EU-Japan trade deal comes into force to create world's biggest trade zone

The EU-Japan agreements stand in direct contrast to Donald Trump's decision to introduce an "America First" trade policy. Photo / 123RF

Two new landmark agreements between the EU and Japan came into effect on February 1, 2019: the Economic Partnership Agreement and the Strategic Partnership Agreement. The economic agreement is the largest bilateral trade deal ever made by the EU in terms of market size and will be the largest zone of free trade created in history.

It drastically reduces tariffs between the EU and Japan, paving the way for simpler and faster trade between the two, and therefore an increase in volume.

The strategic partnership commits to security cooperation on issues like nuclear proliferation, regional security, international terrorism and organised crime, cyber-security, and energy and climate security.

As Han Dorussen and I explain in our new book EU-Japan Security Cooperation: Trends and Prospects, these agreements come at a crucial time in the development of international trade and global governance. Brexit has the UK trying to redefine its relationship with the EU and potentially forge its own trade policies with the rest of the world.

Perhaps more importantly, the new EU-Japan agreements stand in direct contrast to Donald Trump's decision to introduce an "America First" trade policy.

Since being elected president in 2016, Trump has emphasised bilateral deals, erected trade barriers and undermined international institutions like the World Trade Organisation.

Indeed, it was the anticipation of Trump's nationalist policies, and especially his withdrawal from the Trans-Pacific Partnership (TPP) trade agreement, that gave renewed impetus to the EU and Japan's lingering negotiations of the two agreements. Large trade agreements take a notoriously long time to negotiate and talks between the EU and Japan first began in 2013.

Japan and the EU – and Germany in particular – are export-driven economies and advocates of open trade. The protectionist stance of President Trump left them feeling vulnerable. So the new economic agreement is seen as strongly reaffirming the rules-based international trading system.

The concessions Japan offered to the EU on agricultural products are a blow to US farmers, who for a long time had been hoping to pry open this sealed market.

The EU-Japan deal will emphasise Japan's commitment to free trade and give a further thrust to the newly-formed multilateral trade agreement known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which rose from the ashes of the TPP after the US withdrawal.

Opening up trade

The EU-Japan economic agreement will ultimately remove 97 per cent of the tariffs that Japan applies to European goods and 99 per cent of those applied by the EU. It is estimated that EU companies will save €1 billion a year in duties which they currently pay when exporting to Japan. A number of longstanding regulatory barriers, for example on car exports, will also be removed.

The agreement will open up the Japanese market of 127m consumers to key EU agricultural products and increase EU export opportunities in many other sectors such as financial services. As Japan will scrap duties on agricultural products, the Europeans stand to gain most from exports of consumer products, such as cheese, pork, and wines.

Japan's main interest in a trade deal with Europe was to increase its auto industry exports. The EU currently imposes a 10 per cent tariff on Japanese cars. Under the agreement, it will lower this to zero over eight years. Although cars and auto components account for about a fifth of Japan's exports to Europe, Japanese car makers' share of the European market is only about 10% – much lower than in the US or Asia.

Besides these improvements, the economic agreement will strengthen cooperation between Europe and Japan in a range of areas. It will reaffirm their shared commitment to sustainable development, and include for the first time a specific commitment to the Paris climate agreement.

EU firms already export more than €58 billion in goods and €28 billion in services to Japan every year. This will grow, and the strategic partnership will lead to further deepening of EU-Japan relations and engagement across a wide range of global, regional and bilateral thematic issues. It reaffirms the shared values and common principles that form the basis of EU-Japan relations, including human rights, democracy and the rule of law.

Together, the EU and Japan's economies account for about a third of global GDP. The new trade agreement should therefore serve to bolster the global economy, as well as marking a strong commitment to multilateralism by two of the world's biggest economies.

Emil Kirchner is a professor in the department of government at the University of Essex.