On July 17, 2018, the European Union and Japan signed a historic trade agreement, creating an open trade zone that covers nearly one third of the world’s GDP. Japanese Prime Minister Shinzo Abe commented that the agreement demonstrates the strong commitment from Japan and the European Union on fostering free trade, at time when protectionism is gaining hold around the world, particularly in the US.
The EU currently exports €58 billion of goods and €28 billion of services to Japan each year. With a population of 127 million, the Japanese market holds potential for the EU to export more. However, the EU faces tariffs and regulations that make it more expensive for firms to export to Japan. The trade deal aims at removing tariffs on certain goods and services, as well as shifting Japanese trade regulation in line with standard international practices.
The trade deal eliminates about 99% of tariffs on Japanese goods into the EU, and about 94% of tariffs for European imports into Japan (with the provision of further tariff elimination in the coming the years). The agreement will have a large economic impact for imports of European meat, wine, dairy products to Japan, and imports of Japanese cars into the EU.
Japanese automakers Toyota, Nissan, Suzuki, and Mazda, will benefit from the removal of the 10% tariff on Japanese cars. Auto parts makers Denso, Aisin Seiki, and JTEKT also stand to gain removal removal of a 3% tariff on Japanese auto parts. The European food sector will benefit a lot in terms of high-quality regional speciality goods including wines, cheeses, chocolate, meats, and pasta. Japan currently imposes high tariffs on these products, with duties being as much as 30% or more on EU cheese and 15% on wines. Additionally, the agreement is expected to benefit the EU in sectors including pharmaceuticals, medical devices, motor vehicles, and transport equipment.
The agreement also opens up services markets, including financial services, e-commerce, telecommunications, and transport. It guarantees the non-discriminatory treatment of EU firms in the procurement markets of 48 Japanese cities that cover around 15% of Japan’s population, eliminating obstacles to procurement in the railway sector.
The agreement includes a chapter on trade and sustainable development, and sets high standards for labor, safety, environmental, and consumer protection. Additionally, the agreement will have an effect on data protection. On July 16, the EU and Japan concluded negotiations on adequacy and agreed to recognise each other’s data protection systems as ‘equivalent’, which will enable the free flow of data between the EU and Japan. As of right now, the negotiations on investment protection standards and protection dispute resolution with Japan are still ongoing, and are expected to reach a conclusion soon.
The agreement is intended to go into effect in 2019, according to Jean-Claude Juncker, European Commission president. The EU and Japan signed this agreement just a few months after President Trump pulled the United States out of the Trans-Pacific Partnership, a major trade deal with Japan and 10 other nations. Prime Minister Shinzo Abe has stated that Japan and the EU are “sending a strong message to the world” about the global importance of free trade. According to The Economist, both parties “want to show that they can fill the vacuum left by America’s withdrawal under Mr. Trump from its role as the world’s trade leader.”
The EU-Japan trade agreement will create opportunities for businesses across numerous sectors in both regions. In particular, current tariffs and regulations on EU imports can make it 10-30% more expensive for companies exporting to Japan. With the removal of certain tariffs and regulations, companies can take advantage of reduced import costs to optimize their operations. In this case, it would be critical for companies to conduct market studies on how the changes to trade regulations would affect their businesses by enlisting the help of experts on international trade regulation.
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