An agreement in principle has been reached on a free trade deal between the European Union (EU) and Japan. The deal includes sizable tariff cuts, co-operation on standards and regulations and opening up of public procurement markets.
The EU and Japan together account for 19% of global gross domestic product and 38% of goods exports. Around 10% of Japanese exports go to the EU. This is more than double the proportion of EU goods exported to Japan.
The EU estimates the agreement will save it EUR 1 billion in customs duties each year and increase exports to Japan from more than EUR 80 billion to more than EUR 100 billion a year.
Tariff reduction and elimination
Japan’s main objective is to reduce or eliminate EU import duties on its automobile sector. This is very important because the EU is the world’s largest importer of road vehicles. The EU has agreed to gradually phase out all tariffs on cars imported from Japan, with some safeguards in the event of a sudden large rise in imports.
For the EU the most important goal was to reduce Japan’s tariffs on imports of European meat, wine, and dairy products. The EU agricultural sector will be subject to much lower tariffs on exports to Japan. Currently, Japan’s import duties on food are high, ranging from 15% on wine to 30-40% on cheese. After the agreement is effective some tariffs will fall to zero immediately and others will be phased out over 15 years. For some very sensitive products, the zero tariff will only apply up to a certain volume of imports.
Both sides will benefit from removing non-tariff barriers, such as incompatible product standards. The agreement includes provisions for greater harmonization of standards. The EU considers that this will help its manufacturers increase their exports to Japan.
Before the deal takes effect the EU and Japan must agree on the issue of investor protection. The EU does not want to use “investor state-dispute settlement” tribunals. These tribunals have been widely criticized by campaign groups as offering a way for multinationals to undermine environmental and labor standards. The alternative could be investment courts but Japan may object to this option.
According to the European Commission president, the deal could take effect in early 2019. This will however depend on the outcome of negotiations on the remaining details of the agreement. Some further time will be required to turn the agreement in principle into the final text of a free trade agreement.