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ECONOMY > External Relations

Hard-won pact shows Japan, EU still carry free trade torch

  • July 6, 2017
  • , Nikkei Asian Review , 7:31 a.m.
  • English Press
  • , ,

TOKYO — Four years of trade talks between Japan and the European Union look at last to yield a wide-ranging pact the two sides hope will stand as a beacon of liberal trade policy and materially improve the lives of their people.


Japanese Foreign Minister Fumio Kishida and EU Trade Commissioner Cecilia Malmstroem knocked down the final barriers to a broad economic partnership agreement at talks in Brussels on Wednesday. Officials at numerous levels have put forth great effort in the negotiation process, Kishida told a news conference.


Prime Minister Shinzo Abe and EU leaders are expected to give their stamp of approval to the broad agreement Thursday, bringing to fruition a process that has advanced in fits and starts since April 2013. Talks have moved at a rapid clip of late despite a set of thorny disagreements, not least because the two sides are eager to tout their free trade bona fides as other advanced nations take a protectionist turn. America’s withdrawal in January from the Trans-Pacific Partnership before it could even take effect rattled Japan, while the U.K.’s pending exit from the EU stands to remove a sizable economy from the single European market.


For Japan, the main point of the new pact is export promotion, and Tokyo has pushed Brussels to repeal or reduce tariffs on goods including automobiles, appliances and sake. The pending agreement will over time bring conditions for Japanese vehicles in Europe in line with those enjoyed by autos from South Korea under that country’s trade pact with the EU, helping Japanese automakers regain their competitiveness in Europe. Once tariffs are fully phased out, Japanese autos will have better market access than they would have gotten even under the TPP.


Brussels has won concessions on agricultural products, the EU’s top priority. Japan was able to compromise, with insiders noting that shipping costs mean that European foods will cost more in Japan than their local counterparts no matter what their treatment at the border. Tokyo will create an import quota for European cheeses for which tariffs will be phased out over 15 years, and tariffs on wine will be dumped immediately when the trade pact takes effect. While Japanese food makers will likely push back, the consumer will benefit from greater access to and cheaper prices on European imports.


Protecting their own


Once the broad agreement receives top officials’ approval, Tokyo will set about making necessary policy changes at home to implement the pact and soften potential blows to domestic industry. Cabinet ministers will meet to discuss possible solutions, while a Cabinet Office unit tasked with bringing policy in line with the TPP will take on similar duties for the Japan-EU pact.


Abe’s Liberal Democratic Party has already established a headquarters, led by former Agriculture Minister Koya Nishikawa, for policies to help ease opposition from such interests as agricultural groups. The Cabinet Office group will work with its LDP counterpart to firm up these policies and put them into place. The goal is to have specific aid measures ready by fall for inclusion in a supplementary budget to be drawn up in December.


Plans include raising subsidies to cheesemakers above the current 10.56 yen per kilogram. Aid to dairy farmers producing high-fat milk suited to cheese will be considered as well. Japan also will pay hog farmers driven into the red by reductions to tariffs on European pork 90% of the difference between gross income and the cost of production, up from the 80% paid under ordinary circumstances.


The cost of lumber-processing facilities and upkeep on forest roads will likely be subsidized as well, and other measures will be put in place to help farmers working to export their offerings.


The LDP can be counted on to protect farmers, an enormous voting bloc the party has consistently won for years. The party spearheaded some 6 trillion yen ($53 billion) in economic stimulus when Japan began accepting rice imports in the 1990s and included more than 600 billion yen in the fiscal 2015 supplementary budget to assist farmers in adjusting to the TPP.

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