European and Japanese Multinationals and their subsidiary trade in host; Facts and features Japan-EU Conference on November 17 2014 Brussels, Belgium ANDO, Ken-ichi, Professor, Department of Economics, Faculty of Humanities and Social Sciences, Shizuoka University, JAPAN
Contents Introduction Theoretical consideration of FDI on trade of host Context of European and Japanese MNEs Facts finding: Trade of European and Japanese MNEs Discussion Concluding remarks
Introduction Japan-EU Economic Partnership Agreement (EPA) is on the negotiation. The EPA does not only liberalise the bilateral trade, but also includes the investment-related articles to promote the FDI. There are some possibilities of the relationship between the FDI and the trade. It is necessary to confirm and assess the facts concerning the trade by the multinationals in host, Japan and the EU.
Theoretical consideration of FDI on trade of host (1) There are three approaches to the relationship between FDI and trade. 1. International economics: Base on the Hecksher-Ohlin theorem, the FDI and the trade are substitution with each other. 2. Product life cycle model: The life cycle of a product decides the producing location, and the FDI replaces the import of the host. 3. International business strategy: There are two types of FDI, horizontal and vertical FDI, and both the substitution and the complimentary are possible.
Theoretical consideration of FDI on trade of host (2) The implications from the survey of the models are the followings; There are both possibilities of the substitution and the complementarity between the FDI and the trade. Less attention is given to the impact of the FDI on the multilateral trade of the host, compared to the bilateral one. The export aspect of the MNE in the host is relatively neglected, compared to the import aspect.
Context of European and Japanese MNEs Trade friction on the trade surplus of Japan, as well as the high-tech and main industry weakness of the EU in the 1980s led the Single European Market programme, but the relative decline of the bilateral trade in the last decade. Cf)Ex-1,2 European MNEs play the leading role in Japan, but the low level of inward- FDI into Japan is the main concern for the EU. The EU is an important destination for Japanese FDI with the geographical shifts within the EU. At a glance, the steady growth of the FDI stock both in Japan and the EU, and the relative decline of the bilateral trade seems to suggest the substitution. Cf) Ex-2,3 The relatively low level of the FDI could not fully affect on the trade, and the concrete fact finding is necessary for the assessment. Cf) Ex-4
Facts finding: Data source Aggregated data of trade by foreign affiliates from the survey by the Ministry of Economy, Trade and Industry (METI), Japan. European MNEs in Japan: Survey of Trends in Business Activities of Foreign Affiliates Japanese MNEs in the EU: Survey of Overseas Business Activities
Facts finding: Common feature Ex-5a~6b: Comparing MNEs trade with the trade of the host Upward trend until 2008 Following the trade trend of host economy More fluctuation after the Lehman shock Ex-7: Trade balance of Japanese and European MNEs Trade deficit effect
Facts finding: Different feature Ex-8: Share of MNEs trade in the total trade of host economy Upward trend of European MNEs (blue lines) Downward trend of Japanese MNEs (red lines) Ex-9: Share of trade in the whole operation of MNEs Export to sales ratio: Japanese MNEs > European MNEs Import to procurement ratio: Japanese MNEs > European MNEs
Discussion on the commonalities The FDI both into Japan and the EU are complementary with the trade, as the trade of the MNEs subsidiaries grows constantly. The host economy s conditions influence on the trade of the MNEs subsidiaries. The trade deficits of the MNEs in Japan and the EU suggest the host country oriented FDI, rather than the export basis. The trade of European MNEs in Japan lessens the complaints of the EU, since the trade surplus of Japan is reduced more than without European MNEs. The trade balance effect of Japanese MNEs in the EU is not clear for the extra-eu, due to the limited data.
Discussion on the differences Different trends of the share in the host trade between Japanese and European MNEs reflect the change of their competitive position for the last one and half decade. Cf) Ex-10 Different share of the trade in the whole operation by Japanese and European MNEs reflects the different condition of the hosts including the neighbour countries.
Concluding remarks The complementarity between the FDI and the trade justifies the EPA, since both of the trade and the FDI encourage with each other. If the FDI impact on the trade is on the multilateral basis, the EPA is not enough to promote the trade by the MNEs due to the bilateral nature of the EPA. Thus, Japan and the EU should extend their perspective to other countries, especially in Asia. In order to exploit the advantage provided by the EPA, the MNEs also have to strengthen their own competitiveness, and this is especially true for Japanese MNEs, rather than European MNEs.
Thank you for your listening
Ex-1 Japanese manufacturing trade with the EU* (billion US $) 140 120 100 80 60 40 20 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Export (left-hand) Import (left-hand) Trade balance (right-hand) Source: RIETI-TED 2012, EU: EU15 until 2003, EU27 from 2004
Ex-2 Share of the EU and Japanese market for the total export 25% 10% 9% 20% 8% 7% 15% 6% 5% 10% 4% 3% 5% 2% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1% 0% From Japan to EU (lef-hand) From EU to Japan (right-hand) Source: RIETI-TED 2012, EU: EU15 until 2003, EU27 from 2004
Ex-3 EU-Japan FDI stock (trillion Yen) 25,0 20,0 15,0 10,0 5,0-1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 EU in Japan Japan in EU Source: Bank of Japan, EU: EU15 until 2003, EU27 from 2004
Ex-4 Total FDI stock in Japan and the EU Host EU-27 Japan Total value of FDI stock(bil. euro) 3,947 160 Ratio in GDP 30.4% 3.5% FDI stock value from Japan or EU27(bil. euro) 162 99 Ration of Japan or EU in total stock 4.1% 61.9% Source: UNCTAD, Eurostat
Ex-5a Export trend of Japan and European MNEs in Japan (billion Yen) 90.000 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000-1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 5.000 4.500 4.000 3.500 3.000 2.500 2.000 1.500 1.000 500 - Japanese exports (left-hand) Exports by European MNEs (right-hand)
Ex-5b Import trend of Japan and European MNEs in Japan (billion Yen) 80.000 6.000 70.000 5.000 60.000 50.000 40.000 4.000 3.000 30.000 2.000 20.000 10.000 1.000-1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Japanese imports (left-hand) Imports by European MNEs (right-hand)
Ex-6a Export trend of the EU and Japanese MNEs in the EU (billion euro) 5.000 4.500 4.000 3.500 3.000 2.500 2.000 1.500 1.000 500-1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 180 160 140 120 100 80 60 40 20 0 Total EU exports (left-hand) Export by Japanese MNEs in the EU (right-hand)
Ex-6b Import trend of the EU and Japanese MNEs in the EU (billion euro) 5.000 4.500 4.000 3.500 3.000 2.500 2.000 1.500 1.000 500-1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 200 180 160 140 120 100 80 60 40 20 0 Total EU imports (left-hand) Import by Japanese MNEs in the EU (right-hand)
Ex-7 Trade balance of European MNEs in Japan and Japanese MNEs in the EU (bil. euro) 20 10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-10 -20-30 -40-50 Trade balance of European MNEs in Japan Trade balance of Japanese MNEs in EU
Ex-8 Share of MNEs trade in total trade 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Japanese MNEs Export Japanese MNEs Import European MNEs Export European MNEs Import
Ex-9 Trade share in the sales and the procurement of MNEs 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Export share in sales by European MNEs Export share in sales by Japanese MNEs Import share in procurement by European MNEs Import share in procurement by Japanese MNEs
Exhibition-10 Top European and Japanese MNEs in the world European MNEs Japanese MNEs Number 1997 2012 Foreign jobs Number (,000) Foreign sales (bil. US$) Foreign sales (bil. US$) Foreign jobs (,000) 50 981 2,718 52 3,104 4,747 17 486 126 8 511 509 Source: UNCTAD, World Investment Report, 1998, 2013