On 17 July, the European Union (EU) and Japan finally sealed the Japan-EU Economic Partnership Agreement (JEEPA). Amid Brexit turmoil and the US-triggered tariff conflict, the pact emerges as a beacon of hope for international trade.
However, challenges abound and it might take a while before EU companies enjoy unfettered access to Japan's alluring markets.
EU looking east
In light of recent geopolitical developments, the signing of the JEEPA was, to say the least, timely.
Although negotiations had kicked off in 2013, they gained momentum after President Donald Trump took office in 2017, implemented his 'America First' policy and the ensuing protectionist measures.
But the EU is busy courting new commercial partners and handling multiple free trade deals with Canada, Australia and Japan. The latter is the world's third-largest economy and the EU's second-biggest Asian trading partner.
More than 70,000 EU companies, mostly SMEs, export to Japan. Bilaterally, trade of goods and services is worth almost €90bn on average annually.
Nevertheless, Japan's onerous regulations, prohibiting tariffs and public procurement restrictions, remain major disincentives for EU exporters.
Eighteen negotiation rounds thus brought about the creation of the world's largest ever free-trade area, encompassing more than 600 million consumers and accounting for a quarter of global GDP.
It will also top the North American Free Trade Agreement, presently the world's largest free-trade deal.
Major advantages for EU businesses
The JEEPA intends to eliminate 99% of the tariffs. In addition to facilitating the access to the Japanese market, the agreement could then imply colossal savings for EU companies.
While Japan has secured the lifting of customs duties on their cars, EU suppliers have won sizeable concessions in multiple sectors they excel in.
Salient points include:
• Emphasis on sustainability with the introduction of stringent labour, consumer protection, environmental standards and upholding the precautionary principle; as well as a commitment to the Paris Agreement and the OECD's corporate governance principles
• Japan's alignment with international standards will reduce paperwork and incentivise EU car manufacturers to export their vehicles
• Zero-tariff trade in numerous profitable industries, such as pharmaceuticals, medical devices and motor vehicles, where EU exports could more than double
• Privileged access to Japan's service market, including financial services, e-commerce, telecommunications and transport
• Unprecedented access to Japanese procurement contracts, especially in the railway sector and cutting-edge technologies
• Recognition of more than 200 EU delicacies such as French Cognac, thereby enhancing their global stature and affording them greater protection from counterfeiting; and
• The removal of 85% of Japanese duties on agri-food products, where EU exports are worth €5.7m.
On the whole, the European Commission is confident that the JEEPA will benefit EU exporters and consumers alike. The Agreement could raise EU exports to Japan by 34%.