EU and Japan Create Largest Single Market

© European Union, 2018   /   Photo: Etienne Ansotte

The Deal Needs to be Approved by Both EU and Tokio Parliaments

By Teodor Teofilov

Presidents of the European Commission and the European Council Jean-Claude Juncker and Donald Tusk and Prime Minister of Japan, Shinzo Abe, have signed a massive trade deal between the European Union (EU) and Japan on July 17, which could come into effect in 2019. This is the biggest trade agreement ever negotiated by the EU. It creates a free trade zone that incorporates over 600 million people and almost a third of the world’s Gross Domestic Product (GDP).

Tusk praised the deal as “the largest bilateral trade deal ever.”

“The document we signed today is much more than a trade agreement,” said Juncker. “What we’re saying is that we believe in open, fair and rules-based trade. What we are saying is that a trade agreement is not a zero-sum game, but a win-win for the involved parties.”

A clear message was sent at the 25th annual meeting of the two sides: they stand together in the face of protectionism. The strategic agreement will increase cooperation in defense and security, energy and climate change as well as human interaction.

“Right now, concerns are rising over protectionism all around the world,” Japanese Prime Minister Shinzo Abe was quoted as saying by The Japan Times.”We are sending out a message emphasizing the importance of a trade system based on free and fair rules.”

The free trade agreement will remove “about 99 percent of the tariffs on Japanese goods sold to the EU,” according to Yuri Kageyama in The Associated Press. “About 94 percent of the tariffs on European exports to Japan will be lifted, rising to 99 percent in the future.”

Japan and the EU have traded roughly €129 billion ($152 billion) of goods last year, according to EU data.

The deal will also remove legal barriers on goods such as automobiles. It opens the Japanese market, which is comprised of about 127 million consumers, to exports of European agricultural goods and will increase the possibilities for exports of EU firms to other areas.

Both the European Parliament and the Japanese Parliament need to ratify the agreement, which could come into effect next year. Talks on the protection of investment and solving disputes in this area are continuing.

What the deal means for exporting of agricultural goods from the EU:

  • Japanese tariffs are removed from many cheeses, like Gouda and cheddar, which currently have a 29.8 percent tax and wine, which currently is taxed at 15 percent.
  • The EU can significantly increase its exports of beef to Japan, and processed pork will have duty-free trade, with near duty-free for fresh meat.
  • The deal gives protection in Japan to over 200 high quality European agricultural goods, the so-called geographical indications, as well as selected Japanese geographical indications in the EU.

The trade agreement opens the services market as well, especially in areas of finance, e-commerce, telecommunications and transport.

It gives EU companies access to major public procurement markets in 48 major cities in Japan and removes barriers to public procurement in railways at a national level. Particularly sensitive areas for the EU, such as the automotive sector, are settled by introducing transitional periods up to seven years until duty elimination.

The agreement contains a detailed section on trade, sets high requirements for labor, safety, environmental protection and consumer protection. It also includes comprehensive safeguards in the public services sector. On data protection, the EU and Japan concluded negotiations yesterday, which will add to the economic partnership agreement. They have agreed to recognize each other’s data protection system as equivalent, creating the largest area in the world for secure data traffic.

EU – Japan trade

Winners and Losers

  • Toyota, Nissan, Suzuki and Mazda will definitely win from the removal of the 10 percent EU import tariff.
  • Auto parts manufacturers like Denso Corp, Aisin Seiki and JTEKT won’t have to deal with the 3 percent import tariff.
  • EU food manufacturers, especially those of high-quality specialties with geographical indications, including cheese, wine, chocolate, meat and pasta will win a lot.
  • The same applies to Japanese manufacturers and importers of European wines and beverages, such as Kanematsu Corp, Kirin Holdings и Asahi Group Holdings Ltd.
  • Large European businesses, such as Pernod Ricard and LVMH Moet Hennessy Louis Vuitton should benefit from the dropping of duties for high-end liqueurs, wines and spirits
  • European exports of processed foods, including meat and dairy products, should expand by €10 billion ($11.6 billion) when the deal is fully implemented.
  • Japanese manufacturers of dairy products, such as Meiki and Megmilk Snow Brand Co, can expect increased competition, as their current 40 percent tariff protection will be removed. Megmilk currently controls two-thirds of the Japanese market for soft cheese and the competition will come from European companies such as Danone, Lactalis and Nestle.
  • Meat products were the EU’s largest export group to Japan last year, and they come mainly from Denmark and Spain, as the Japanese are looking for European ham, bacon and sausage.

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