The Plenary of the EU Parliament has approved today a landmark Free Trade Agreement with Japan (The Economic Partnership), set to create a trade zone of 600 million people. This is the largest free trade agreement signed to date between the EU and a non- EU member state .
The EU-Japan Economic Partnership covers a third of global GDP and about 40 % of global trade. It will eventually remove almost all customs duties worth roughly €1Bn annually on European products and services exported to Japan.
For the first time in an EU trade deal, there’s a dedicated chapter for SMEs and this is important because 78% of EU companies exporting to Japan are SMEs.
Now that the EU Parliament has given its consent, the partnership just need for the adoption and ratification by the EU Council.
Once fully implemented, The Economic Partnership will make it possible for around 90% of the goods from the European Union to pay no tariff, when exported to the Nation of the Rising Sun. An important advance but not the only one that will facilitate trade between both sides. As pointed in the report on this Trade Agreement published on the Spanish edition of Eastwind Magazine last 24th July 2018, there are a lot of non tariff barriers currently blocking the free flow of goods and services thatwill be removed thanks to the Economic Partnership Agreement approved today.
Goodbye to some regulatory barriers to imports
The Economic Partnership means that some of the many and varied regulatory barriers to imports that currently apply both in the EU and especially in Japan with respect to products and services from Europe will also be removed.
Shinsei Corporate Management experts quote automotive among the Japanese sectors that will benefit most from the Economic Partnership. Regarding European side, they consider wine and dairy sectors among those who will most enjoy the beneficial impact of the elimination of tariffs .
But according to the ICEX Economic Report on Japan published recently, in the case of Spain, the variety of sectors that will see their exports facilitated goes far beyond that of wine and milk. The same happens in the case of Japan. Goods imported into the EU and our country from the Asian country are not limited to the automotive sector. In fact Spain exports even more automotive products to Japan than the contray.
At a time when Donald Trump announces and carries out protectionist measures of all kinds, the agreement between Japan and the EU is not only a true tribute to free trade based on law (common rules for all the actors involved) and to respecting the principles of the WTO (World Trade Organization). The agreement will help both economies to face the American giant based on openness and good will.
Especially if we take into account that both parties have formally committed themselves to fight against protectionism and defend the system of international trade based on law.
Both Japan and the European Union are commited to modernize the WTO (World Trade Organization) in accordance with the conclusions reached by the countries that attended the G7 summit held in Charlevoix.
Shibuya crossing (Tokyo -Japan-). By Hide1228 – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=47149329
But leaving aside ethical-economic considerations and the global economic balance, the signing of the EU Japan Economic Partnership deal is a logical step for Japan at a time when the government of its main client (USA) has started a protectionist drift and when Germany and the United Kingdom are still out of the group of the five best clients of the Nation of the Rising Sun, standing respectively in the eighth and tenth position of the ranking of importing States of Japanese products and services.
The Prime Minister of Japan Shinz Abe is strenthening ties this way there where there is still a wide room to improve exports from his country overseas.
Following the official data published by the Japan Customs Authority, Germany was the only EU country among the top ten providers and the top ten clients of Japan in 2017. This EU country ranks 7th among the providers. China tops the list followed byThe USA, Australia, ROK, Saudi Artabia and Taiwan. Germany ranks 8th in the clients list, where USA takes the first spot followed by the PRC, the Republic of South Korea (ROK), Taiwan, Hong Kong, Thailand and Singapore.
The 600,000 jobs currently linked to trade with Japan will experience a huge increase
Japan and the EU said in the joint declaration after the summit held last Summer that the Economic Partnership deal will also generate sustainable and inclusive economic growth stimulating job creation.
According to the data provided by the European Union, Japan is its second largest export market. Sales to Japan amount to € 86,000 million. Around 74,000 EU companies are exporting goods and services to Japan and over 600,000 jobs within the EU are linked to exports to that Asian country.
It is expected that the Economic Partnership increase exports of processed foods to Japan by 180%. The rise in the case of chemical products would be 22% and 16% in terms of electrical machinery.
Japan, the champions “non-tariff barriers league”
Not trying to shadow the importance of the chapter on import taxes, Japan has been behaving like an actual champion of regulatory barriers, or what is the same, of those legal rules or practices carried out by the Authorities that actually restrict imports. Japan has been to date the king of the import limiting contingent rules.
Just to share some examples I will quote the following:
1. Since 1986, Japan has applied a system of tariff quotas to protect the local leather and footwear industry. The tariffs on leather footwear can reach the 30%.
2. Japan does not recognize the EU as a single market regarding meat imports and so it does not apply the phytosanitary agreements (SPS) of the World Trade Organization (WTO) with a regional basis with respect to the EU imports. Therefore, the trade on meat is negotiated through bilateral agreements with each EU country.
3. With regard to the imports of agro-food products that might be affected by Listeria Monocytogenes, since December 2014 Japan has accepted the threshold set by European Union standards (up to 100 cfu / g), although qualitative and quantitative controls may coexist with the agreement.
4. The imports of fresh fruits and vegetables require the signing of bilateral protocols that can be slow and expensive to negotiate.
5. Japan also does not recognize the EU as a single market for fruit and vegetable products. So the Asian country does not apply to this sector the WTO SPS agreements to EU imports on a regional basis.
6. Some food additives that are commonly used worldwide are forbidden in Japan. This hinders the imports of some processed foods that are manufactured with this kind of additives despite being endorsed by the commitee of Experts FAO / WHO.
Infographics explaining the reality of trade-relations between the EU and Japan and the improvements that the Economic Partnership can bring with. © European Union
7. The commercialization of medical stuff and equipment in Japan can be complicated, due to the fact that some international certification standards, such as ISO and IEC, and the procedures required for their authorization do not apply for Japan.
8. Getting an approval to market pharma products often takes a long time.
9. In the public procurement market, points such as the scarcity of available information or the complex regulations make it difficult for European companies to participate.
10. In the financial services field, the EU identifies various barriers to enter the Japanese insurance and banking market.
11. In the market for transport vehicles, technical certifications may be a barrier. In the railway market, the large operators are private companies that maintain a close relationship with the public sector. There’s nor much information available, especially in a language other than Japanese, the use of international standards is not widespread and security clauses may prevent the entry of new competitors.
12. The imports of wood and wood products is subject to specific requirements and standards on fumigation and there are specific marking rules for packaging.
Any of the mentioned points, which build even stronger barriers against imports than tariffs are, could disappear or be reduced thanks to the Economic Partnership and Institutionalised dialogue pacted between the EU and Japan.
Further than the Economic Partnership
On 17th July 2018 both parties, the European Union and Japan signed as well a Strategic Partnership Agreement, which extends cooperation to areas such as energy, education, research and development, development, and the fight against climate change and terrorism. The European Parliament is required to give its consent to this agreement too.
The Strategic Partnership will surely contribute among other things to mitigate the protectionist policy that the President of the United States, Donald Trump, seems to be so keen on.
The Asian country and the EU also agreed last Summer to start off negotiations for a separate investment protection agreement with Japan to set up a mechanism to solve disputes, to ensure equal and fair treatment of EU foreign direct investment in Japan and vice versa, are still ongoing.
Image over the headline.- From left to right: Donald Tusk (President of the European Council), Shinzo Abe PM of Japan). © European Union.
Related external links:
EU-Japan Free Trade Agreement (the text)
Interactive map of EU businesses exporting to Japan