitants (1999 / 2001): 13 / 30       production, electrical and optical instruments, and the
                                                                manufacture of motor vehicles and vessels
For more information, please see the website of the Japanese    Bilateral trade agreements:
Ministry            of           Foreign             Affairs:   n.a.
http://www.mofa.go.jp/region/europe/slovenia/ or the website
of the Slovenian Ministry of Foreign Affairs:

                                            EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN


Accession Treaty (2003):   Signed in Athens on 16 April 2003
Acquis communautaire:      (“Acquis”) This is a French term meaning, essentially, "the EU as it
                           is" - in other words, the rights and obligations that EU countries
                           share. The "acquis" includes all the EU's treaties and laws,
                           declarations and resolutions, international agreements on EU affairs
                           and the judgments given by the Court of Justice. It also includes
                           action that EU governments take together in the area of "justice and
                           home affairs" and on the Common Foreign and Security Policy.
                           "Accepting the acquis" therefore means taking the EU as you find it.
                           Candidate countries have to accept the "acquis" before they can join
                           the EU, and make EU law part of their own national legislation
AD:                        Anti-dumping measures
Agenda 2000:               Action programme whose main objectives are to strengthen
                           Community policies and to give the European Union a new financial
                           framework for the period 2000-06 with a view to enlargement. It
                           was launched in 1999 in the form of twenty legislative texts
Amsterdam Treaty (1997):   Affected four key chapters: citizenship and fundamental rights, the
                           establishment of an area of freedom, security and justice, the CFSP
                           and the reform of the institutions
ASEM:                      Asia-Europe Meeting
Association Agreements:    The legal framework for the relationship between the European
                           Community and Cyprus, Malta and Turkey dating back to the 1960s
                           and early 1970s
CAB:                       Conformity Assessment Bodies
Candidate countries:       Bulgaria, Croatia, Romania, Turkey
CCP:                       Common Commercial Policy
CCT:                       Common Customs Tariff
EC:                        European Community
EEC:                       European Economic Community
EU:                        European Union. International organisation of European states
EU-15:                     Current Member States of the EU (Austria, Belgium, Denmark,
                           Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
                           Netherlands, Portugal, Spain, Sweden, United Kingdom)
EU-25:                     EU-15 plus acceding countries (Cyprus, Czech Republic, Estonia,
                           Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia)
Europe Agreements:         Provide the framework for bilateral relations between the European
                           Communities and their Member States on the one hand and the
                           partner countries on the other
European Commission:       The European Commission (formally the Commission of the
                           European Communities) is the executive of the European Union
European Council:          Meeting of the heads of state or government of the European Union,
                           and the President of the European Commission
Eurozone:                  Eurozone or euro-area is the set of countries of the European Union,
                           which have adopted the euro currency
ERM II:                    Exchange Rate Mechanism II
FCN:                       Friendship, Commerce and Navigation agreement
FDI:                       Foreign Direct Investment
GATS:                      General Agreement on Trade in Services
GATT:                      General Agreement on Tariffs and Trade
GNP:                       Gross Domestic Product
GPA:                       Government Procurement Agreement (WTO)

                                                    EU ENLARGEMENT AND ITS IMPLICATIONS FOR JAPAN

IPR:                               Intellectual Property Rights
Ispa:                              Instrument for Structural Policies for Pre-accession is the European
                                   Commission’s instrument to help the Central and Eastern European
                                   candidate countries to adapt to the environmental and transport
                                   conditions in view of accession.
IT:                                Information technology
MFN:                               Most Favoured Nation
n.a.:                              not applicable
Nice Treaty (2001):                Adopted in December 2000, at the conclusion of the Nice European
                                   Council, and signed on 26 February 2001, the Treaty of Nice
                                   concluded the Intergovernmental Conference (IGC) that began in
                                   February 2000, the objective of which was to gear the working of
                                   the European institutions to the arrival of new Member States. It
                                   opened the way to the institutional reform needed for the
                                   forthcoming EU enlargement with the accession of candidate
                                   countries from eastern and southern Europe.
OECD:                              Organisation for Economic Co-operation and Development
PECA:                              Protocol to the Europe Agreements on Conformity Assessment
Rome Treaty (1957):                Treaty which established the European Economic Community
                                   (EEC), and the European Atomic Energy Community (EAEC) was
                                   signed by France, Germany, Italy, Belgium, the Netherlands and
                                   Luxembourg on March 25, 1957. While still remaining separate
                                   entities the EEC and EAEC, were during the 1960s merged into one
                                   organisational structure, called the European Community, which
                                   was the precursor of today's European Union.
Sapard:                            Support for the modernisation of the agriculture and for rural
SFG:                               Safeguard measures
SME:                               Small and medium sized enterprises
TDI:                               Trade Defence Instruments
TEN:                               Trans-European Networks
WTO:                               World Trade Organisation

Fuller definitions of these terms and many others used in respect of the European Union and
enlargement can be found at the following page of the EU’s Europa website:


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