A bilateral free trade agreement between Japan and the European Union (EU) has been forthcoming since 2013. Six years later, on February 1, 2019, the trade deal finally entered into force, becoming the largest trade agreement since the Trans-Pacific Partnership (TPP). The Japan-EU Economic Partnership Agreement (EPA) – also known as the Japan-EU free trade agreement (JEFTA) – covers one third of the global economy and influences the lives of roughly 600 million people in Japan and the EU. A total of 19 trade talks between March 2013 and June 2017 were the prelude to a political agreement that was concluded with the signatures of the President of the European Commission Jean-Claude Juncker, the President of the European Council Donald Tusk, and Japan’s Prime Minister Shinzo Abe in July 2018. In December 2018, the European Parliament and the European Council advocated the EPA, opening the way for an extensive suspension of nearly 100% of tariffs between the two partners.
Japan and the EU are not only connected by a shared interest in a trade network but also by strong diplomatic relations. The EU considers Japan one of its most like-minded and thus most important allies in Asia. A joint partnership in the G7 also links these two economic giants.
Both Japan and the EU – and especially Germany – bank on profits from extensive exports. In 2017, the EU-Japan trade volume amounted to 129 billion Euro (146 billion USD). As the fourth largest economy in the world by purchasing power parity (PPP), Japan follows China as the EU’s second largest trading partner in Asia. Japan provides a big market for European countries, and EU businesses previously exported 58 billion Euro (66 million USD) worth of goods and 28 billion Euro (32 million USD) worth of services on an annual average. The EU anticipates a smooth expansion in trade now that high import duties and complicated Japanese import standards, which triggered a spike of 10-30% in prices, have been lifted.
As one of the world’s main car exporters, Japan’s central aim for this deal is to strengthen the export of cars and vehicle parts. So far, the United States and Asia have had a large share in the EU automotive market, leaving Japan with a share of only 10% behind. This could change with the EPA. Nevertheless, Japan should not cease to plan its economy strategically. In 2017, France announced plans to ban vehicles fueled by gas and diesel by 2040. Hence, Japan should move along with European plans to focus on electric cars.
Regarding commodities, most benefits are expected in the exchange of agricultural products, pharmaceuticals, medical devices, motor vehicles as well as transport equipment. Moreover, companies offering business, financial, telecom, and transport services will also profit from the free trade agreement. Furthermore, the deal guards unique regional food products such as Kobe beef, Feta, or Roquefort cheese. Producing a copy would be illegal. This protects producers and exporters and simultaneously guarantees consumers a genuine product. 30% tariffs on EU cheese, up to 30% on EU chocolate, and 15% tariffs on EU wine in Japan are now a burden of the past.
With this agreement, Japan and the EU point the way towards global multilateralism. This stands in contrast with the protectionism of the U.S. administration under President Donald Trump. Both the EU and Japan seek to promote shared values that favor liberalized global trade, democracy, and the rule of law. The Japan-EU EPA thus sets a counterexample for the trade war between the U.S. and China.
What is salient about this economic development is the role of the United States. After the U.S. withdrew from the TPP in January 2017, Japan redirected its priorities and focused on its ties with the EU. The effects of the Japan-EU free trade agreement following this reorientation are apparent in the fact that Japan increased meat imports from the EU to up to 54% in February after the bilateral trade agreement became effective. In contrast, meat imports from the U.S. were curtailed in Japan. The U.S. Meat Export Federation estimates that Japan’s move to seek trading partners elsewhere will amount to 550 million USD in annual losses for the United States by 2023. As of April 15, 2019, the Trump administration backtracked on its economic disengagement and started new bilateral trade talks with Japan as well as the EU.
