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The Japan-EU international trade agreement creates one of the world’s largest international trade blocs.

Understanding the Japan-EU International Trade AgreementARTICLE

By Karen Lynch

The Japan-EU Economic Partnership Agreement (JEEPA), announced at the G20 Summit in July 2017, promises to create one of the world’s largest international trade blocs, covering nearly 30 percent of the global economy.1 Leaders from both sides have basked in their accomplishment after four years of negotiation, with European Trade Commissioner Cecilia Malmström even joking that “indeed it was two Europeans who helped make Nintendo into a global success; I refer of course to Mario and his brother Luigi.”2

Still, JEEPA is not a done deal, but rather an “agreement in principle” subject to ongoing negotiations and national approvals in Japan and across the Europe Union (EU). Both sides hope for the agreement to take effect in two years.3 Meanwhile, it is being scrutinized for potential impacts on import-export traders, digital trade policy, the proposed 11-nation Trans-Pacific Partnership (TPP) and other aspects of global trade. Also, it will likely mean tougher competition for U.S. import-export businesses trading with EU countries and Japan.

It’s good news, though, for European and Japanese import-export traders and supply chain managers, as it includes plans to reduce tariffs and non-tariff barriers.

What is the Japan-EU International Trade Deal?

International trade between Japan and the EU has been gradually growing in the past few years. The EU exported €58.1 billion ($68.3 billion) in goods to Japan in 2016, when Japan exported €66.4 billion ($78 billion) to the EU.4 EU services exports to Japan reached €28 billion ($32.9 billion) in 2015, when Japan exported €15.8 billion ($18.6 billion) in services to the EU.5 The European Commission has publicized a host of potential benefits of the trade deal to businesses, such as an annual increase of as much as €20 billion ($23.5 billion) in exports to Japan and the removal of most Japanese tariffs, calculated to cost European companies €1 billion ($1.2 billion) a year.6

“But I know tariffs are not the only barriers you face when trading,” Malmström told the EU-Japan Business Round Table. “There is also the cost of red tape, of unnecessary licensing and form-filling, of blocked markets, of goods sitting in warehouses when they could be on the shelves. We have come a long way in removing these non-tariff barriers, too – to just a few outstanding issues.”7

Many reports on the deal have focused on the elimination of European tariffs on Japanese autos and the lowering of Japanese barriers to European food.8 However, the tentative agreement would also cover trade in services, investment, public procurement and nearly all goods.

To underscore JEEPA’s potential, European leaders pointed out that their five-year-old trade agreement with South Korea has helped increase EU exports to that country by 55 percent while saving European companies €2.8 billion ($3.3 billion) in customs duties. “This is the kind of success we can replicate,” Malmström said in her talk with the EU and Japanese business executives.9

“There will, of course, be sectors that face tougher competition with increased imports,” The Japan Times wrote in an editorial. “The years set aside for phasing out the tariffs should be effectively used to turn those sectors … resilient toward the onslaught of cheaper imports.”10

Impact on Import-Export Traders Outside the Bloc

Companies outside of the proposed trade bloc expressed concern about their exports to the EU and Japan. “As EU-Japan tariffs fall, so U.S. products will become less competitive in both markets,” according to the Eurasia Review.11 Tariffs are not the only problem. Non-Europeans could be locked out of certain markets as the deal calls for Japan to accept over 200 European “geographical indications,” such as Irish whiskey or Parmesan cheese. In addition, mutual agreements on Europe’s more stringent automotive standards could challenge U.S. automakers. U.S. groups such as the National Pork Producers Council expressed concern about losing market share and urged that a U.S.-Japan trade agreement be negotiated.12

And, as the U.K. leaves the EU, “British exporters will most probably not see any of the benefit from decreased tariffs,” said Jude Kirton-Darling, a British member of the European Parliament. “Worse still, goods produced in the U.K. could be at a disadvantage on the EU market compared to goods produced in Japan.”13 U.K. government officials have said they would also seek a bilateral agreement with Japan, “but we should take into account that these deals don’t get finalized overnight,” Kirton-Darling said.

Elsewhere, competitive impact could be blunted for import-export traders in the countries that remain in negotiations to form the TPP, which some see accelerating because of JEEPA.14 Those 11 countries recently agreed to forge a new TPP framework, following the United States’ withdrawal from the deal.15 Companies in countries such as Australia, which has its own bilateral agreement with Japan, could also find themselves shielded from significant competitive harm. “Australia is the only major agricultural exporter to have a free trade agreement with Japan, and our exports are booming under this landmark agreement,” Australian Trade Minister Steven Ciobo said earlier this year.16

Digital Trade Remains an Issue

The handling of data in digital trade is a sticking point in the negotiations between the EU and Japan. Yet Japanese and EU leaders have issued a joint statement reaffirming their commitment to the free flow of information as a fundamental principle to promoting global economic development. Recent regulatory changes regarding data privacy and security in both jurisdictions should help pave the way for an agreement by early 2018, they said.17

Under current arrangements between the two, much personal information about consumers in Japan must be housed in servers in Japan, and the same goes for Europe. So, for instance, “if a European business wants to sell products in Japan and store customer data such as card details and names, it needs to do so on Japanese territory and in Japanese servers, increasing the cost of business,” reported Politico.18 Likewise in the EU, which to date has lifted this restriction only for a handful of countries, (including Canada and the U.S.) where it has determined privacy protections to be “adequate.”

DigitalEurope, an industry group, issued a statement reminding both governments of the importance of cross-border data flows to e-commerce and to still-emerging technologies, including the Internet of Things. The group urged agreement “allowing for the free flow of data between both partners while respecting applicable legal frameworks for privacy and personal data protection.”

Some observers see the EU setting standards for digital trade, among other aspects of international trade, in the context of its agreements with Japan and others, such as Canada. In Canada’s case, the Comprehensive Economic and Trade Agreement is now set for “provisional application” in September 2017, even as parliaments in EU member states continue to ratify the text of the agreement.19

The Takeaway

The EU and Japan are looking to implement their new international trade agreement in the next two years, creating one of the world’s largest trade blocs. Negotiations in the meantime will determine key provisions in such areas as digital trade, which some say could set the standard for future trade agreements around the world. Countries outside of the proposed bloc are being urged by their industries to respond.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. “Japan-EU Agreement on a Free Trade Pact,” The Japan Times; http://www.japantimes.co.jp/opinion/2017/07/11/editorials/japan-eu-agreement-free-trade-pact/#.WX3R0YjyuiM
2. “The Benefits of an EU-Japan Free Trade Agreement,” European Commission; http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155745.pdf
3. “Japan, European Union Strike New Trade Deal,” Wall Street Journal; https://www.wsj.com/articles/eu-japan-strike-new-trade-deal-1499338631
4. “Trade: Japan,” European Commission; http://ec.europa.eu/trade/policy/countries-and-regions/countries/japan/
5. Ibid.
6. “EU and Japan Reach Agreement in Principle on Economic Partnership Agreement,” European Commission; http://trade.ec.europa.eu/doclib/press/index.cfm?id=1686
7. “The Benefits of an EU-Japan Free Trade Agreement,” European Commission; http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155745.pdf
8. “The E.U.-Japan Trade Deal: What’s in It and Why It Matters,” New York Times; https://www.nytimes.com/2017/07/06/business/economy/japan-eu-trade-agreement.html?_r=0
9. “A New EU Trade Agreement with Japan – Factsheet,” European Commission; http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155684.pdf
10. “Japan-EU Agreement on a Free Trade Pact,” The Japan Times; http://www.japantimes.co.jp/opinion/2017/07/11/editorials/japan-eu-agreement-free-trade-pact/#.WX3R0YjyuiM
11. “The EU-Japan Trade Deal: Hype or a Big Deal?” Eurasia Review; http://www.eurasiareview.com/15072017-the-eu-japan-trade-deal-hype-or-a-big-deal-analysis/
12. “EU Strikes Trade Deal with Japan; U.S. Must Do Likewise,” National Pork Producers Council; http://nppc.org/eu-strikes-trade-deal-with-japan-u-s-must-do-likewise-says-nppc/
13. “The EU Pushes on its Free Trade Agenda, but What Will It Mean for Brexit?” Huffington Post; http://www.huffingtonpost.co.uk/jude-kirtondarling/free-trade-brexit_b_17509286.html
14. “Japan-EU Agreement on a Free Trade Pact,” The Japan Times; http://www.japantimes.co.jp/opinion/2017/07/11/editorials/japan-eu-agreement-free-trade-pact/#.WX3R0YjyuiM
15. “11 TPP States Eye New Framework to Implement Pact without U.S.,” The Mainichi; https://mainichi.jp/english/articles/20170714/p2g/00m/0bu/008000c
16. “Marking 60 Years of Australia’s Trade and Investment Partnership with Japan,” Australian Ministry of Trade, Tourism and Investment; http://trademinister.gov.au/releases/Pages/2017/sc_mr_170417.aspx
17. “Joint Declaration by Mr. Shinzo Abe, Prime Minister of Japan, and Mr. Jean-Claude Juncker, President of the European Commission, European Commission; http://europa.eu/rapid/press-release_STATEMENT-17-1917_en.htm
18. “Data Fight Emerges as Last Big Hurdle to EU-Japan Trade Deal,” Politico; http://www.politico.eu/article/eu-japan-trade-deal-caught-up-in-data-flow-row-cecilia-malmstrom/
19. “European Commission – Statement,” European Commission; http://europa.eu/rapid/press-release_STATEMENT-17-1959_en.htm

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