EU, Japan Trade Negotiators Ramp Up Efforts to Conclude "Political Agreement"

29 June 2017

Negotiators from the EU and Japan are ramping up their work to clinch a bilateral trade agreement, with reports suggesting that the two sides are tentatively hoping to have a political deal in place by this year’s G20 leaders’ summit.

The two trading giants have been negotiating since 2013 – a move that was greeted in itself as an “historic” achievement, given the size of the economies involved, the commitments made in lowering non-tariff and tariff barriers, and the potential to ramp up foreign direct investment. (See Bridges Weekly, 27 March 2013)

Since then, they have held 18 negotiating rounds towards reaching a trade deal, with the EU-Japan accord referred to as both a free trade agreement (FTA) and an economic partnership agreement (EPA). The agreement that they are envisioning would tackle goods and services market access, regulatory cooperation, intellectual property, non-tariff measures, rules of origin, competition policy, sustainable development, sanitary and phytosanitary measures, procurement, and investment, among other topics.

“I have my chief negotiator for Japan in Tokyo, [with] instructions to stay as long as it is needed to try to get this deal done. We are in a very intense phase of our negotiation and hope to close an agreement in principle very soon,” said EU Trade Commissioner Cecilia Malmström on Monday 26 June.

The EU trade chief also spoke on the phone last week with Japanese Foreign Minister Fumio Kishida, according to the Japanese Foreign Ministry. The 21 June phone discussions focused on the importance of clinching a high-ambition political agreement in the near term, according to a press statement released afterward.

Should a political deal be reached when EU and Japanese leaders meet ahead of the 7-8 July G20 leaders’ summit, the two sides will still need to resolve “technical” issues, along with conducting a legal review and other final procedural steps before moving on to signature and ratification.

However, trade officials say that the substance will ultimately drive the timeframe, and that if a deal cannot be reached in that space, they will not sacrifice ambition for speed.

Malmström: deal focused on “values”

Speaking to reporters upon the launch of a new EU report on trade and investment barriers, Malmström described the planned deal with Japan as one that “will help us shape globalisation in line with our values.”

She also said that the deal could help stave off “protectionist” pressures, particularly given the EU’s and Japan’s positions among the world’s top traders. Malmström added that “openness,” along with trade and investment, are essential tools for helping direct globalisation in favour of sustainability and economic growth.

“This will be a European trade agreement following our new, state-of-the-art model, containing the same guarantees for EU values as in the CETA, the Canadian agreement, for instance, meaning that principles like transparency, EU standards when it comes to social, environment, consumer protection will be there, the right to regulate, sustainable development – these things are not up to negotiation, and they will be enshrined in the final text,” she said.

The acronym CETA refers to the EU-Canada Comprehensive Economic and Trade Agreement (CETA), a comprehensive accord that will soon be provisionally applied on both sides.

Supporters have heralded the agreement as being the most ambitious either side has ever negotiated, with the final version including an investment court system (ICS), along with greater public procurement market access, the protection of various geographical indications, and several other commitments. (See Bridges Weekly, 18 May 2017)

Furthermore, Malmström suggested that the final EU-Japan deal could serve to promote a host of sustainable development objectives, including shared commitments on climate change and provisions tackling illegal logging.

“The trade agreement with Japan will be an excellent opportunity, together with our Japanese friends, to confirm our joint support and work on the Paris climate agreement, and [there] will be a direct reference to this,” she said on Monday.

Regarding illegal logging, Japan has come under scrutiny for not having legislation in place to prevent timber sourced illegally from entering the country, particularly given its status as a major importer of tropical wood – though it has taken voluntary steps aimed at promoting legal timber trade.

A Sustainability Impact Assessment requested by the Commission flagged this as an important issue for negotiators, warning that such disparities in their approaches could lead to a greater influx of illegal imported timber into the EU – while also providing an opportunity for the two sides to increase their cooperation in tackling this problem.

The EU, for its part, has in place its Action Plan for Forest Law Enforcement, Governance, and Trade (FLEGT) to help address such issues, including through the negotiation of Voluntary Partnership Agreement (VPAs) with countries that produce and export timber. It also has had the EU Timber Regulation, to a similar end.

The final deal will also feature a commitment by the parties aimed at address illegal logging, Malmström said this week.

Remaining issues

As negotiators press on, they will still have a series of topics to address before leaders can announce the conclusion of a deal.

For example, the two sides are still negotiating on how to treat investment protection in a final accord. The EU has been pushing to include its new investment court system in its newer trade agreements, and has already done so in the trade deals negotiated with Canada and Vietnam.

Doing so, European officials say, would set the stage for a future multilateral investment court – another Commission objective that is also being discussed with stakeholders from various sectors as well as officials from other country governments, though that process is still in the early stages. (See Bridges Weekly, 2 March 2017)

Malmström confirmed on Monday that efforts to reach an agreed outcome in this area are ongoing, while noting that the prior mechanism of investor-state dispute settlement (ISDS) is “from our point of view, dead.”

“We want the new system to be in all our new trade agreements. That chapter is not done yet with the Japanese. We have spent a lot of time talking about it, but… we’re not ready yet. But of course, this is the clear mandate from our member states and the wish of the European Union, so that has to be in,” she told reporters.

Whether this will be finalised for the political agreement now, or included later on in the final technical discussions, remains unclear.

Other issues include agriculture, such as how Japan treats imported EU beef, with the Jiji Press news outlet citing unidentified sources as suggesting that Tokyo may set a tariff-rate quota for the good. Other areas reportedly being hammered out in this intense negotiating phase include Japanese and EU agricultural market access across various products, along with EU tariffs on imported cars from the Asian archipelago.

ICTSD reporting; “Japan may set tariff-free quota for EU beef under EPA,” JIJI PRESS, 22 June 2017; “Europe and Japan Near Trade Deal as U.S. Takes Protectionist Path,” THE NEW YORK TIMES, 23 June 2017; “EU’s agri-food market revels at prospect of Japanese trade deal,” POLITICO, 23 June 2017.  

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