On Wednesday 5 July, European Trade Commissioner Cecilia Malmström and Japan’s head of diplomacy Fumio Kishida concluded an agreement in principle sealing a Japan-EU free trade agreement (JEFTA). This political compromise needs to be confirmed at the EU-Japan summit on Thursday 6 July. The two parties hope to complete the agreement definitively by the end of the year by coming to an agreement on the chapter on investment protection.
“We ironed out the few remaining differences in the EU-Japan trade negotiations. We have reached political agreement at ministerial level on an EU-Japan trade deal. We now recommend leaders to confirm this at the EU-Japan summit”, Malmström announced at the beginning of the afternoon.
Launched in March 2013, and gradually making progress since then, the JEFTA negotiations have picked up speed since US President Donald Trump took up office in early 2017, and since his swift decision to withdraw the US from the Transpacific Partnership (TPP) free trade agreement that was sealed in 2015 with Japan and ten other economies from the Asia-Pacific area.
Japanese Prime Minister Shinzo Abe’s visit to Brussels stimulated “the start of a consensus on what is a good agreement for both parties”, a senior Commission official close the file told EUROPE. After three weeks of intense technical discussions, Malmström’s visit to Tokyo last weekend paved the way for a political agreement at ministerial level, which Kishida came to conclude in Brussels on Wednesday.
Named the “economic partnership agreement’ by the Commission, JEFTA is part of the broader strategic partnership framework – a legally binding framework agreement that will govern relations at political level (including cooperation on security and crisis management) and in around 30 sectors. It will also ensure coherence of the economic partnership agreement.
“Significant progress has been reached on these two negotiations and an agreement in principle is within reach on these two agreements that form a package. They will work in tandem and will provide a solid basis for strengthening the EU-Japan strategic partnership”, a senior official from the European External Action Service (EEAS) commented.
With regard to the economic partnership agreement, “the two parties have agreed on nearly everything that is important, and the objective should be to reach a final agreement in the coming few months”, the senior Commission official stated.
On the substance of the trade agreement, transition periods and different means of handling and “respecting” sensitive products are planned, but when the transition periods expire the agreement will cover 99% of bilateral trade in goods.
With regard to the two sectors that have been at the centre of the latest horse-trading on market access, the EU obtained a very good result for its offensive interest in the dairy products sector and for its defensive interest in automobiles.
For dairy products, a very sensitive sector in Japan, the EU obtained full liberalisation of the Japanese market for certain cheeses and the opening of tariff quotas for others.
With regard to automobiles, Japan obtained the lifting of EU taxes on personal-use vehicles – products that are sensitive for Europeans, who nevertheless obtained a grace period of over seven years, as requested by the European Automobile Manufacturers' Association (ACEA).
As regards services, the Europeans and Japanese, who have "very similar points of view" in this field, had "a good negotiation" and, as far as public procurement is concerned, the EU obtained a "very good result" with commitments from Japan on increased transparency and accessibility, access to the railway market ("a particularly difficult question") and access to public procurement at local level, EUROPE's source stated.
The structure and content of JEFTA will be "very similar" to the agreements recently concluded by the EU with Canada (CETA) and Vietnam, the same source added.
On regulatory cooperation, the EU obtained a "very good result", the senior Commission official continued, saying that the European and Japanese negotiations had established common principles on rules on business governance, competition, subsidies and state-owned companies, as well as on intellectual property and support for SMEs.
One specific issue is that the EU persuaded Japan to adapt its legislation on protecting geographical indications and the agreement will protect more than 200 EU geographical indications on Japanese territory.
Japan's commitments on non-tariff barriers are also a "big success" for the EU, EUROPE's source stated. The lifting of certain Japanese non-tariff barriers in the automobile sector, but also in that of foodstuffs, drinks and food additives, was one of the pre-conditions for the EU to engage in the JEFTA negotiations.
In the automobile sector, for example, the EU and Japan will "fully" align their regulation with the same international regulation on automobile safety, and will work on developing global standards when these do not exist.
The EU and Japan now need to come to an agreement on the chapter on investment. Beyond the "differences" between the two parties on investment protection and standards on this, the issue of the mechanism for settling investor-state disputes on investment "remains open". The EU wants to negotiate on this issue on the basis of the special investment court (ICS) system, which is promoted by the EU in its agreements with Canada and Vietnam. Japan, which obtained the inclusion of the ISDS mechanism in the last free trade agreements it concluded "is not yet persuaded" but is ready to discuss this chapter with an open mind to improve an old system of investment dispute settlement that is heavily under fire from its critics. (Original version in French by Emmanuel Hagry)