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Jeepas creepers
A new trade deal between the EU and Japan
Besides slashing tariffs on cheese and cars, it sends a message to Donald Trump
FREE-TRADE agreements have seemed out of fashion as President Donald Trump
has set about scotching some of Americas. But on July 5th Cecilia Malmstrm, the
EU trade commissioner, and Fumio Kishida, the Japanese foreign minister, announced
they had achieved consensus on a Japan-EU Economic Partnership Agreement
(JEEPA). In front of the cameras, they swapped Japanese Daruma dolls, talismans of
perseverance and good luck, and, they hope, of a win-win agreement.
The timing of JEEPA was just as carefully co-ordinated. When negotiations started in
2013, it was neither sides main priority. But now both want to show that they can fill
the vacuum left by Americas withdrawal under Mr Trump from its role as the worlds
trade leader. To highlight its political importance, they note that this is the first trade
agreement to mention the Paris climate accord, another deal Mr Trump has spurned.
Haste is handy: the EU wanted success before Brexit negotiations and national
elections swamp its agenda.
The deal is about more than political symbolism, however. Average tariffs between the
two sides are already low, but prizes are still there to be grasped. Exporters from the
EU pay 1bn ($1.1bn) in export duties to Japan each year, and on agricultural
products face average tariffs of 21%. JEEPA will slash Japanese tariffs on beef, pork
and wine, eliminating 85% of the tariffs on agricultural food products going into
Japan. European producers of Roquefort cheese or prosecco can cheer: their products
become two of 205 protected geographical indications. Similarly, only feta from
Greece will be sold under that name.
Tariffs on European exports of textiles and clothing will also be cut. When the deal
enters into force, Japanese tariffs on shoes will drop from 30% to 21%, and then to
zero after ten years. The Japanese have won concessions, too. Tariffs on Japanese cars
going into the EU are currently 10%, but will be lowered over seven years. An
assessment of the impact of the deal (before the final details were agreed on)
suggested that almost half of the benefit to Japan would be from these lower tariffs. It
found the deal could raise the EUs exports to Japan by 34%, and Japans to the EU by
29%.
For all the doll-swapping bonhomie, however, the deal bore the scars of a difficult
negotiation. Both sides haggled fiercely. Japan had started the negotiation expecting to
offer the EU a version of the Trans-Pacific Partnership (TPP), a 12-country agreement
from which Mr Trump has withdrawn America but which Japan is still pursuing. But
they found the Europeans were much more interested in lowering tariffs on cheese,
chocolate and wine than on basic agricultural crops such as rice that were sticking-
points in TPP.
Offering concessions on some cheeses was relatively straightforward in JEEPA as in
TPP. Under both deals tariffs on cheeses like Cheddar and Gouda will be phased out.
Other cheeses, like Camembert and Mozzarella, were trickier. A strong domestic
Japanese lobby had resisted concessions even under TPP. (Japanese eat an average of
only 2kg of cheese per person a year, but Camembert is produced domestically. The
website of its largest producer suggests spreading the melted cheese on rice balls
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seasoned with soy sauce.) This put the Japanese government in a bind. Offering tariff
concessions to the EU could scupper its efforts to revive TPP, as miffed Mozzarella
producers from Australia could demand better terms too. So JEEPA ended up with a
compromise: a duty-free quota.
Described in these terms, as a deal easing the flow of cheese in one direction and cars
in the other, JEEPA sounds like an old-style trade haggle prey to national vested
interests. In theory, both Japan and the EU have higher ambitions. They see trade deals
as a way to shape globalisation by moving beyond tariff cuts to agreements on shared
standards and procedures. But in practice, Japan and the EU may have different ideas
about what this should involve. The agreement, to be signed after The Economist went
to press, will include agreement neither on procedures for settling disputes between
investors and governments, nor on data protection. Both will be dealt with separately.
The Japanese have so far refused to sign up to the EUs proposed investor courts,
which are supposed to settle trade disputes in a more transparent and accountable way.
They are reluctant to pay for a new expensive structure, particularly since Japanese
companies tend to shun such legal procedures. Hosuk Lee-Makiyama, director of the
European Centre for International Political Economy, a Brussels-based think-tank,
suspects that the Japanese are also wary of adopting a system that could become a
template for future deals, in which state-appointed judges might rule on claims by
Chinese or Korean companies against Japans government.
The politics of JEEPA made it too important to be held up by such issues. But that
means there are more details to be negotiated, as well as plenty more procedure to go
through. Once the text is finalised, it will need to be ratified by both houses of the
Japanese parliament, as well as each European national government. Depending on
what the European Commission decides, it may also need the approval of regional and
local European parliaments tooa requirement that almost scuppered the EUs most
recent trade deal, with Canada. It will take a while for the rounds of European
Camembert to reach Japan.
This article appeared in the Finance and economics section of the print edition under
the headline Jeepas creepers!
Source: https://www.economist.com/news/finance-and-economics/21724830-besides-
slashing-tariffs-cheese-and-cars-it-sends-message-donald-trump