In a time of disruption and instability, it is doubly important to highlight efforts to sustain and reinforce the global trade order. Japan and the European Union thus deserve more credit than usual for their determination to conclude and fast-track a free trade agreement. If all goes according to plan, the final deal will be signed at the annual Japan-EU summit scheduled for the summer and will go into effect next year, benefiting citizens in all 29 countries and helping to shore up an international trade order that is under assault.
Negotiations on a bilateral trade agreement began nearly seven years ago, when Japan and the EU agreed in May 2011 to a “scoping exercise” to identify terms of a possible deal. Negotiations began in April 2013 and continued through nearly two dozen rounds, wrapping up last December. This month, the European Commission, the executive component of the EU that negotiates trade deals on behalf of member states, will present its proposals to the 28 member countries.
The agreement would create the world’s biggest economic area, with more than 600 million people (about 8.6 percent of the world’s population), 28.4 percent of global GDP (of which Japan constitutes 6.5 percent) and 37.2 percent of global trade (Japan contributing 3.9 percent). The deal will remove EU tariffs on 99 percent of imports from Japan, including, significantly, reductions on tariffs on Japanese cars and most car parts. By the eighth year, tariffs on all autos will be eliminated; those on TVs will be gone in six years, along with taxes on Japanese tea and sake.
In return, Japan will eliminate duties on 94 percent of all imports from the EU, including 82 percent of farm and fishery products. Experts estimate that the changes will reduce the cost of EU exports to Japan by €1 billion ($1.24 billion). In addition, European companies will have access to large public tenders in Japan. The deal also affirms the two parties’ commitment to sustainable development and includes a specific commitment to the Paris climate agreement.
From here, procedural hurdles are critical. The agreement must be approved by the legislatures of both the EU and Japan, as well as national governments, but not EU member parliaments. A trade deal with Canada was held up in 2016 by protests of a region in Belgium (which were ultimately overcome). Thus far, there appears to be no objection to that process, but that is because the agreement has not addressed investment protections, which is what nearly derailed the Canadian agreement.
If all goes as scheduled — signed by Prime Minister Shinzo Abe and EU Commission President Jean-Claude Juncker at the summer summit and ratified by the legislatures later this year — the agreement will go into effect early next year, which means that it will be in place when Britain leaves the EU at the end of March. If that occurs, then it would apply to the United Kingdom during the Brexit transition period that will last until the end of 2020 and would thus allow Japanese auto manufacturers operating in Britain to maintain their access to the European market.
Apart from the economic value of the deal, the agreement has important symbolic meaning. It is a rejection of protectionism, an affirmation of multilateral trade agreements and the existing trade order. And it is not a one-off agreement: Japan has just concluded the difficult negotiations on the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, the successor to the Trans-Pacific Partnership — which U.S. President Donald Trump withdrew from and then flirted with — and the EU has, along with the Japan deal, announced a trade agreement with Singapore. The EU is close to concluding trade deals with Mercosur, the Latin American economic bloc, Australia and Mexico. As EU Trade Commissioner Cecilia Malmstroem explained, “They send a strong signal to the world that the EU is committed to open rule-based trade.” She added — as could Abe — that “we are willing to take that leadership.”
Neither Japan nor the EU has given up on the United States, however. Abe continues to push Trump to reconsider the TPP, and the EU is reportedly working on a scaled-down version of the Transatlantic Trade and Investment Partnership, a U.S.-EU deal that was intended to balance the TPP but was never concluded. The EU has made it clear, however, that it will not negotiate under threat and has insisted that the U.S. withdraw the steel and aluminum tariffs that it has threatened to impose on European exports. Japan would be well advised to demand a similar condition for any economic talks that it will hold with the U.S.
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