Wine, cheese and financial services: EU and Japan strike free trade deal

The European Union and Japan have struck a trade deal to open up the South East Asian country to European exports with an estimated value of around €20bn.

Removing the majority of duties paid by EU companies, amounting to around €1bn a year, the EU said it was "the most important bilateral trade agreement ever concluded" by the bloc and would free up the Japanese market to key agricultural exports and increase opportunities for "a range of sectors".

The value of exports from the EU could increase by as much as €20bn, the bloc said in a statement, "meaning more possibilities and jobs in many EU sectors such as agriculture and food products, leather, clothing and shoes, pharmaceuticals, medical devices and others".

Tariffs on European wines and cheeses such as Gouda and Cheddar exports will disappear, for example, while other regional food and drinks specialities such as Munich beer, Ardenne ham and Polish vodka will be given stronger protection.

Japan's Prime Minister Shinzo Abe travelled to Brussels to sign the deal alongside European Commission President Jean-Claude Juncker, with the pair pointing out the 'Economic Partnership Agreement' was the first bilateral trade deal to include a specific commitment to the Paris climate agreement and also setting high standards of labour, safety, environmental and consumer protection, as well as aiming to build personal data protection laws in both areas.

Framing the pact as a direct rejection of the protectionist rhetoric coming from US President Donald Trump's regime, Juncker said the agreement, which has been signed in principle, was "sending a strong message to the world that we stand for open and fair trade".

"As far as we are concerned, there is no protection in protectionism. Only by working together will we be able to set ambitious global standards. This will be the message that the EU and Japan will bring together to the G20 tomorrow."

Abe, whose key motivation was felt to be the agreement from the EU to remove barriers to imports of cars, told ministers: "It is important for us to wave the flag of free trade in response to global moves toward protectionism by quickly concluding the free-trade agreement with Europe."

A senior EU official was quoted by the Politico website as saying that the deal “was probably helped by what we both see as a deterioration of the international climate” in terms of trade and investment, adding Brussels and Tokyo could wrap up the whole accord by the end of the year, with 99% of goods to be traded tariff-free.

AGRICULTURE AND FOOD BOOST

With Japan being the fourth largest economy of the world with a big appetite for European products, EC trade commissioner Cecilia Malmström said the deal was expected to provide "a major boost of exports in many sectors of the EU economy".

Indeed the deal looked a boon for rural Europe, agriculture commissioner Phil Hogan added, forming what he felt was the "most significant and far-reaching agreement ever concluded in agriculture", pointing to a saving of €134m a year for wine producers and protection for geographical food and drinks.

As well as the scrapping of the current 30% and 15% duties on cheeses and wine, the agreement will also allow the EU to increase its beef exports to Japan "substantially", while processed pork will become another duty-free trade, with fresh meat almost duty-free.

The agreement is also designed to open up services markets, in particular financial services, e-commerce, telecoms and transport, guarantee EU companies access to the large procurement markets of Japan in 48 large cities, and removes obstacles to procurement in the economically important railway sector at national level, and protects sensitive economic sectors of the EU, for instance in the automotive sector, with transition periods before markets are opened.

Some details on data flow remained, with the two sides close to striking a separate agreement on ‘data adequacy’, which would mean EU data can be transferred to Japan as the country upholds the same protection standards as the EU.

Analysts at Citi noted that in some cases there will be lengthy transition periods for the removal of tariffs of a decade or more but observed one key success for the EU was winning access to the Japanese markets for its farmers.

"The EU and Japan will have to continue working closely to finalise a trade deal by January. Officials said it was not clear at this stage how the EU-Japan deal would be ratified in Europe.

"Full national ratification gives every national parliament and some regional ones a veto. This process was used to ratify the EU-Canada trade agreement, which was nearly derailed by a Belgian regional parliament vote in Wallonia."

There is a chance that recent anti-globalisation, populist headwinds could derail the process, but Citi pointed out that one poll published in Handelsblatt showed support for globalisation in Germany increasing from 50% to 63% within the first six months of the year.

"Although this is only one poll conducted in one country, the populist tide seems to have been turning in Europe this year with mainstream wins in key elections. The timing of the EU-Japan political agreement is significant with the G20 summit on Friday and Saturday, sending a clear signal of defiance to President Trump’s protectionist rhetoric."