The Research On The Comprehensive Impact Of The EPA Between The EU And Japan

Since the beginning of the 21 st century,regional economic integration has ushered in a period of accelerated development.As multilateral trade negotiations with the WTO at its core are progressing slowly,major world economies have turned to regional trade arrangements for solutions.After the global economic and financial crisis,countries and regions have stepped up the pace of FTA negotiations.Leading a new round of formulation of international economic and trade rules,major economies such as the EU,the US,and Japan have begun to negotiate on mega regional trade agreements such as the TPP and TTIP.Against this background,the EU-Japan EPA started negotiation in 2013 and came into effect in February 2019.The EU-Japan EPA is so far the world's largest high-level regional trade agreement between advanced economies.It has a high degree of liberalization and rich content,it goes beyond the scope of free trade agreement to encompass not only traditional chapters on trade in goods,trade in services,non-tariff barriers,etc.,but investment liberalization and many unconventional issues,such as sustainable development,state-owned enterprises(SOEs),subsidies,and corporate governance.As the world's second-largest and fourth-largest economies,the EU and Japan have forged an economic partnership that will exert a significant and profound influence on the global economy,trade,investment,social welfare,climate and environment.Meanwhile,serving as a model for other FTAs,it will determine the future trend of regional economic integration,and thus lead the way in formulating international economic and trade rules and adjusting global governance model.Since China is one of the most important economic and trade partners with the EU and Japan,the implementation of the EU-Japan EPA will have remarkable ramifications on China's economic growth,trade and investment,as well as society and environment.In the course of deepening reforms,opening wider and expediting its global FTA strategy,China is faced with risks and challenges,including the profound adjustment of the multilateral trading system,the rise of unilateralism and protectionism,and the Sino-US economic and trade friction which has not yet completely subsided.The EU-Japan EPA will profoundly influence China's FTA strategy and opening up drive.Therefore,this dissertation,themed on the effects of the EU-Japan EPA,mainly focuses on two areas of study: one being the EU-Japan EPA's economic,social,environmental,and rule governance effect;the other,its impact on China's macroeconomy,foreign trade,FDI absorption,labor and environmental protection,and rule governance.The methodology of the dissertation comprises,firstly,a combination of theoretical and empirical analysis.For theoretical analysis,both well-established and newly-emerged theories on regional economic integration are adopted to study the EU-Japan FTA's trade and investment effect;and for empirical analysis,the gravity model,GTAP model,and LMDI model are employed.Secondly,a comparative analysis of past and present.By shedding light on trade and investment between the EU and Japan during the past two decades,the author makes a historical comparison,so as to explain the comparative advantages and ongoing competition between today's EU and Japan.Thirdly,an integration of micro industrial analysis with macro economic and trade analysis.At macro-level,the author uses economic aggregates and trade and investment patterns as lenses to explore the potential growth of trade and investment;and at micro-level,the question of competition and complementarity is addressed from the perspective of specific industries and products.Fourthly,a comprehensive approach of horizontal and vertical comparison.The author elaborates on the past,present and future of EU-Japan economic and trade cooperation,and at the same time horizontally compares China with the EU and with Japan in terms of the scale,structure and competitiveness of trade and investment.The main research design and contents of this dissertation are as follows:Firstly,a theoretical study in the introduction and literature review.The dissertation moves on to discuss mainly the background and basis for the signing of the EPA between the EU and Japan.Having reviewed the EU and Japan's trade in goods,trade in services and two-way investment,the author analyzes their competition and complementarity via the indices of Trade Intensity,Complementarity,and Export Similarity.The author also studies the comparative advantages,competitive advantages and intra-industry trade between the EU and Japan,using Revealed Comparative Advantage,Trade Specialization Coefficient and the GI Index.Secondly,an analysis of the main contents and characteristics of the EU-Japan EPA.The dissertation introduces the main framework of the agreement from four aspects-trade in goods,trade in services,non-tariff barriers,and investment liberalization;and,by holding its rules against those of previous FTAs,explains the main features of the EU-Japan EPA in nine areas-corporate governance,government procurement,intellectual property rights,competition,subsidies,SOEs,trade remedies,etc.Thirdly,a demonstration of the economic effects of the EU-Japan EPA throug both theoretical and empirical analysis.The theoretical analysis studies the trade effect from the perspective of trade liberalization and comparative advantage,and the investment effect from investment transfer and investment creation.The competition effect and hub-and-spokes effect are also expounded.The empirical analysis uses the gravity model to determine the investment effect of the EU-Japan EPA,and the GTAP model for its impacts on the EU and Japan's GDP,terms of trade,factor returns,welfare level,output of various sectors,and trade flows.Next,an analysis of the social,environmental and rule governance effects of the EU-Japan EPA.Firstly,the social effect.It is explored at theoretical level from the perspective of job creation,labor rights protection and civil society's participation in labor policy consultations,and at empirical level via analyzing the employment and wage impacts with the GTAP model.Secondly,the environmental effect.At theoretical level,it is expounded from the following perspectives: facilitation of environmental products and services,efficiency of resource utilization,amount of waste generated,regulatory capacity,and implementation of multilateral environmental agreements;and the empirical level,the LMDI model breaks down the impact on carbon emissions into three dimensions: the effect of scale,structure and technology.Thirdly,the rule governance effect.The author analyzes how the EPA leads the rules on subsidies and SOEs,corporate governance,sustainable development,government procurement,etc.Then,the impact on China's development.Based on a review of China's bilateral trade and two-way investment with the EU and with Japan,a detailed analysis is conducted on the repective competition and complementarity,comparative advantages,competitive advantages,and intra-industry trade between China and the other two parties.What follows is a theoretical analysis of the EPA's economic impact on China's trade,investment,etc.and its rule governance impact on SOE subsidies and sustainable development.An empirical analysis using the GTAP model is made on the agreement's influence on China's GDP,export,factor returns,terms of trade,welfare level,and environment.Finally,conclusions and policy recommendations.The conclusions are as follows:One of the chapters concerns the effects of the EU-Japan EPA.Firstly,the economic effects of both sides turn out to be remarkably positive.Japan's benefits in GDP,trade,and welfare are higher than those of the EU.The EU has witnessed the biggest gains in the textile,wearing apparel,and leather industry,and the biggest damage in the automobile manufacturing industry.In terms of output,Japan's automobile industry has experienced the biggest rise while the dairy industry the largest decline.The economic effects for other economies are negative,but the declines are of small margin.Secondly,the trade promotion effect is notable,with Japan's import and export growing faster than the EU.Other economies have suffered negative impacts,but to a limited extent.Japan's terms of trade have improved while those of the EU and other economies deteriorated.Thirdly,the two-way investment promotion effect is relatively obvious with wider market access for investment in the EU and Japan creating the investment creation effect and the optimization of resource allocation and the adjustment of production layout resulting in the investment transfer effect.Economies outside the FTA have also created investment transfers and creations,causing ripples in the area.Fourthly,the social and environmental effects are noteworthy.In regard to the social effect,wages and salaries have increased on both sides,resulting in higher employment level and better protection of labor rights.In terms of the environmental effect,the EPA has better facilitated trade in environmental goods and services,affecting carbon emissions and climate change,and enhancing the commitment of the EU and Japan to the global response to climate change.Fifthly,the impact on international economic and trade rules and governance models is far-reaching,The agreement strengthens disciplines on subsidies and SOEs,sets an example in corporate governance for future trade agreements,leads the way for global rules on government procurement,and sets the stage for the reform of investor-state dispute settlement mechanism.The other chapter involves the impact on China.Firstly,it renders a negative repercussion on China's macro economy.When compared with other global economies,China has suffered a relatively big fall in GDP,welfare level,and output.Yet generally speaking,the negative effects are manageable.Secondly,on the impact on China's foreign trade,remarkable trade diversion has worsened the nation's terms of trade.However,China's competitive advantage in export is still obvious.Since its export structure differs from those of the EU and Japan,the impact is limited.Electronic equipment exports to the EU and textile,wearing apparel and leather exports to Japan have experienced the greatest loss.Thirdly,it has caused greater pressure on China's attraction of FDI,transferring some of its inflows to the EU and Japan.Fourthly,higher requirements are imposed on China's labor and environmental protection.On the one hand,high labor and environmental standards have put the nation under considerable pressure by challenging its policy bottom line.On the other hand,they help to increase China's awareness to labor rights and environmental protection,facilitating the modernization of its governance system and capacity.Fifthly,there are both opportunities and challenges to China's rulemaking and governance model.Some of the EPA's rules have deteriorated into a tool of trade protectionism to weaken China's competitive advantage.However,they may serve to push China to deepen its reform.To this end,this dissertation proposes five policy recommendations.First,to focus on large free trade partners,and promote to conclude as soon as possible the China-EU Bilateral Investment Treaty negotiation,RCEP negotiation,and China-Japan-Korea Free Trade Agreement.Second,to seize a large number of small and medium-sized economies and accelerate the establishment of a global FTA network.Third,to significantly increase the level of liberalization of FTAs,continue to open up the service industry,improve business environment,and strive for substantial breakthroughs on new rules.Fourth,to strengthen domestic policy adaptations,so as to accommodate the FTAs and modernize China's governance system and capacity.Fifth,to handle in a balanced manner the relationship between regional economic integration and the multilateral trading system,make concrete contributions to the development of an open economy,and take a clear-cut stand against unilateralism and protectionism.The dissertation aims to be original,by not only analyzing the economic impacts of the EU-Japan EPA,but also innovatively using the LMDI model to approach the environmental effect from three dimensions-effect of scale,structure and technology.In addition,this dissertation elaborates on the impact of the agreement on global rulemaking and governance system,especially in the areas of SOEs,subsidies,corporate governance,and sustainable development,providing insights for China to learn from the world's leading FTA model and rules and promote higher levels of opening up.