EU-Japan Economic Partnership Agreement

The EU and Japan have reached agreement on “the biggest bilateral trade agreement ever negotiated by the European Union”, covering a combined market of over 600m people and 30% of global GDP¹. The agreement will open up both markets by eliminating or phasing out import duties and reducing regulatory barriers, particularly on EU exports of agricultural products and imports of vehicles. Contentious issues on data protection and investment standards are being addressed separately. The agreement is expected to come into force in 2019, near the time that the UK leaves the EU and it could offer another potential template for an UK-EU trade agreement. Dechert is ideally placed to advise on how to take best advantage of the substantial opportunities created by the agreement. 

In December 2017, the EU and Japan completed negotiations on the EU-Japan Economic Partnership Agreement begun in 2013. After legal verification and translation processes, the deal will be submitted for ratification in Japan and the EU. It is likely to come into force in the first half of 2019, close to the time of the UK’s exit from the EU. 

Context 

Both sides are emphasizing the strategic as well as economic importance of the agreement as a powerful signal of support for open, fair and rules-based trade and sustainable development at a time when the US is walking away from multilateral trade regimes and the Paris climate agreement. In parallel, the EU and Japan are also negotiating a legally binding Strategic Partnership Agreement to strengthen their political dialogue and policy cooperation on regional and global challenges. 

Japan is the EU’s sixth most important trading partner worldwide and second largest in Asia after China. EU firms export over €58bn in goods and €28bn in services to Japan annually; 600,000 jobs in the EU are tied to exports to Japan while Japanese companies in the EU employ over 500,000 people. The potential benefits particularly for EU agricultural exporters may be important in appeasing concerns over market access rights likely to be granted to South American farmers as part of a separate EU trade deal being negotiated with the Mercosur bloc (Argentina, Brazil, Paraguay, and Uruguay, and associate members Bolivia, Chile, Colombia, Ecuador and Peru). But Japan represents only around 3 percent of total EU exports, so its overall economic impact is likely to be modest. 

Japan trades less with the EU than with the US or China, but finalizing this deal became a priority for Tokyo after the US withdrew from the Trans-Pacific Partnership in January. Japan has worked with the 10 other parties to sustain that agreement in the absence of the US and to take other steps to liberalise its economy, notably being more open to concessions on agriculture, a key sector that has previously impeded its readiness to strike trade agreements. 

Headlines 

Agriculture 

The agreement will scrap duties on many cheeses (currently 29.8%) as well as on wine exports (currently 15% on average). It will allow the EU to increase its beef exports to Japan substantially, while on pork there will be duty-free trade in processed meat and almost duty-free trade for fresh meat. It will ensure the protection in Japan of more than 200 Geographical Indications (GIs) of high-quality EU products and will also ensure the protection of a selection of Japanese GIs in the EU. EU exports to Japan of processed food are projected to rise by up to 180%. 

Automotive 

The agreement will reduce duties over a transition period, to allow the EU market time to adapt. Japanese manufacturers have only a 13 percent share of the auto market in the EU compared to the US where they account for about 40 percent, but Japan’s carmakers already have major manufacturing operations in Europe. With respect to regulatory barriers, despite being a member of the UN body (UN-ECE) which establishes international standards for cars and car parts on which EU standards are very closely based, Japan has only adopted partially international standards. It has now agreed to align its standards entirely with those of the UN-ECE and robust procedures will be put in place to ensure that Japan respects these commitments. 

Chemicals and Pharmaceuticals 

Reductions in duties and regulatory barriers are expected to increase EU exports of chemicals to Japan by over 20%. Japan has accepted to refer to the International Council on Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) as the international standard-setting body and to use ICH guidelines as basis for its legislation. 

Services 

The agreement opens up services markets, in particular business services, financial services, e-commerce, telecommunications, transport and distribution. The agreement will prevent the EU or Japan from discriminating against each other's service providers. But it will not prevent either side from regulating their services markets in a non-discriminatory manner and it will not change rules on health and safety, qualification requirements and working conditions. 

Procurement 

The agreement guarantees non-discriminatory treatment of EU businesses operating in the procurement markets of 48 large Japanese cities, covering around 15% of Japan’s population and removes existing obstacles to procurement in the railway sector. 

Regulation 

The agreement aims to reduce or eliminate a wide range of non-tariff barriers. Japan has agreed to examine a list of non-tariff measures that make exporting harder for EU firms, to find ways to simplify them and to adopt more international standards, in particular the same standards that the EU uses. For example, Japan has agreed to a long-standing EU request to reform its system for care labels on textiles and aligned it with the ISO standard used by EU industry. A joint Regulatory Cooperation Committee will provide a forum for voluntary exchange of good practice in regulation, experience and information, to identify areas where regulators could work together and to enhance cooperation on international standards. But it will not have any decision-making powers and it will not affect the right of either the EU or Japan to define or regulate its own levels of protection to achieve public policy goals (addressing one of the most contentious aspects of the EU-Canada free trade deal): in the words of the Commission, “Europeans will continue to decide for themselves how they want, for example, their healthcare, education and water delivered.” 

Sustainable Development 

The Trade and Sustainable Development chapter will uphold the precautionary principle (a key tenet for the EU) and contains strong commitments to environmental protection, labour and sustainable development, including: a clear commitment to fight climate change and to support the implementation of the Paris agreement; a specific article on forests and timber trade, including on combatting illegal logging; and initiatives such as corporate social responsibility, eco-labelling, fair trade, recycling, and the use and promotion of environmentally friendly goods and services. 

Data Protection 

Data protection is being dealt with separately from the Economic Partnership Agreement. A Joint Statement issued in July stressed the importance of ensuring a high level of privacy and security of personal data as a fundamental right and as a central factor of consumer trust in the digital economy. The two sides have increased the convergence between their systems, and are continuing work towards adopting adequacy decisions under their respective data protection rules as soon as possible in 2018. 

Investment

Negotiations on investment protection standards, identified earlier as a key contentious area, are also being handled on a separate track, outside the Economic Partnership Agreement. Both sides are committed to building a stable and secure investment environment. The main sticking point is understood to be a dispute resolution mechanism. The EU is pushing its concept of an Investment Court System, with judges appointed by the two parties to the FTA and public oversight, but Japan remains to be convinced. 

Brexit 

This agreement could offer another potential template for an UK-EU trade agreement in addition to those for earlier deals with, notably, Canada and South Korea. Whether and if so how far the agreement applies to the UK after it has left the EU will be subject to separate negotiation between the UK and Japan. While both sides are likely to have an interest in maintaining many of the main elements of the agreement, both are also likely to want to improve on their access to the other’s market. Japan, particularly as a major investor in the UK as a gateway to the EU in the automotive and electronics sectors, will have a particular interest in the nature and extent of the UK’s future access to the EU single market. 

What Does This Mean for You and How Can Dechert Help? 

The text of the agreement² is subject to legal revision and ratification by the parties. Once in force, it will create substantial immediate and longer-term opportunities for importers, exporters, contractors and investors. Dechert’s International Trade and EU law practice has extensive experience advising clients on all aspects of trade regulation, particularly EU Free Trade Agreements. We can advise on how to take best advantage of the opportunities created by the agreement, in trade in goods and service, as well as investment, bidding for public contracts, managing complex Rules of Origin and preference calculations and ensuring compliance with all applicable regulatory standards and licensing requirements. 

Footnotes 

_{1) European Commission Website
2) Draft text of the EU-Japan Economic Partnership Agreement}