EU, Japan to Aim for 2016 "Agreement in Principle" on FTA

2 June 2016

Leaders from the EU and Japan confirmed last week that they aim to reach an “agreement in principle” this year for a bilateral trade pact, following over three years of negotiations.

The statement, issued jointly by Japanese and EU leaders, as well as those from France, Germany, Italy, and the UK, comes as the negotiations enter their fourth year. The EU and Japanese economies together account for over one-third of global GDP.

In recent months, officials from both sides have stressed the importance a completed deal could have for growth and jobs, while also calling for the necessary “political will” to bring the negotiations across the finish line. However, whether a deal would be possible this year – or would drag on into the next – has been in question, given the pace of the talks to date. (See Bridges Weekly, 4 May 2016)

“With our full backing, the negotiators are entrusted to make the efforts necessary in the coming months to move forward with the negotiations,” leaders said on 26 May after meeting in Ise-Shima, Japan.

They added that the deal should include “all key issues including all types of tariffs and non-tariff measures,” calling for the process to advance with a view toward reaching a “comprehensive, high-level and balanced agreement.”

A separate statement from UK Prime Minister David Cameron’s office clarified additional details on the “accelerated timeline,” specifically that the EU and Japan will aim to address the thorny issues of automobile and farm good tariffs, along with government procurement, this fall.

Three years of talks

Formal talks between the two trading giants began in 2013, with the first negotiating round held in April of that year. At the time, officials noted that the timeframe of the talks would be difficult to predict, in light of the extremely sensitive nature of certain topics under discussion. (See Bridges Weekly, 27 March 2013)

Non-tariff barriers were cited as being a potentially difficult area, including with automobile trade, which is a key area for both sides. Under the European Commission’s mandate, Japan must remove non-tariff barriers in tandem with any tariff reductions that the EU concedes.

The objective of the process would be to reach an economic partnership agreement (EPA)/free trade agreement (FTA) which would help support growth and jobs on both sides. Prior to the launch of talks, an EU impact study placed the potential increases in exports at an addition 32.7 percent from the EU to Japan, while Japan’s exports to the 28-nation bloc would see a 23.5 percent boost.

A sustainability impact assessment (SIA) released by the European Commission this year suggested similar gains, with EU exports to increase by over 34 percent, while Japan’s exports would rise by 29 percent under a completed trade deal. The 314-page report also suggested that the deal could be a significant driver for foreign direct investment.

To date, Brussels and Tokyo have convened 16 negotiating rounds, with the most recent one being held from 11-20 April in the Japanese capital city.

According to a report issued this month by the European Commission on the April 2016 round, the market access discussions for goods trade focused mainly on agricultural and manufactured goods, as well as fisheries, forestry, tobacco, and wine and spirits. This included a discussion on the “parallelism” required in tariffs and non-tariff measures (NTMs), the report indicated, including on cars.

“On NTM autos, the issue of parallelism was discussed with the EU arguing that it was however dangerous to link too closely the negotiations on tariffs and NTMs as it would imply no more progress on the NTM front until the stalemate on tariff is lifted,” said the report.

The report also noted various outstanding issues across the negotiations, ranging from market access for government procurement to intellectual property rights. Significant progress was reported in other areas, such as services trade.

The next negotiating round is currently slated for September 2016.

Brexit fears in the background

By the time of the September round, the EU could potentially be losing the United Kingdom, one of its major members – a move which leaders on both sides say could side-line London from a final EU-Japan trade pact.

A vote on a “Brexit” from the European Union is scheduled for 23 June, with the political debate over the economic implications of either option escalating in the weeks leading to the vote. (For more on Brexit, see related story, this edition)

In a statement from his office, UK Prime Minister David Cameron highlighted the planned EU-Japan accord as yet one more reason for UK voters to approve staying in the 28-nation bloc.

“This agreement underlines once again why we are stronger, safer and better off in a reformed EU,” said Cameron last week from the Ise-Shima gathering.

“As [Japanese] Prime Minister Abe said when visiting the UK, Japan’s priority is negotiating with large trade blocs – not individual states in Europe. And this is something we hear time and again from foreign leaders,” he added.

The Japanese premier has also warned in recent weeks that Brexit could also be significantly damaging for investment, and has said publicly that his preference is for the UK to remain a member in the 28-nation bloc.

Indeed, leaders from some other key EU trading partners, namely the United States, have said that a “Brexit” would likely put the UK at the back of the line for future trade agreements, while generally affirming that the final decision is ultimately in the hands of the British people. The US and EU are currently in the process of negotiating a Transatlantic Trade and Investment Partnership (TTIP), and are also aiming to clinch a deal before year’s end. (See Bridges Weekly, 28 April 2016)

ICTSD reporting; “Cameron Uses Japan Free Trade Progress to Push EU Remain Vote,” BLOOMBERG, 26 May 2016; “Abe: Leaving EU could hurt Japanese investment in U.K.,” THE ASAHI SHIMBUN, 6 May 2016.

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