The economic partnership agreement signed by Japan and the European Union during the meeting of their top leaders in Tokyo this week demonstrates their commitment to the multinational free trade system at a time when the global trade order is under threat from the unilateral protectionist actions by the administration of U.S. President Donald Trump. The Japan-EU accord, which will establish a massive free trade area accounting for 30 percent of the world’s gross domestic product combined and 40 percent of global trade when it takes effect, should send Washington a clear message about the benefits of the free trade regime and the folly of a tit-for-tat trade war in which no party can emerge a winner.
It is also significant that Prime Minister Shinzo Abe, European Council President Donald Tusk and European Commission chief Jean-Claude Juncker signed a strategic partnership agreement that seeks to deepen cooperation between Japan and the EU not just on trade but in a broad range of fields such as security, climate change and space development (though specifics on such cooperation will need to await further talks). At a time when the United States under the Trump administration’s “America First” agenda is rapidly abandoning its leadership roles in international affairs, Japan and the EU together should be able to push a global agenda forward.
Following domestic procedures on both sides, Japan and the EU hope to put the EPA into force by the end of next March. Tariffs on industrial goods will be either mutually eliminated or phased out, while import duties on most agricultural and fisheries products will also be subject to the cuts with the exception of rice imported by Japan. Japan will eventually eliminate tariffs on 94 percent of items imported from the EU, which in turn will end duties on 99 percent of Japanese exports to the region. The deal is expected to lower the price of European wine and cheese for consumers in Japan, while Japanese automakers hope to benefit from the elimination of a 10 percent tariff on vehicle exports to the EU market in the eighth year after the deal takes effect.
The government estimates that the EPA will boost Japan’s GDP by about 1 percent, or roughly ¥5 trillion, and create some 290,000 jobs. At the same time, it’s estimated that domestic farm production will decline by as much as ¥110 billion a year due to greater competition with imports, although the government hopes to alleviate the negative impact through policy measures.
Aside from the anticipated direct benefits from the free trade deal, the Japan-EU agreement, as Abe put it in a joint news conference with Tusk and Juncker, is significant in that it sends a message about the importance of the free trade regime in an era when the world is increasingly gripped by fears of protectionism. Without naming the U.S. president, Tusk called the Trump administration’s unilateral protectionism a real risk to the global economy.
In fact, what accelerated the Japan-EU free trade talks — which made slow progress after they began in 2013 — was a mutual sense of crisis over protectionist pressures on global trade since the inauguration of the Trump administration in 2017. After Trump made good on his campaign promise to pull the U.S. out of the Trans-Pacific Partnership free trade pact, Japan took the initiative to keep the TPP alive along with 10 other participants in the original deal. The recent enactment of related legislation has made Japan the second country in the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to complete domestic procedures needed for its implementation. Japan is also among the 16 Asia-Pacific economies that are negotiating the Regional Comprehensive Economic Partnership, which agreed in a ministerial meeting in Tokyo earlier this month to expedite the talks and reach a broad agreement by the year’s end.
The Trump administration’s unilateral trade actions are threatening the global trade order. It has imposed hefty tariffs on steel and aluminum exports to the U.S. on dubious “national security” grounds. The sanctions it imposed on China citing intellectual property violations have triggered retaliatory actions by Beijing, throwing the world’s two largest economies into a tit-for-tat trade war. The U.S. administration is threatening to establish import curbs on automobiles and auto parts as it prepares to hold bilateral trade talks with Japan.
Japan needs to keep pushing the multinational free trade agenda not only as a way to keep the Trump administration’s protectionist actions in check, but also to prompt the U.S. to rethink its trade policy by showing that it stands to lose by isolating itself from the international free trade regime. The launch of the CPTPP and the Japan-EU EPA should contribute to that effort.
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