The EU and Japan seal free trade pact that will cover 30% of global GDP

Last Friday, after striking a life-changing Brexit agreement with the United Kingdom, the European Union managed to finalise negotiations on a major trade deal with Japan. Sources revealed that EU and Japan leaders were able to find a final accord on the telephone, after their respective chief negotiators concluded a meeting in Brussels and paved the way to what will create the world’s largest open economic zone. Indeed, the deal, which was agreed in principle back in July this year, will cover 600 million people and encompass approximately 30 per cent of global GDP.

Background

In 2013, EU governments instructed the European Commission to start negotiations with Japan, targeting a trade agreement that could eliminate existing trade barriers when exporting to the Land of the Rising Sun. On 6 July 2017, at the 24th Summit between the European Union and Japan, the two parties reached an agreement in principle on the main elements of the “EU-Japan Economic Partnership Agreement”. Back then, the President of the European Commission, Jean-Claude Juncker, described the accord as something that goes “beyond free trade”, and that “makes a statement about the future of open and fair trade in today’s world”.

Final agreement

Last week’s agreement sent indeed a big message to the world. With a joint statement by European Commission’s President Jean-Claude Juncker and the Prime Minister of Japan Shinzo Abe, the EU welcomed the finalisation of the negotiations of the EPA between the bloc and Japan, after four years and 18 rounds of negotiations. “The finalisation of the negotiations on the EU-Japan EPA demonstrates the powerful political will of Japan and the EU to continue to keep the flag of free trade waving high, and sends a strong message to the world”, said the statement.

Impact

According to the official materials released by the European Commission, the impact that the brand new agreement will have on trade between the two economic powers will be huge. The Economic Partnership Agreement will indeed remove the vast majority of the €1 billion of duties paid annually by EU companies exporting to Japan, as well as a number of long-standing regulatory barriers. With regards to agricultural exports from the EU, the agreement will, in particular scrap duties on many Euro-cheeses such as Gouda, Parmigiano Reggiano and Cheddar (which currently are at 29.8%) as well as on wine exports (currently at 15% on average). It will also let the EU increase its beef exports to Japan substantially, while on pork there will be duty-free trade in processed meat and almost duty-free trade for fresh meat.

The agreement also targets services, in particular financial services, e-commerce, telecommunications and transport. It’s useless to say that Japan’s automotive sector will benefit considerably from the freshly-sealed accord with Brussels, as the European Union will eliminate tariffs on Japanese cars in the eighth years after the pact is implemented . The bloc is the world’s biggest importer of road vehicles.

Reactions

“It’s done”, President Juncker twitted on Friday. “In line with the commitment made in July, we finalised the discussions before the end of the year. We will now do the necessary to submit the agreement to the European Parliament and EU’s Member States so that our companies and citizens can start exploring its full potential before the end of the mandate of my Commission”, he also declared. Japanese Prime Minister Shinzo Abe also commented the news. “Japan and the EU will join hands and build a free, fair and rule-based economic zone, which will be a model of an economic order in the international community in the 21st century,” PM Abe told reporters on Friday.

Message to the world

EU Commissioner for Trade Cecilia Malmström also commented the agreement: “the EU and Japan share a common vision for an open and rules-based world economy that guarantees the highest standards”, she said. “Today, we are sending a message to other countries about the importance of free and fair trade, and of shaping globalization”, Commissioner Malmström also commented, sending what can be seen as a clear message to US President Donald Trump’s more protectionist stance.

Japan had been indeed one of the signatories to the planned Trans-Pacific Partnership, a mammoth 12-nation trade alliance that had been promoted by US during Obama’s era and that has been ditched by Trump minutes after he took over. Japan’s Abe said last week a “new era” would now start for the EU and Japan, as reported by Reuters.

Separate discussions

In the past months after July’s agreement in principle, negotiators worked on stabilizing tariffs in services, regulatory cooperation and the clauses and articles to protect food and drink categories. But despite negotiations on those details of the text for five months, separate discussions will continue on the contentious issue of investor protection. Indeed, the deal announced on Friday does not cover investor protection, and separates it out from the main economic partnership agreement.

“This needs further discussion at the beginning of next year but the rest of the agreement is there”, Commissioner Malmström said, highlighting the fact that this element of the deal could be added on later. ISDS clause, which is the mechanism that would allow corporations to sue governments in tribunals if they believe to have been obstructed by local laws, has been one of the thorniest matters in the TTIP talks between the EU and the US.

The way forward

Following the announcement made on Friday, the EU and Japan will now start the legal verification of the text, also known as “legal scrubbing”. Once this exercise is completed, the English text of the agreement will be translated into the other 23 official languages of the EU, as well as into Japanese.
The Commission will then submit the agreement for the approval of the European Parliament and EU Member States. The two parts declared they aiming for the trade pact’s entry into force before the end of the current mandate of the European Commission in 2019.