Free Trade Flourishes Between Japan and EU Without the U.S.

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By Kenji Hosokawa
Italy, September 3, 2017

On July 6th, the EU and Japan formally agreed on a trade agreement which will provide enormous economic advantages and opportunities for the two regions. Talks on an agreement began in 2011 which seemed to have come to a fruition with President Obama’s TPP (Trans-Pacific Partnership) in 2015. However, with the election of President Trump and the subsequent scrapping of the TPP, the leaders of the EU and Japan decided to commence negotiations without the U.S. which led to the current 2017 Japan-EU Economic Partnership Agreement or JEEPA.

Both regions are considered to be economic giants, as according to Europa they “together account for a third of world GDP and more than a fifth of world trade”. Individually both have significant ties to one another as Japan is currently “the EU’s 6th largest overall trading partner whilst the EU is Japan’s 3rd largest overall trading partner”. Both regions have an already established trading practice as EU-Japan traded around €26 billion in goods in 2016. In addition to trading goods, service exports have been steadily increasing from Japan to the EU “from €26.1bn in 2014 to €28bn in 2015” and to the EU from Japan which “increased from €15bn in 2014 to €15.9bn in 2015.”

While the Japan and EU have been steadily growing their trade relationship, it has been hampered by tariffs and trade barriers. Both regions desire an FTA (free trade agreement), which according to CNN would remove past trade barriers leading to “prices going down and consumers having greater access to foreign goods.” The following increase in availability of both Japanese and European goods could lead to a “potential 32.7% increase in EU exports to Japan” and “Japanese exports to the EU could rise by as much as 23.5%” according to Europa. Both regions hope to that JEEPA will increase market access in specific areas according to Reuters, as Japanese will reduce “tariffs on cheese and agriculture imports that are as high as 30 percent in return for phasing out tariffs on Japanese autos and auto parts.”

The importance of JEEPA only increased after President Trump has decided to walk away from the TPP, which shook future plans of increasing trade between the regions. The Japanese Prime Minister Shinzo Abe was frustrated on Trump’s antagonistic view on the TPP, stating “I have constantly tried to explain the significance of the TPP to President Trump. How the TPP is not a win or lose, and how for all the member countries it’s a positive.” Both regions will utilize this wide-ranging agreement in order to signify a continuing relationship in trade outside of the failed TPP and as an effort to reduce protectionist forces that have been sparked by President Trump’s isolationist policies. According to The Economist both regions “want to show that they can fill the vacuum left by America’s withdrawal under Mr. Trump from its role as the world’s trade leader.”

The effects of the Trump administration’s hard stance on trade has placed American companies abroad in a stranglehold and will cut deep into their overall profits. JEEPA eliminates European tariffs solely on imported Japanese cars while American automakers will still face a 10% tariff, placing them at a greater disadvantage in the European market. American auto-companies also face an uphill battle in Japan according to CNN, as “Tokyo has agreed to bring its standards for cars into line with the EU, which will make it easier for European automakers such as Volkswagen and BMW to sell their vehicles in Japan.” One similar deal between the EU and Seoul in 2011 saw European car exports to South Korea “triple in just four years” devastating American Automakers in the Korean market.

Outside of the economic reach of the JEEPA, the EU and Japanese trade agreement also is the first trade deal to include a specific commitment to the 2016 Paris Accord. Celine Bak a senior fellow at the Centre for International Governance Innovation stated that both regions have “signaled that future trade agreements will include Paris as part of the rules.” This deep commitment to the Accord places the U.S. in a difficult position as other nations will be more inclined to look outside of the U.S. for potential trading partners. The JEEPA has exemplified the desire of other regions to continue with trade and economic partnerships outside of the isolationist Trump administration placing American companies at a continuing global disadvantage.

Kenji Hosokawa
-European Correspondent for TransAtlantic Magazine, Citizen of U.S., Japan, Italy
-Political Science and Italian Student at UW-Madison

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