Commentary / Japan

Japan-EU trade agreement is about freedom

by Anders Fogh Rasmussen

Contributing Writer

When all eyes are on China’s global ambitions, Japan is showing a new way of deploying its soft power. Prime Minister Shinzo Abe’s visit this week to six eastern European countries — Serbia, Bulgaria, Romania and the three Baltic states — is a historic first. It reflects Japan’s understanding that the future of the international economic order will be played in and with Europe.

Some of those countries, starting with Serbia, are part of China’s grand plan for a new Silk Road. While the promises of free loans and new rail infrastructure still need to fully materialize, China has spared no expense on winning over Eastern European countries. Abe is telling them and the world that if the global supply chain matters, so do shared values and interests. And he has a strong example with the Japan-EU economic partnership agreement.

The free trade agreement — the world’s biggest yet — will give our economies a major boost, lowering tariffs and trade barriers. For a country like Bulgaria, whose prime minister has been at the vanguard of the negotiations, it will open new markets for agricultural exports. Japanese companies have already begun announcing that they will begin new operations in Bulgaria, employing thousands of people and bringing extra income to small businesses further down the supply chain.

However, this agreement is about more than mutually beneficial economic and transactional relations. Europe and Japan share common values — democracy, the rule of law and the spirit of international cooperation. Concluding and ratifying this deal sends a signal that two of the world’s largest open economies will defend the international order, and free and fair trade.

That signal matters because the global system is under attack, both in the sphere of security and trade. Russia has torn up the international rule book and, for the first time since World War II, has taken European territory by force. Moscow has orchestrated a sophisticated campaign of interference in Western societies, aimed at influencing elections and undermining people’s confidence and trust in governments and institutions.

China, on the other hand, is extending its influence in Europe in a far more sophisticated and subtle manner. Between the financial crisis and 2015, Chinese investments in the EU jumped tenfold. In 2016, they jumped a further 77 percent.

While at face value these investments should be welcome, scratching beneath the surface reveals a different agenda could be in play. For example, China focused much of its investment on countries hurt by the eurozone crisis, such as Greece. In recent months, Athens has altered EU policy on the South China Sea and even China’s human rights record. In other cases, China is expanding its assets into Northern Europe to acquire cutting-edge technological know-how that can often be converted to military use. It has also set Central and Eastern Europe in its sights, through the so-called 16 plus 1 group that counts Bulgaria as a member.

However, China is not returning the favor to European investors and businesses. In fact, European investments in China fell by 25 percent from 2015 to 2016, not least because European investors complain that they are obstructed by a system that gives preference to China’s state-owned monopolies.

To ensure that free and fair trade continues, Europe needs the tools to defend it. One proposal currently before the EU is to create an early warning system to screen potential investments and sound the alarm if they could be risky to Europe’s strategic interests. This proposal will not stop countries from accepting foreign investment, but it will align the EU with other Group of Seven countries — including Japan — that have similar safeguards in place to ensure that their open economies are not hijacked by state-backed monopolies. The Bulgarian presidency of the EU will play a critical role in trying to agree this important proposal sooner rather than later.

Ultimately, the postwar consensus formed around the principle that capitalist trading economies were also predominantly liberal democracies. However, in the 21st century, capitalism and liberal democratic values have diverged. The rise of China could be an opportunity for Europe and other democratic states. But it must be managed according to the West’s defining values and rules. If “America First” protectionism allows China to rewrite the international rule book, it could result in “America Last,” alongside Europe.

That is why the EU and Japan’s work to deliver on this trade agreement is crucial. Besides economic benefits it sends a powerful sign that U.S. retrenchment will not see the democratic world abandon our values. This trade agreement is about freedom, and we need Japan to help us defend it.

Anders Fogh Rasmussen is CEO of consultancy Rasmussen Global. He is a former NATO secretary-general and prime minister of Denmark.

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