JETRO WHITE PAPER ON INTERNATIONAL TRADE 1998 

Japan External Trade Organization (JETRO)

4. Europe

(1) Western Europe: European Economies Recovering

[1] Trends in Trade
The recovery in the EU economy strengthened throughout 1997, and there are signs that the economy will improve further going into 1998. The recovery is due to not only strong foreign demand but also an upturn in capital investment and private consumption, and domestic demand is gradually becoming the economic driving force. According to the European Commission's 1998 Spring Economic Forecasts, the improvement in economic conditions is set to continue, with the real GDP growth rate of the 15 member states of the EU forecast to increase from 1.8% in 1996 to 2.7% in 1997 (estimate), 2.8% in 1998 and 3.0% in 1999. According to statistics issued by Eurostat, the EU's statistics bureau, on the extra-regional trade of the EU's 15 countries, exports in 1997 totaled 718.4 billion ECU (European Currency Unit, 1 ECU = approx. \153) and imports were worth 668.2 billion ECU. The trade surplus increased for the sixth consecutive year to 50.3 billion ECU. Both extra-regional exports and imports grew by 14.9% on the previous year, which exceeded the 9.0% growth in extra-regional exports and 6.6% increase in imports posted in 1996. Intra-regional trade also grew a strong 8.1% on the previous year to 1.15 trillion ECU.

[2] Changes in Trade Environment

At a special summit held in Brussels at the beginning of May 1998, it was officially confirmed that 11 of the EU's 15 member states (including Germany, France and Italy, but excluding the U.K., Sweden, Denmark and Greece) will adopt the "euro" (the single European currency) when the third stage of Economic and Monetary Union (EMU) is launched on January 1, 1999. In addition, the European Central Bank (ECB), which will play the leading role in implementing a common monetary policy, was established on June 1, 1998. Preparing for the creation of a vast economically integrated euro bloc, European firms are stepping up their marketing and pricing policy reviews, reorganization of regional operations, and mergers and acquisitions.

With regard to the enlargement of the EU, negotiations began at the end of March 1998 on admitting six new members: Poland, the Czech Republic, Hungary, Slovenia, Estonia and Cyprus. The EU is also seeking to strengthen its ties with other regional economic blocs. In London in April 1998, for example, the second Asia-Europe Meeting (ASEM) and the first EU-China summit were held, while at the EU-U.S. summit in May, the two sides agreed to a "Transatlantic Economic Partnership" (TEP) to ultimately eliminate trade barriers.

[3] Developments in Trade with Japan

The EU's trade with Japan increased in 1997, with exports to Japan up 1.1% on the previous year to 36.0 billion ECU and imports up 13.1% to 59.4 billion ECU. The EU's trade deficit with Japan rose substantially by 38.7% from 16.8 billion ECU in 1996 to 23.3 billion ECU in 1997. The deficit had declined for six consecutive years up to 1996, but expanded again in 1997 when imports grew due to the economic recovery in Europe while exports to Japan grew only slightly.

At present, the EU and 10 individual European countries are engaged in various campaigns to boost exports to Japan. These include "Gateway to Japan II," the EU's four-year campaign inaugurated in January 1997 and the second shot in its campaign to boost exports to Japan, and also the one-year "Festival U.K.98" and "French Year in Japan" launched in 1998.



(2) Central and Eastern Europe and CIS

[1] Trends in Trade

Supported by favorable growth in industrial production and the construction sector, the economies of Central and Eastern Europe (with the exception of Romania, which was late to implement economic reforms) grew faster in 1997 than in 1996. With respect to trade, exports increased due to the recovery in the EU-the area's main trading partner-but imports were repressed, with the exception of Poland, Hungary and Croatia, where imports grew substantially due to increases in consumer demand and inflows of foreign capital. The trade deficit grew 6.5% from US$31.16 billion in 1996 to US$33.2 billion in 1997 due to the growing trade deficits of Poland and Croatia.

Russia registered positive growth in 1997, although a slight 0.8%, for the first time in eight years, and with the rate of inflation falling further, there was a growing sense of economic stability. However, government revenues deteriorated rapidly from the fall in 1997 due to the effects of the Asian currency and economic crisis, and the economy has again assumed an appearance of instability. The economic condition in Russia is becoming increasingly severe in 1998. With regard to trade, key exports such as oil and natural gas were hit by the slump in international prices, and Russia's exports in 1997 fell 2.0% on the previous year and the trade surplus declined for the first time since 1992. The exports of the CIS fell in 1997 by 3%, while imports rose by 6%.

[2] Changes in Trade Environment

The countries of Central and Eastern Europe have been lowering tariffs on imports from the EU in stages under the Europe Agreement. At the end of March 1998, Poland, Hungary, the Czech Republic, Slovenia and Estonia began negotiations on EU membership, and Slovakia, Romania and Bulgaria began preparatory negotiations on EU membership. Since Romania's admission to the Central European Free Trade Agreement (CEFTA) in July 1997, Bulgaria and Croatia are also seeking membership.

In July 1998, the West, including Japan, agreed to extend to Russia a $22.6 billion financial assistance package, including $15.1 billion from the IMF. Due to the impasse over the solvency of private banks and the redemption of short- and medium-term government bonds, however, the government and central bank were forced in August to effectively devalue the rouble and postpone repayment of debts to non-residents.

[3] Developments in Trade with Japan

Trade between Japan and Central and Eastern Europe grew at an unprecedented rate in 1997; exports of raw materials from Japan rose as a result of the growing scale of direct investment by Japanese firms in Central and Eastern Europe, while Japanese imports from the region increased due partly to the effects of publicity for Central and Eastern European products. According to Japanese customs statistics, the scale of trade rose by 33.3% on the previous year to US$1.91 billion, with Japanese exports up 36% to US$1.26 billion and imports up 28.5% to US$653.52 million. Japan's export surplus was up 45.3% to US$663 million .

According to Russian statistics, the total value of trade between Japan and Russia in 1997 increased slightly by 0.8% to US$3.92 billion; Russian exports to Japan were up 0.7% on the previous year to US$2.94 billion, and imports from Japan rose by 0.9% to US$985.15 million. With then Prime Minister Hashimoto's declaration of the three principles of Russo-Japanese diplomacy in July 1997, dialogue between the leaders of the two countries progressed, and the two governments began economic cooperation under the "Hashimoto-Yeltsin Plan."

Note: The term "Central and Eastern Europe" is here used to refer to the eight countries of Poland, Hungary, the Czech Republic, Slovakia, Romania, Bulgaria, Slovenia and Croatia.

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