Japan and the European Union agreed on a free trade pact on Thursday to create the world's biggest open economic area and signal resistance to what they see as U.S. President Donald Trump's protectionist turn.
Concluded in Brussels on the eve of meetings with Trump at a summit in Hamburg, the "political agreement" between two economies accounting for a third of global GDP is heavy with symbolism. The deal will rival the size of NAFTA, the free trade accord that the US has with Canada and Mexico — currently the largest one in the world.
It leaves some areas of negotiation still to be finished, although officials insist the key snags have been overcome.
"Ahead of the G-20 summit tomorrow, I believe Japan and the EU are demonstrating our strong political will to fly the flag for free trade against a shift toward protectionism," Japanese Prime Minister Shinzo Abe told a joint news conference with EU institutional chiefs Donald Tusk and Jean-Claude Juncker. The "win-win" deal was, Abe said, "a strong message to the world".
“There is no protection in protectionism,” EU Commission president Jean Claude Juncker said, insisting that the only way forward consisted in working together for a rules-based international trading system.
And the EU Council president warned that the “world does not need to go back 100 years in time”. To those Brexiters who said that it is easier to do global trade outside the EU, “today we show this is not true”, he said.
The deal should remove almost all custom duties which cost EU exporters €1 billion a year, and EU officials claim it has the potential to see EU exports to Japan of processed food rising by up to 180 per cent and chemicals by over 20 per cent.
The dairy sector will be particularly affected – the deal would greatly reduce Japanese tariffs on imports of European cheese over 15 years .
Japan agreed to fully drop its tariffs on hard cheese, such as Gouda and cheddar, over 15 years. On soft cheese – such as Camembert, Brie, feta and mozzarella – there will be a tariff-rate quota of 20,000 tons, which will grow to 100,000 tons within 15 years. Inside this quota, Japan’s high tariffs will gradually drop to zero.
Japan will reduce its 38 per cent tariff on beef imports from the EU down to 9 per cent over 15 years. Those tariff cuts are tied to a 42,000-ton quota in the first year, which will grow in the following years. On pork, the tariffs will fall even more.
There will be full market access for wine and spirit drinks – the wine access alone will save exporters about €134 million a year.
The negotiations which have been ongoing for four years have been accelerated in recent months in response to Donald Trump’s retreat from world trade and repudiation of the Trans Pacific Partnership deal with Asian nations and Australia.
From a strategic perspective, the deal is also a blow to the U.S. After its exit from TPP in January, the administration expressed preference for bilateral trade agreements, including with Japan. But the conclusion of the EU deal signals that Japan is hedging its bets and reducing its dependency on the U.S. It also puts Japan in a stronger negotiating position, should bilateral talks with the U.S. commence.
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