EU and Japan ratify first FTA ever to include Paris Climate Agreement provision

Shinzō Abe, on the right, and Jean-Claude Juncker at EU-Japan Summit in Tokyo last week. (Copyright: European Union, 2018 / Photo: Etienne Ansotte)

In the week that US President Donald Trump called the European Union a “foe”, and reaffirmed his will to hit China with more duties on imports, Brussels signed a wide-ranging free trade deal with Japan. At the 25th EU-Japan summit in Tokyo last week, the leaders of the two areas indeed finally sealed two landmark agreements that will boost cooperation between both sides and that will ultimately create the world’s largest free-trade areas.

The deal is also the first one to date to include the Paris Climate Agreement’s provision, and to carry the ambitious goal to commit both parties to upholding the UN climate accord. With the creation of such an ambitious and wide pact, which covers nearly a third of the world’s economic output and affects 600 million people, the two parties hope to counterweight the protectionist forces unleashed by US President Trump, and to launch a new policy for any future trade pact to be.

Background

The first moves towards the creation of an EU-Japan FTA date back to 2013 when, on March 25, EU governments instructed the European Commission to start negotiations with the country of the rising sun. After 18 rounds of talks, on July 6, 2017, the European Union and Japan reached an agreement in principle on the main elements of the EU-Japan Economic Partnership Agreement, negotiating a Strategic Partnership Agreement 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.

At the end of April this year, 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 this way: “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”.

Last week’s accord

At the 25th EU-Japan summit in Tokyo last week, the two parts finalised the deal, signing two landmark agreements to increase their cooperation and to formally create the world’s largest free trade area in the planet, covering 600 million people. The two agreements were: the actual EU-Japan free trade agreement, that will remove 99% of tariffs paid by EU companies exporting to Japan, and the EU-Japan strategic partnership agreement, which is expected to boost cooperation between both sides on a wide range of issues beyond trade including security and defence, people exchange and climate.

“The document we signed today is much more than a trade agreement. It is of course a tool that will create opportunities for our companies, our workers and our citizens […], but it is also a statement, President of the European Commission Jean-Claude Juncker said. “It is a statement by two likeminded partners that together represent nearly a third of the world’s GDP and reiterate their commitment to uphold the highest standards in areas such as labour, safety, environmental or consumer protection”.

“Together with Japan, we are sending a strong signal to the world that two of its biggest economies still believe in open trade, opposing both unilateralism and protectionism”, said Cecilia Malmström, Commissioner for Trade, on July 17.

Paris climate clause

Regarding climate, the deal includes a very ambitious goal. For the first time in history, a Free-Trade Agreement between economic superpowers will indeed include provisions regarding the fulfilment of UN Paris Climate Agreement. Last February, the European Commission stated that future EU trade deals will be contingent on Paris Agreement membership and that will have to carry a formal commitment from all parties involved to uphold the 2015 Paris Agreement on climate change mitigation.

“We reaffirm our strong commitment to implement the Paris Agreement, through ambitious climate action, in particular through reducing emissions while promoting innovation, climate finance, development of sustainable energy technologies, and improvement of energy efficiency so as to reach a global carbon-neutral economy over the course of the second half of the century”, said an official joint statement by Donald Tusk, President of the European Council, Jean-Claude Juncker, President of the European Commission, and Shinzo Abe, Prime Minister of Japan.

Ambitious deal

The EU-Japan FTW is the first deal in history to indicate an effort to integrate trade and climate policy. Many EU agri-food chain organisations recognised its value and ambitiousness of the message it carries. In a joint statement, Copa and Cogeca, CELCAA and FoodDrinkEurope said: “The EU-Japan EPA comes with high expectations, both in terms of tariff reductions and removal of non-tariff barriers to trade, which are expected to create significant opportunities for European exports of agricultural products, food and drinks.

EuroCommerce has welcomed too the historic trade agreement signed between Japan and the European Union during the 25th EU-Japan Summit earlier this week. “The formal signing […] of the EU-Japan Economic Partnership Agreement sends an important message to those leaders who want to throw away all that a rules-based world trading system has achieved,” EuroCommerce director general Christian Verschueren.

“No Paris-No agreements” policy

Both Japanese and EU leaders were aware of the symbolic meaning behind the trade deal, as the ambitious accord is a clear message to US President Donald Trump’s protectionist policy and open opposition to Paris Agreement. On June 1, 2017, United States President Donald Trump announced that the US would cease all participation in the 2015 Paris Agreement. Back then, President Trump stated that “the Paris accord will undermine (the US) economy”, and “puts (the US) at a permanent disadvantage”, clearly distancing himself from the other Western leaders.

Many European leaders in the past months have made clear that there was a precise will from Brussels to make any further trade agreement with foreign economies contingent on membership of the Paris climate agreement, automatically excluding the US. Earlier this year, in February, French foreign affairs minister Jean-Baptiste Lemoyne told his own parliament that France will oppose to reviving any EU-US trade accord if the US was carrying through their promise to leave the Paris deal. “One of our main demands is that any country who signs a trade agreement with EU should implement the Paris Agreement on the ground”, Mr. Lemoyne said. He then called on the EU to make a new trade policy: “No Paris Agreement, no trade agreement”.

Size of the game

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. Firms in Europe currently export more than €85 billion in goods and services to Japan every year, and the deal aims at removing the vast majority of customs duties that cost EU companies exporting to Japan roughly €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.

The agreement is now awaiting ratification by the European Parliament and the Japanese Diet following which it could enter into force in 2019.