EU, Japan Create World Largest Free Trade Area

by Bamidele Ogunberu Last updated on July 20th, 2018,

Tokyo, Japan: The European Union and Japan have signed a trade deal known as the EU-Japan Economic Partnership Agreement (EPA) , creating the biggest free trade area in the world based on high common standards – a contrast to escalating trade disputes between the U.S. and several of its trading partners and a strong statement in favour of the rules based international order.

The widespread trade deal that will eliminate nearly all tariffs, seemingly defying the worries about trade tensions set off by President Donald Trump’s policies.

The signing in Tokyo on Tuesday for the deal, largely reached late last year, is ceremonial. It was delayed from earlier this month because Japanese Prime Minister Shinzo Abe cancelled going to Brussels over a disaster in southwestern Japan, caused by extremely heavy rainfall. More than 200 people died from flooding and landslides.

According to an EU statement  the EPA, which the EU called a “landmark moment for trade and cooperation,” is the biggest ever negotiated by the EU and will create an open trade zone covering more than 600 million people.

Donald Tusk, President of the European Council, Jean-Claude Juncker, President of the European Commission, and Shinzo Abe, Prime Minister of Japan, said in a joint statement :

“In giving full effect to this agreement, the EU and Japan are sending a powerful message to promote free, fair and rules-based trade, and against protectionism. The Economic Partnership Agreement demonstrates to the world the firm political will of the EU and Japan to keep the flag of free trade waving high and powerfully advance free trade. … We underline the crucial role of the rules-based multilateral trading system with the World Trade Organization (WTO) at its core and continue to fight protectionism.”

European Council President Donald Tusk and European Commission President Jean-Claude Juncker, who arrived Monday, will also attend a gala dinner at the prime minister’s official residence.

Both sides are heralding the deal, which covers a third of the global economy and more than 600 million people.

Prices of European wine and pork will fall for Japanese consumers. Japanese machinery parts, tea and fish will get cheaper for Europe.

The deal eliminates about 99 percent of the tariffs on Japanese goods to the EU, but remaining at around 94 percent for European imports into Japan for now and rising to 99 percent over the years. The difference is due to exceptions such as rice, a product that’s culturally and politically sensitive and has been protected for decades in Japan.

The major step towards liberalising trade was discussed in talks since 2013 but is striking in the timing of the signing, as China and the US are embroiled in trade conflicts.

The US is proposing 10 per cent tariffs on a $200bn list of Chinese goods. That follows an earlier move by Washington to impose 25 per cent tariffs on $34bn of Chinese goods. Beijing has responded by imposing identical penalties on a similar amount of American imports.

Besides the latest deal with the EU, Japan is working on other trade agreements, including a far-reaching trans-Pacific deal. The partnership includes Australia, Mexico, Vietnam and other nations, although the US has withdrawn.

Japan praised the deal with the EU as coming from Abe’s “Abenomics” policies, designed to wrest the economy out of stagnation despite a shrinking population and cautious spending. Japan’s growth continues to be heavily dependent on exports.

By strengthening ties with the EU, Japan hopes to vitalise mutual direct investment, fight other global trends towards protectionism and enhance the stature of Japanese brands, the foreign ministry said in a statement.

The EU said the trade liberalisation will lead to the region’s export growth in chemicals, clothing, cosmetics and beer to Japan, leading to job security for Europe. Japanese will get cheaper cheese, such as Parmesan, gouda and cheddar, as well as chocolate and biscuits.

Japanese consumers have historically coveted European products, and a drop in prices is likely to boost spending.

Japan’s ambassador for international economic affairs, Yoichi Suzuki, previously said it was “a very high priority that [the deal] enter force before the end of March 2019,” referring to the date when Britain is set to leave the EU.

The European Commission had also hoped the deal could come into force before Brexit after a signing by leaders this month – an ambitious deadline based on past experience.

If the deal does enter into force before Brexit, it could apply automatically to Britain during a post-March 2019 transition period of around two years. Otherwise, it might not.

Suzuki said at a meeting in Brussels earlier this year that, if an EU-Japan deal were in force in the UK during the Brexit transition phase, it would buy Japan more time to establish a separate trade deal with Britain.

Experts have previously suggested the UK would struggle to better the terms of the EU-Japan deal in any negotiations on its own.

The European Union and Japan also reached a deal on Tuesday allowing businesses to seamlessly transfer personal data between the bloc and Japan, deepening economic links as the two sides also agree a free-trade pact.

The EU and Japan concluded several years of data talks in Tokyo in the margins of a bilateral summit and the deal should come into effect towards the end of this year, once the European Commission and the Japanese government have finalised details.

“Data is the fuel of global economy and this agreement will allow for data to travel safely between us to the benefit of both our citizens and our economies,” EU Justice Commissioner Vera Jourova said in a statement.

“By working together, we can shape the global standards for data protection and show common leadership in this important area,” she said.

The Commission said the decision would mean that personal data could flow from the European Economic Area to Japan, without needing any further safeguards or authorisations.

Cross-border data flows are key to most businesses. These can include moving employee information around, credit card details to complete online transactions, and people’s browsing habits to serve them targeted ads.

However, strict EU data protection rules forbid companies from storing Europeans’ information on servers in countries deemed to have an inadequate level of privacy – only 12 meet the standard – meaning firms have to rely on other more complex legal contracts.

A similar data transfer pact with the United States which underpinned billions of dollars of transatlantic trade was struck down in 2015 by the EU’s top court on the grounds it did not sufficiently protect Europeans’ data from US snooping, throwing the business world into legal limbo.

A new one has since been negotiated and has been in place for over a year.

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Bamidele Ogunberu

Bamidele Ogunberu

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