EU, Japan Leaders Sign Trade Deal, Look Towards 2019 for Entry into Force

19 July 2018

Leaders from the EU and Japan signed a sweeping free trade accord in Tokyo, Japan, on Tuesday 17 July, touting the accord as a testament of their support for the rules-based, multilateral trading system in a time of heightened global trade tensions and as an economic boon for producers and consumers alike. 

The accord, known as the EU-Japan Economic Partnership Agreement (EPA), has been under formal negotiation since 2013, with officials wrapping up the trade talks late last year. Earlier this month, the European Council formally gave the go-ahead for the EU to sign the deal with their Japanese counterparts, a pivotal step before ratification can begin.

Speaking in Tokyo on Tuesday, leaders from both sides praised the accord as bolstering a deep-seated alliance between countries who share a set of core values, including a commitment to using trade as a tool to support sustainable development objectives. The EU and Japan also rank among the world’s four largest traders, with the US and China rounding out the list. 

“Japan and the European Union do both see the world in the same way. We believe that we can make each other stronger, safer, and more prosperous when we work together in a rules-based international system. Nowhere is this more obvious than when it comes to trade,” said European Commission President Jean-Claude Juncker to reporters on Tuesday.

The EU Commission chief was speaking at a joint press conference with Donald Tusk, the European Council President, and Shinzo Abe, the Japanese Prime Minister.

“The signature of the EPA clearly shows that Japan and the EU have an unshakable political will to lead the world, waving the flag of free trade, even as protectionist movements are on the rise,” said Abe, according to an informal translation of his remarks.

The Japanese leader praised the deal as a means of advancing his Abenomics agenda, the eponymous “three arrow” strategy aimed at invigorating the Japanese economy, including through the use of trade agreements under its structural reform “arrow.”

The EU and Japanese officials also issued a joint statement, welcoming sthe signing of the EPA as well as a separate accord known as a Strategic Partnership Agreement, which aims to facilitate more in-depth work on a host of shared policy priorities.

“The signing of the Strategic Partnership Agreement will set the stage for even stronger collaboration both bilaterally and in multilateral fora. It will enrich the political dimension of our relationship and allow for deeper cooperation in a broad range of sectors, notably with regard to peace and security, migration, the fight against terrorism, energy, climate change, education, research and innovation, and development,” they said.

Trade deal recap

The EPA’s commercial scope has been repeatedly touted by its proponents as impressive, surpassing the EU’s accord with Canada as the largest trade agreement that Brussels has ever signed. Counting Japan’s 127 million and the EU’s approximately 508 million consumers together, it would create a market of well over 630 million consumers overall.

Along with slashing duties on nearly all tariff lines, proponents note that the accord will also take various steps to tackle non-tariff measures (NTMs), which the EU has previously referred to as a key objective in its negotiations with Japan. The EPA has chapters devoted to topics such as small and medium-sized enterprises, as well as a sustainable development chapter encompassing various environment and labour-related commitments, including a specific reference to upholding the UN’s Paris Agreement on climate change.

Proponents have also highlighted improved market access in several key services sectors, such as telecommunications and financial services; reduced or eliminated tariffs for various key agricultural goods; and with significantly liberalised public procurement markets. For instance, Japan will allow EU companies to bid for government contracts with various sub-national entities, along with making it easier to submit tenders for the country’s railway sector, such as with developing and providing the necessary equipment and infrastructure.

Experts say that the accord can also address concerns that bilateral trade flows could be diverted elsewhere in the absence of an EPA, given the plethora of regional agreements that both parties have been inking with other partners. A 2016 Trade Sustainability Impact Assessment report, prepared by LSE Enterprise and commissioned by the EU Directorate-General for Trade, highlighted this potential risk in light of other ongoing negotiating processes, particularly in the Asia-Pacific region.

“There will be at least some trade diversion against EU exports from TPP in the short term, which occurs on top [of]  the natural increasing importance of intra-Asia-Pacific trade. In the long-term, the trade diversion might lead to dynamic effects that affect EU competitiveness, investment, and productivity,” the report said.  

The TPP is shorthand for the Trans-Pacific Partnership (TPP), which is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The revised accord has 11 signatories, given the US’ withdrawal from the original TPP, and Japan and Mexico have already ratified this updated version. Abe was one of the leaders who was instrumental in driving the accord’s revival after the US withdrawal.

Other countries are soon expected to ratify, with some such as Canada already introducing the deal in their legislative chambers for consideration, fuelling expectations that the high-profile Pacific Rim trade deal could enter into force sometime next year.

The EU, meanwhile, is pursuing an intensive trade agenda aimed at developing deeper economic ties with different partners around the globe, such as by launching new negotiations with Australia and New Zealand, recently updating its trade accord with Mexico, and working to finalise the decades-old talks with South American customs bloc Mercosur.

Investment talks continuing

The original EU-Japan EPA negotiations had included investment, such as investor protections and dispute settlement. That aspect of the talks have been spun off into a separate process, given that the two sides have expressed differing views on how to handle these issues.

The EU has been advocating for the inclusion of its new Investment Court System (ICS), which it has begun to incorporate into newer trade agreements with interested partners, and which officials say will address some of the downsides of the past investor-state dispute settlement (ISDS) mechanism. Improvements include, for example, the addition of an appellate mechanism and stronger language protecting the right to regulate in the public interest.

In its July 2017 factsheet on the EU-Japan EPA, the European Commission stressed that it would continue to insist on including an ICS in any deal with Japan.

“Anything less ambitious, including coming back to the old investor-to-state dispute settlement, is not acceptable. For the EU ISDS is dead,” the factsheet says.

The negotiating teams working on investment convened in Brussels, Belgium, last week on the subject, but did not announce any breakthroughs. An EU Commission press statement afterward highlighted investment disputes as a key sticking point in the talks. 

ICTSD reporting.

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