The European Union and Japan signed a long-awaited commercial trade deal on Tuesday (17 July), in an emphatic statement meant to counter US President Donald Trump’s attacks against free trade and the rules-based international order.
The deal is the biggest trade deal ever signed by the EU and will remove almost all the €1 billion worth of duties paid every year by EU companies that export to Japan.
“This is an act of enormous strategic importance for the rules-based international order, at a time when some are questioning this order,” European Council President Donald Tusk told reporters after the deal was signed.
In addition to the economic impact, the EU’s top officials stressed the political relevance of the deal signed to “cement the Japanese-European friendship forever”, Tusk said.
“Politically it is a light in the increasing darkness of international politics. We are sending a clear message, that you can count on us”, Tusk said referring to Trump’s questioning of the multilateral order.
Both Japan and the EU “predictable, responsible and we will continue defending a world based on rules, freedom, transparency and common sense”, Tusk insisted.
Japanese Prime Minister Shinzo Abe said the deal “shows the world the unshaken political will of Japan and the EU to lead the world as the champions of free trade at a time when protectionism has spread.”
Largest free trade area
Besides the Economic Partnership Agreement to create the largest free trade area in the planet, covering 600 million people, both sides signed a Strategic Partnership Agreement.
This new framework would bolster cooperation in global challenges such as cybercrime, disaster management, energy security, climate change, or to address the ageing of societies.
In addition, both sides agreed to recognise each other’s data protection systems as ‘equivalent’ (reciprocal adequacy).
European Commission President Jean-Claude Juncker said that this mutual recognition would create the “largest safe flow of data” in the world.
“Together, we are making a statement about the future of free and fair trade,” Juncker said during the press conference.
Trade is about more than tariffs and barriers, he said, “It is about values, principles and finding win-win solutions for all”.
Trade benefits
It took almost five years to finalize the agreement, which the European Commission and the Japanese government started to negotiate back in 2013.
Both sides made significant concessions to wrap up the deal. The EU accepted to open its market to Japan’s powerful auto industry. But in order to let European carmakers to get ready, there will be a transition period of seven years before the tariffs, currently, at 10%, are eliminated.
Meanwhile, Japan accepted to cut its tariffs on many European agricultural products. It will scrap duties on cheese including Gouda and Cheddar (currently at 29.8%) and wine (around 15% average).
The permits for EU’s beef exports will be also increased, and there will be no duties for processed pork meat and almost none for fresh pork meat.
According to the Commission, exports of processed foods could increase by up to 180 per cent.
Both sides also agreed to protect a long list of Geographical Indications, a total of 200 on the European side.
The bloc would also get access to public procurement in 48 Japanese cities and easier access to contracts in the national railway sector.
The EU estimates that 600,000 jobs in Europe are related to trade with Japan.
Reasonable people
For the EU, the conclusion of the negotiations brings access to one of the world’s richest markets. It also sends a powerful signal to Trump’s protectionist offensive, following its agreement with China the day before.
Eyeing Trump, Tusk said it was “a good day not only for all the Japanese and Europeans but for all reasonable people of this world who believe in mutual respect and cooperation.”
Abe had been scheduled to sign the deal in Brussels last week but cancelled his trip after devastating floods that killed more than 220 people.
The deal still needs to pass the ratification process in the European Parliament and the Japanese Diet.
The ratification process of EU’s comprehensive free trade deal with Canada found opposition in countries such as Italy.
Asked about a possible backlash because of potential job losses in some European sectors, Juncker argued that if Europe exports €1 billion more, this generates “automatically” 14,000 jobs
“The real risks to our economy, jobs and prosperity are political uncertainty, tariff war, unpredictability, irresponsibility and aggressive rhetoric, not free trade agreements,” Tusk said
Investment protection standards and the controversial investment protection dispute resolution are not part of the deal yet. Both sides want to reach an agreement on these issues “as soon as possible”.
Positions
The EU-Japan Economic Partnership Agreement creates the largest free trade area in the world and businesses have played a major role in its negotiation, hence their happiness about its successful conclusion.
“The agreement is a milestone in international trade, at a time when rules-based trade is under pressure,” said Pierre Gattaz, president of BusinessEurope.
BusinessEurope, as well as several agri-food chain organisations (Copa and Cogeca, CELCAA and FoodDrinkEurope), highlighted the potential economic opportunities the deal will open for European companies, particularly on exports of agricultural products, food and drinks.
Even though DIGITALEUROPE, which represents digital technology industry in Europe, welcomed the deal, the organisation also regretted that the agreement “does not include a broader provision on cross-border data flows”.
Conversely, this was praised by the European Consumer Organisation (BEUC). “For consumers, this is very risky as it turns data protection laws into a bargaining chip,” BEUC said in a statement.
“The EU-Japan deal for the moment avoids major threats to consumer protection. But this is not yet set in stone,” Monique Goyens, director general of BEUC, said.
Goyens called on the parties to rule out the adoption of parallel legal “systems which could harpoon consumer protection laws,” such as a potential investor protection court in a possible future investment deal.
In a joint communiqué, both Japanese and European Trade Union Confederations regretted the lack of “effective labour enforcement provisions” in the final deal.
Nevertheless, unionists recognised the importance of creating frameworks for economic cooperation so as to ensure “a stable and sustainable growth trajectory and establishing sustainable employment” both in the EU and Japan.