The EU-Japan Economic Partnership Agreement – the future of open and fair trade

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At a time when headlines are made by the fallout of Trump’s ‘America First’ policies and the inability of British MPs to reach a majority vote on Brexit, the entrance into force of the world’s largest bilateral trade agreement is being reduced to background noise despite its paramount significance.

The EU-Japan Economic Partnership Agreement (EPA) entered into force on February 1st. This date marks the end of nearly decade-long negotiations between the parties, and simultaneously represents the beginning of a protracted process of deepening trade liberalization and political co-operation.

The pact is rightly deemed a ‘mega-deal’, for it scraps nearly all tariffs and other regulatory barriers to trade between economies which represent almost one third of global GDP. Its mutual economic benefits are self-evident – the European Commission and the Japanese government estimate a €33 billion euro and ¥5.2 trillion (€42bn) boost to GDP figures, respectively by 2035.

Such figures are significant in the eyes of politicians and economists, however the ordinary European voter sees nothing more than unfamiliar terminology, no tangible economic benefit, and a twenty-year lag in effectiveness. Thus, it is important to emphasize the immediate effect of the EPA on consumers, and its centrality for the EU’s response to populist rhetoric – namely the EU ‘Trade for All’ strategy. While Eurosceptics aim towards societal division between the ‘people’ and the ‘elite’, the Union is pushing for social cohesion not only though its Justice and Home Affairs Council, but also through this trade initiative.

A reference to the exchange of “cars for cheese” is often employed in discussing the partnership, in order to reflect the opportunities provided to Japanese carmakers and European farmers. It means that European dairy exporters will save millions of euros previously sucked in by Japan’s nearly 30% tariff on cheese. Japanese consumers, in turn, are already reaping the benefits of significantly lower supermarket prices.

Jean-Claude Juncker proudly describes the EPA as a ‘message to the world about the future of open and fair trade’.

Juncker and his colleagues – Cecilia Malmstrom, EU trade commissioner, being most influential in this context – rely on their partnership with the world’s third largest economy for ideational, as well as practical reasons. The EPA is a partnership that represents the joint effort of Japan and the EU to develop a model for new generation trade agreements. Malmstrom spoke of the significance of the deal in kick-starting ‘so many processes of cooperation’ in the fields of diplomacy and security.

This is made possible by the addition of the Strategic Partnership Agreement (SPA) to an otherwise merely material arrangement. The framework agreement, a first of its kind, covers areas such as international peace and security, energy security, cybercrime, as well as the consequences of global climate change and the imposition of environmental standards on the basis of the Paris Agreement. The SPA is arguably even more valuable for both parties, than the removal of tariffs. This is exhibited in the following statement made by European Council President Donald Tusk in July 2018: ‘This is an act of enormous strategic importance for the rules-based international order at a time when some are questioning this order’.

Escalating tensions between the U.S. and China, as well as other geopolitical developments, constitute a global climate, in which the salience of Tusk’s words is ever-increasing. It is unsurprising that negotiations for the EPA were sped up dramatically in 2018 as Member-States ratified the agreement with little hesitation in order to respond adequately to American protectionism. The combination of an economic deal with a political partnership agreement represents a beacon of hope for ensuring institutionalized prosperity and geopolitical stability, and thus reflects Malmstrom’s desire to strengthen the bonds between “like-minded countries”.

Analysis by: Joanna Zada

Source: European Commission