The EU has signed up to its biggest ever bilateral free trade agreement.
The Economic Partnership Agreement or EPA with Japan, effectively born in 2011, was signed on July 17, 2018 by Japanese Prime Minister Shinzo Abe and European Commission President Jean-Claude Juncker and European Council President Donald Tusk in Tokyo.
It still needs to be ratified by both sides however which may not be plain sailing, as was the case for the EU-Canada free trade agreement (CETA) when the Belgian region of Wallonia stalled proceedings. Ultimately though, CETA was ratified and with the amount of political capital and negotiating time invested in the deal, it is almost unthinkable that it could fall apart at this stage, and it will likely come into effect in 2019.
This brief assesses the impact the EPA will have based on the findings of the European Commission’s June 2018 impact assessment, which is predicated on what has actually been negotiated in the agreement.
Tariff and tariff rate quota reductions
In a nutshell, the EU has agreed to gradually remove its automotive sector tariffs in exchange for Japan reducing or removing its tariffs on various agri-food products. The accord has even been branded the “cars for cheese” agreement. The deal also ensures that both sides will eventually have no tariffs on industrial goods whatsoever, though this is actually a grander claim than it sounds, given that tariffs on most industrial goods were very low or non-existent already.
By product group:
Non-tariff barrier reductions
Non-tariff barrier liberalisation often sounds very boring and typically deals with harmonising standards and regulations but is usually considerably more important in terms of its impact than reducing tariffs. This is usually because tariffs tend to be fairly low on most goods already, as is the case for Japan-EU trade.
Major sectoral impacts include:
The impact assessment asserts that by 2035, EU and Japanese GDP will be 0.14% and 0.61% greater than they would have been if the EPA had not come into force. Such relatively small impacts on GDP are typical of free trade agreements generally. The numbers around trade flows are much greater however. By 2035, EU exports to Japan should be 13.2% higher than they would have been without the EPA, while for Japan’s exports to the EU, the corresponding figure is 23.5%. Total bilateral trade will increase by 18% or €36bn.
By sector, the largest increases in EU exports to Japan in absolute and relative terms are in the textile, apparel and leather (€5,213m, +220.0%) and dairy (€729m, +215.0%) sectors, followed by processed foods (€1,095m, +51.8%), motor vehicles (€1,222m, +11.5%) and chemicals (€1,606m, +6.9%).
As for Japanese exports, the sector that is expected to see the highest increase in exports in both absolute and relative terms is motor vehicles (€8,174m, 51.3%) followed by minerals and glass (€3,018m, +83.0%), machinery and equipment including medical, precision and optical instruments (€3,576m, +13.6%) and then chemicals (€3,306m, +30.0%).
Overall, the deal is welcome news for freight forwarders. It provides a timely reminder that there are still major economies driving towards trade liberalisation, when most of the headlines are being dominated by US and Chinese tariff threats.
Source: Transport Intelligence, July 26, 2018
Author: David Buckby
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