Anton Lundqvist Martin Persson
1
The EU-Japan Economic Partnership
Agreement –
Impact on Swedish MedTech in Japan
The Economic Partnership Agreement, EPA, between the EU and Japan aims to boost trade by reducing obstacles to trade between the economies. Sweden’s MedTech industry is strong and Japan is one of the most attractive markets in the world, due to its size and demographics. On the other hand, the Japanese MedTech market is one of the most regulated in the world. The biggest obstacle is the time consuming, complex and costly product approval process for medical devices. It is still hard to determine what level of impact the EPA will have on the process in the future. However, recent events indicate that a more open and easily accessible market lies ahead.
The Agreement
On the 1st of February in 2019, the EU-Japan EPA, also called “cars-for-cheese agreement”, was implemented. The agreement aims to reduce barriers to trade between the economies, to shape global trade rules and to send a message of rejection against protectionism. The agreement is expected to be fully implemented by 2035 and is estimated to boost the EU’s GDP by 33 billion euros and Japan’s GDP by 29 billion euros. The agreement will have an extra-large impact on Life Science, Food and Beverages, Equipment for transportations and vehicles. The most explicit changes in the agreement revolve around tariff removals. The biggest potential however, lies in non-tariff measures, such as cooperation revolving technical standards and regulations.
It is the latter that is likely to affect the Life Science industry the most. MedTech is a part of the Life Science industry, in this thesis defined as products classified as medical devices in the Japanese market.
As part of the EPA, a number of committees responsible for different areas were created. Two committees are of particular interest for MedTech: The Technical Barriers to Trade and the Committee on Regulatory Cooperation.
The Japanese market
Japan is one of the worlds most attractive markets for MedTech. It is a country with a population of 127 million people, a compulsory healthcare system, a GDP per capita about the same as the EU average and a quickly aging population. Now, in 2020 it is estimated that 30% of the population will be above 65 years of age. All these factors contribute to a growing demand for MedTech products. Conducting business in Japan is however not hassle-free. There exist a various range of cultural differences and in addition, it is a highly regulated market. One of the biggest cultural differences is how highly valued personal relations in business are, which makes the barriers to enter the market high.
Swedish MedTech
Sweden have a very strong MedTech industry – responsible for four percent of the global turnover. Considering Sweden is a country of only 10 million people and ranks as 22 in the world in terms of GDP, four percent is a
Anton Lundqvist Martin Persson
2 quite remarkable market share. Sweden has become a hub for international MedTech due to its innovative business climate and has managed to produce a series of vital innovations over the years, such as the pacemaker, the ultrasound and the synthetic kidney. There now exist about 600 MedTech companies in Sweden with an annual turnover of over 1 million SEK.
The Study
The authors of the master thesis, upon which this article is based on, set out to investigate what effects the EPA has had and could potentially have on Swedish MedTech companies, both already established companies as well as potential entrants. The reason for this rather narrow scope is due to the large estimated effect Life Science (in which MedTech is included), because Japan is one of the most attractive markets in the world for MedTech and because Sweden has a prospering MedTech industry and a strong presence in Japan.
To study the effects and the potential effects, a case study was performed, in which interviews were conducted in order to collect primary qualitative data. Furthermore, the study used an abductive approach, meaning theory and empirics were developed simultaneously. This approach was chosen as the literature about the subject was scarce and that the scope was to some degree uncertain. The empirics were collected during ten interviews in Tokyo, Japan, during the fall of 2019. The interviews were divided into three cases: MedTech companies, Healthcare companies and Organizations connected to the EPA and/or the MedTech Industry. The initial idea was to only investigate Swedish MedTech companies established in Japan but early on it became clear though that the scope had to be broadened in order to collect
enough data. This broadened scope included Life Science companies as well as organizations connected to the EPA and/or the MedTech industry.
Based on the empirics gathered, cross-case analyses were performed in order to triangulate the results from the interviews.
Result
From the cross-case analyses, it became clear that the greatest obstacle for foreign companies to sell MedTech in Japan, is the time consuming, complex and expensive product approval process. In the EU, all MedTech must comply with the same regulations. However, if they do and are eligible to be sold in the EU, they are still required to go through the Japanese product approval process, a process that sometimes takes up to three years. One reason for this is that the government in Japan have a higher degree of legal responsibility for product approvals than in the EU.
The empirics indicate that the EPA has already affected the Japanese product approval process. In 2014, five years before the agreement was put into power, the Pharmaceutical and Medical Devices Law, hereafter PMDL, was implemented. This law shortened the product approval process which in turn made it less costly. However, the authors have not been able to determine to what extent the EPA affected the development and implementation of the PMDL.
From interviews with Swedish MedTech companies, it has become clear that no direct effects have been noticed since the implementation of the EPA. However, what two of the companies state, and what is also backed up by other interviews, is that there has been a recent attitudinal change in
Anton Lundqvist Martin Persson
3 attitude from the Japanese government’s side. It seems as if it is now more willing to listen to the problems the industry faces and is more eager to solve obstacles to trade. This attitudinal change is of good character for the MedTech industry. The study has however not been able to show unambiguously that this attitudinal change is a cause of the EPA. Lastly, what potentially could affect the MedTech sector is the work of the committees on technical standards and regulatory cooperation. What level of impact they will have is however hard to determine, since they have only just initiated their work.
Conclusions for Swedish MedTech in Japan
The EPA is not an agreement that dramatically has changed the business climate for Swedish MedTech in Japan. The reason behind this is that the EPA does not directly affect the industry. The future business climate could potentially become more attractive for both established companies and potential entrants if the product approval process becomes more harmonized. If and when this would happen is uncertain, but the attitudinal change of the Japanese government and the creation of the two EPA committees working on technical standards and regulatory issues indicates that things are moving in the right direction.
