EU cuts fast-track free trade deals with Japan and Singapore and leads the trade scene

Containers at the port of Tokyo. (Copyright: European Union, 2016. Source: EC – Audiovisual Service. Photo: Haruyoshi Yamaguchi)

Last week, the European Commission presented the outcome of the negotiations for the Economic Partnership Agreement with Japan, formally putting forward the proposed trade deal with the Asian country for fast-track approval. Once signed, the EU-Japan agreement would represent the most important trade agreement ever negotiated by the EU, and Brussels is now officially pushing for the quickest possible implementation.

Also, last Friday, the Commission took an important step in the ratification process of another trade pact with an important Asian market, as it presented to the Council the negotiation outcomes of a proposed trade agreement with Singapore. By pushing on the accelerator of international trade, the European Union is openly sending a message to United States President Donald Trump and his protectionist approach, trying to take the leadership on the stage of the open rule-based exchange.

Background

On March 25, 2013, EU governments instructed the European Commission to start negotiations with Japan and, after 18 rounds of talks, on the 6th of July 2017, the European Union and Japan 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”. A Strategic Partnership Agreement between the two has been negotiated in parallel.

On 8 December last year, the negotiations were finalised. After the legal verification and translation processes, the European Commission could then submit the agreement for the approval of the European Parliament and EU Member States. The European Commission has now proposed to the Council and then the European Parliament that they formally approve the EU-Japan EPA.

Last week’s step

Last Wednesday, the Commission presented the outcome of the negotiations for the EPA with Japan, as a first step towards the signature and conclusion of the agreement. The President of the European Commission Jean-Claude Juncker welcomed the move: “The step we are taking today paves the way for our companies and citizens to start benefitting from the full potential of the Economic Partnership Agreement with Japan already in the coming year”, he said. “Europe believes in open and fair trade, based on a global rulebook. Our economy depends on it, our companies thrive off it and our consumers expect it”, he added. “Along with like-minded partners around the world it helps us create jobs and set standards both at home and abroad”, he underscored.

The deal

The Japan agreement is the biggest bilateral trade partnership ever negotiated by the European Union. Once ratified, it would create the world’s largest economic area, covering roughly the 30 per cent of global GDP. The deal aims at removing the vast majority of customs duties that cost EU companies exporting to Japan €1 billion a year. The agreement would remove EU tariffs of 10 percent on Japanese cars and the 3 percent rate for most car parts. It would also scrap Japanese duties of some 30 percent on EU cheese and 15 percent on wines, and secure access to large public tenders in Japan. EU firms already export over €58bn in goods and €28bn in services to Japan every year.

Fastest conclusion

In an official press release, EU authorities spoke of a “swift conclusion and a quick implementation” of the agreement, as part of a fast-track approval that the Commission has put forward to the Council. Indeed, the Commission’s biggest hope is that respective leaders will sign the EU-Japan agreement at a summit in Brussels in June or July this year and that both deals will come into force by the middle of 2019.

The attempt by the European Commission to fast-track the deal looks like a direct consequence of past experiences with the EU-Canada Comprehensive Economic and Trade Agreement (CETA), when huge protests, wide criticism and last-minute objections by the Walloon Parliament, in Belgium, nearly derailed the agreement in 2016.

Singapore deal

Last Friday, the European Commission has also presented to the European Council the negotiation outcomes of a free trade agreement between the EU and Singapore (EUSFTA). Negotiations for the EUSFTA began in 2009 and concluded in 2014. Besides liberalising tariffs, reducing non-tariff trade barriers and promoting services and investment, the EUSFTA, once ratified, would also give improved access to government procurement opportunities.

The trade and investment agreements with Singapore are the EU’s first completed bilateral deals with a member of the Association of Southeast Asian Nations (ASEAN). Within ASEAN, Singapore is by far the EU’s largest partner with a total bilateral trade in goods of €53.3 billion (2017) and in services of €44.4 billion (2016). Over 10,000 EU companies are established in Singapore and use it as a hub to serve the whole Pacific region.

Leadership in free trade

The steps forward with Japan and Singapore in the ratification process of the two proposed free trade deals send by all means a strong signal to the world about the EU’s commitment towards open rule-based trade. It is clear that Brussels is determined to take the lead of international free trade, as a response to the current wide-spread protectionism the world is experiencing, coming especially from the US.

“With Japan and Singapore we are making a strong statement in defence of open and fair trade based on rules”, said Commissioner for Trade Cecilia Malmström last week, with a clear reference to recent protectionist moves by the US President Donald Trump. “The economic partnership with Japan will cover an area with 600 million consumers and a third of global GDP. Its economic potential is clearly unprecedented”, she also said. “Both Japan and Singapore are important partners for us in defending multilateralism and ensuring strong international organisations”, she added. Commissioner recently described the tariffs imposed on aluminium by US government as “pure protectionism”.

Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness also commented the steps taken. “The EU stands up for an open, rules-based and fair trade order. Japan and Singapore are key and like-minded economic partners. The signature of deep and comprehensive trade agreements with them will benefit our exporters, workers and consumers”, he said.

Next steps

Once approved by the Council, the agreements will be sent to the European Parliament. The European Commission formally aims for the entry into force of the trade agreements with Japan and Singapore before the end of the current mandate of the European Commission in 2019. In an official EU note, the Commission said the investment protection agreement with Singapore will follow its ratification procedure also at Member State level.

At the same time, negotiations with Japan will continue on investment protection standards and investment protection dispute resolution, which hasn’t been covered yet. “The firm commitment on both sides is to move towards an agreement in the investment protection negotiations as soon as possible, in light of the shared commitment to a stable and secure investment environment in Europe and Japan”, the Commission said.