EU, Japan Pledge To Tie The Trade Knot Within Months

By Daniela Vincenti

(EurActiv) — The European Union and Japan agreed the broad lines of a trade deal on Thursday (6 July), promising to iron out the last details within months.

“Today we agreed in principle on an Economic Partnership Agreement, the impact of which goes far beyond our shores,” European Commission President Jean-Claude Juncker said during a press conference at the end of the extraordinary EU-Japan Summit.

European Council President Donald Tusk stressed that the deal is not just about trade but about shared values and committing to the highest standards in areas such as labour, safety, environmental and consumer protection.

“Together, we are sending a strong message to the world that we stand for open and fair trade. As far as we are concerned, there is no protection in protectionism. Only by working together will we be able to set ambitious global standards.

“This will be the message that the EU and Japan will bring together to the G20 tomorrow,” Juncker added, referring to the G20 summit about to kick off in Hamburg.

The Commission has insisted that the EU-Japan will be the most important bilateral trade agreement ever concluded by the EU and, as such, will for the first time include a specific commitment to the Paris climate agreement.

The Economic Partnership Agreement will remove the vast majority of duties paid by EU companies, which total an annual €1 billion, as well as opening the Japanese market to key EU agricultural exports and increasing opportunities in a range of sectors.

Big win for rural Europe

EU Commissioner for Agriculture and Rural Development Phil Hogan said: “This is a win-win for both partners but a big win for rural Europe. The EU-Japan Economic Partnership Agreement is the most significant and far-reaching agreement ever concluded in agriculture.”

European farmers will now get greater access to Japan’s highly protected dairy market, which will help them deal with a deep crisis, caused by super-low demand and excessive supply.

EU negotiators said the deal scraps duties on many cheeses, such as Gouda and Cheddar (which currently are at 29.8%), and will also allow the bloc to increase its beef exports substantially. On pork there will be duty-free trade in processed meat and almost duty-free trade for fresh meat.

Japan is the EU’s second largest trading partner in Asia and supplying beef to this market at lower tariff rates could potentially make it more attractive to EU-based exporters. Beef exported from the EU is currently subjected to tariffs of around 38.5%.

Tariffs on wine exports, for example, will disappear from day one of entry into force of the deal. For wine producers this means a saving of €134 million a year.

“Equally the Austrian Tiroler Speck, the German Münchener Bier, the Belgian Jambon d’Ardenne, the Polska Wódka as well as over 200 other EU Geographical Indications will now enjoy the same level of protection in Japan that they have in Europe,” Hogan added.

The car trade-off

EU officials said they have also secured results in the auto sector. Japanese car makers will get better access to the EU market. The 10% tariff on Japanese cars exported to the EU will be eliminated in stages within seven years.

In addition, an immediate tariff elimination of between 3% and 4% will be applied on approximately 92% of Japanese auto parts.

Non-tariff measures are also being agreed, including Japanese alignment with international standards, and regulatory cooperation aimed at creating common standards.

At present, South Korean automakers are exporting their cars to the EU on a zero-tariff basis while struggling in the Chinese and US markets.

The agreement also includes a labour and environmental chapter that resembles the one signed by the EU with Canada in CETA. Japan will have to ratify a few core International Labour Organisation conventions to be in compliance with the agreement.

Director-General of BusinessEurope Markus Beyrer said the announcement sent “a very positive signal to the world”.

“We are asking the G20 to take action against protectionism and this is a concrete example of how this could be done,” he added.

European Parliament President Antonio Tajani explained that the deepening of the relationship will not just strengthen the EU’s economy by creating jobs and boosting growth.

“Just like with CETA, this agreement sends a clear signal that the European Union is an ambitious negotiator that sets the bar high when it comes to international trade,” he said.

“Europeans want the EU to continue to set rules globally through open and fair trade that delivers a level playing field while protecting our standards. The EU-Japan free trade agreement will do that.”

Sticking points

However, the deal reached today is only a political agreement. A lot remains to be done, especially when it comes to public procurement and investment protection.

Even if Japan has agreed to open up markets at municipal markets, Tokyo needs to convince local prefectures to accept the deal.

On investment protection, the EU and Japan are still far apart with Brussels sticking to the EU’s investment court system, which Japan adamantly opposes, preferring the arbitration process instead.

“Count another extra year – at least – to see the final shape of the agreement,” said Borderlex expert Iana Dreyer.