Japan and EU Approve Historic Free Trade Agreement

While the U.S. continues to escalate its trade wars, Japan and the European Union will on July 17 sign off on an agreement to eliminate most tariffs between them. It will create a new trading block representing almost a third of the world’s GDP.

A Nippon Cargo Boeing 747-8F leaving the apron at Schiphol Airport, the Netherlands. Both the EU and Japan are hoping a lot more cargo shipments like this will be happening after their new Economic Partnership Agreement goes into effect next year. With the Photo: Nicky Boogaard, CC

When it goes into effect in the fall of 2019, the EU-Japan “Economic Partnership Agreement” (EPA) will drop 99 percent of tariffs on goods shipped between the two regions. It will eliminate taxes which cost businesses in both the European Union and Japan approximately €1 billion ($1.17 billion) every year.

Current trading volume in goods and services between the two regions is €86 billion (approximately $101 billion).

The agreement took four years to negotiate and was completed in late 2017. It was intended to be signed off last week on July 11 during the 25th EU-Japan Summit in Brussels. Japanese Prime Minister Shinzo Abe had to cancel the signing because of major floods and damage to life and property in his country. Abe and European Council President Donald Tusk will now meet in Toyko instead, on July 17, to sign off on the agreement.

The free trade zone created by the EPA will cover 600 million people and almost one-third of the world’s GDP.

The EU calls the agreement “highly ambitious and comprehensive”, and yet representative of what both countries have stood for consistently over time. As EU Trade Commissioner Cecilia Malmström said when the agreement reached final form in 2017, “The EU and Japan share a common vision for an open and rules-based world economy that guarantees the highest standards. We are sending a message to other countries about the importance of free and fair trade, and of shaping globalization.”

With the agreement in place, both sides see major trade opportunities increasing as a result.

For the EU, with Japanese tariffs on wine, pork and poultry eliminated, the EU estimated exports of high-end wine and poultry of all kinds will increase significantly. Exports of EU processed food could be up by as much as 180 percent. Chemical exports from the EU to Japan are expected to surge by 22 percent and mechanical engineering shipments to go up by 16 percent.

Within the EU, the German Chamber of Commerce (AHK Japan) is especially excited about he removal of tariffs. It sees major growth opportunities for German engineering, auto shipments, pharmaceuticals, and chemicals.

For Japan, it sees a major boost to its electronic and automobile shipments to the EU. Currently the EU has import duties of 10 percent on all imported Japanese vehicles. While the tariffs won’t drop to zero immediately, they will be phased down over time and will see corresponding sales increases on the continent.

More will come, as Prime Minister Abe has insisted. He sees free trade as a major way the Japanese economy will grow and has sought this agreement as well as others as a way to make that happen. His country was in fact behind the revival of the revised Trans-Pacific Partnership Agreement in Asia, after Donald Trump pulled out of that arrangement.

The EU also hails the agreement as very much a beginning of a new era of Asia-EU trade relations.