The proposed EU-Japan free trade agreement is likely to give a boost to European cosmetics producers, as MJ Deschamps, Wang Fangqing and Carmen Paun report
Japanese cosmetics companies could increase their current small share of the European market if an anticipated free trade agreement between the European Union (EU) and Japan is finalised. Having completed preparatory talks with Japan, in mid July the European Commission (EC) requested formal permission from EU member states to begin negotiations in earnest, which could take two years or more. These are likely to slash or remove duties on personal care products traded between the two jurisdictions and also remove a series of non-tariff restrictions impeding trade between Japan and Europe.
Zu Rafalat, joint ceo of Zulu Beauty, home to two of Europe’s leading online beauty retailers (LoveLula and Zuneta) said her company does not work with Japanese brands but hopes that the forthcoming agreement will help open up more opportunities for EU retailers and partnerships with Japanese cosmetics producers.
One key issue is animal testing. EU retailers are concerned that Japan may test on animals where such actions are banned in Europe, making them nervous about buying and selling Japanese beauty brands. “Personally, I think a [bilateral] agreement will give producers more motivation [to move away from animal testing]… I think it will help force Japan to be a bit more transparent… and information about which brands test on animals will become more easily accessible,” said Rafalat.
She also hoped the agreement would encourage the manufacture in Japan of natural cosmetics for sale in Europe, with clear labelling to help consumers feel safer about buying Japanese products. “At the moment it can be hard for customers to understand brand qualities,” she said.
A deal would of course offer opportunities for Japanese cosmetics exporters predicts Serena Jian, a Europe based personal care product analyst at Euromonitor International. Shiseido is the leading Japanese company in Europe but its market share accounts for less than 1%, according to Euromonitor. “If the deal was passed it would allow Japanese companies to expand their product portfolios in Europe,” she said.
International merchandise trade statistics from the UN show that in 2011 imports to the EU from Japan of beauty and make-up preparations had a trade value of $85.57m, a figure that has been growing steadily since 2009. However, exports to Japan from the EU for products of the same category remain much higher, totalling $257.85m in 2011. Overall, exports from the EU have been holding fairly steady in recent years with $264.5m worth of beauty and make-up preparations going to Japan in 2010 and $243.5m worth in 2009.
In other categories, imports to the EU from Japan of essential oils and resinoids in the areas of perfumery, cosmetic or toiletry preparations in 2011 totalled $157.5m, while shaving preparations, deodorants and bath preparations totalled $3.8m. Looking at exports from the EU to Japan on the other hand, numbers were much bigger again. For essential oils and resinoids in 2011 for instance, exports were at $778.9m.
But while a trade agreement between the EU and Japan would almost certainly help stimulate imports and exports, this is more likely to come from harmonising health and safety rules than through tariff removal. Tariffs on cosmetics products from Japan are already fairly low according to the EC. While tariffs in categories such as essential oils of citrus fruits used in perfumery, cosmetic or toiletry preparations range from 4.4% to 7% and deodorants, antiperspirants and bath preparations attract 6.5%, products such as perfumes and toilet waters, beauty and make-up preparations (including lip make-up, eye make-up and manicure/pedicure preparations) and shampoos, for instance, already have 0% tariff rates.
Overall, a free trade agreement would build on the 2001 EC-Japan Mutual Recognition Agreement (MRA) which involved EU and Japanese regulators accepting each jurisdiction’s safety standards for electrical goods, radio and telecommunications devices. In a public consultation, the cosmetics sector told Commission officials it wanted this expanded to its industry.
Animal testing could be a key issue for expanding the MRA to personal care products. “At the end of the day, we always investigate products that we launch stringently… and we hope [the agreement] will help make the beauty industry more open and hopefully influence Asia to [stop animal testing],” Rafalat said. “Even in Europe, there are still ingredients tested on animals, so I think it really comes down to the responsibility of a retailer if they’re promoting natural products.”
Jian added that a faster way for Japanese exporters to catch European consumers is to sell cheaper but good quality products, which could be attractive: “In the face of the Eurozone’s economic uncertainty, mass cosmetics are likely to gain popularity among consumers with a tight budget but reluctant to compromise on quality.”
However this is not the current strategy for Kanebo which just launched Sensai, a high end product line, in Romania in June; the brand is now available in 33 European countries. A Kanebo spokesperson commented that if the tariff was lowered or even eliminated, “the price would not be changed under our brand strategy but lower duties would allow us to invest more in marketing in Europe, which would eventually benefit sales.” The company plans to focus its global expansion efforts on emerging Eastern European countries.
But as Euromonitor’s Jian commented: “There is certainly a lot of work… for any Japanese company looking to march into the European market.”
