TheauthorisanassistantresearcherwiththeChinaInstitutesofContemporaryInternationalRelationsTheEuropeanUnion(EU)andJapansignedtheEU-JapanEconomicPartnershipAgreement(EPA)inTokyoonJuly17,markingthecreationofoneoftheworld’slargestfreetradeblocscovering600millionpeopleandconstitutingaround30percentoftheglobalGDP.LeadersfrombothsideshavehighexpectationsfortheEPA.EuropeanCouncilPresidentDonaldTuskdescribeditasa“lightinthedarkness”forinternationaltradewhileJapanesePrimeMinisterShinzoAbesaidthattheEPA“showstheunwaveringpoliticalresolveofJapanandtheEUtoleadtheworldasflagbearersoffreetradeamidgrowingprotectionism.”
ThehistoryoftheEU-JapanEPAcanbetracedbacktoasearlyasMay2012whenJapanpromisedtoreducenon-tariffbarriersandgraduallyopenitspublicprocurementmarket,showingtheEUitswillingnesstostartnegotiationsonafreetradeagreement(FTA).InJuly2012,theEuropeanCommissionaskedEUmemberstatesfortheirapprovaltoopennegotiationsforanFTAwithJapan.ThenegotiationswerethenofficiallylaunchedinMarch2013.
AgainstthebackdropofthelingeringEuropeansovereigndebtcrisisandJapan’s“losttwodecades,”theworldeconomyfacedtheriskoffallingintoadouble-diprecessionwhileatthesametime,emergingmarketsanddevelopingeconomiesenjoyedrapidgrowth.TheEUandJapanstartedFTAnegotiationswiththeaimofdeepeningcooperationandjointlyexploringmarketpotentialandthepowertoshaperulesamidfinancialcrisesandglobalchanges.
However,theEUandJapanhavealwaysbeencompetitorsintheglobalmarket,andtheyhaddifferencesinstandardsandregulationsconcerningproductsandservices.Mostimportantly,asbothsidesprioritizedtheestablishmentofeconomicandtraderelationswiththeUnitedStates,theyfocusedmainlyonFTAnegotiationswithintheTrans-PacificPartnership(TPP)andtheTransatlanticTradeandInvestmentPartnership(TTIP),makingtheEU-JapanEPAprocessquiteslow.
Ajointresponse
Themostimportantreasonforthetwosidesfinallyacceleratingtheirnegotiationsandsigningtheagreementwastocopewiththe“Trumpshock.”Shortlyaftertakingoffice,U.S.PresidentDonaldTrump,pursuing“AmericaFirst”protectionistpolicies,regardedallcountriesthatrantradesurpluseswiththeUnitedStatesas“takingadvantage,”anddecidedtowithdrawfromtheTPPandfreezeTTIPnegotiations.
JapanandtheEUfacedunprecedentedpressurefromprotectionismandtheglobaltradepatternstheyhadoutlinedwerealmostinvain.AsthetwolargestdevelopedeconomiesaftertheUnitedStates,theEUandJapanbegantoprobeintotheroleoftheEPAinestablishingfreetraderules,consolidatingexistingglobaltradeadvantagesandevenseekingtofillthevacuumleftbytheUnitedStates.
Ontheeveofthe2017Groupof20HamburgSummit,theEUandJapanreachedaprincipledagreementontheEPA,whichdemonstratedtheirsupportforfreeandopentradeandservedasanimportantboostforsubsequentnegotiations.InDecemberofthatyear,thetwosidesannouncedthatnegotiationsonallissuesweretobecompleted,exceptforthesettlementofinvestmentdisputes,andtheyspeduptheEPAprocessagain.
Thisyear,astheUnitedStatesimposedspecifictariffsonsteelandaluminumandthreatenedtomoveontoautomobiles,tensionsrose.Withtheincreasingprotectionism,JapanandtheEUstrengthenedtheireconomicpolicycoordinationandcomplainedtotheWorldTradeOrganization(WTO)againstU.S.steelandaluminumtariffs.Concurrently,theirpoliticalwilltoreachtheEPAwasfurtherenhanced,andinaculminationofallthesefactors,theEPAwassigned.
TheEU-JapanEPAisexpectedtoboostthetwoexport-orientedeconomies.Itwillnotonlygraduallyeliminatetradetariffsandnon-tariffbarriersbetweenthetwosides,themutualopennessintheareasofgovernmentprocurementandtradeinserviceswillwidenaswell.Moreover,mutualrecognitionwillbeachievedonageographicalindication,dataflowregulatorystandardsandotherfields,whichwillgreatlyimprovetheconvenienceandopennessofbilateraltrade.
AreportbytheEuropeanCommissionindicatedthatin2017,thetradevolumebetweentheEUandJapanwas$151.4billion,accountingfor3.5percentoftheEU’sforeigntrade.JapanistheEU’ssixthlargesttradingpartnerwhiletheEUisJapan’sthirdlargesttradingpartner.TheEUexpectsthatthefullimplementationoftheEPAwillcontributetoa0.14-percentincreaseinitsGDPby2035andwillincreaseexportstoJapanby$15.2billion.
Meanwhile,theJapaneseMinistryofForeignAffairspredictsthattheEPAwillhelpboostJapan’sGDPbynearly1percentandcreate290,000jobs.JapanwillalsoportraytheEPAasanimportantpillarofsocalledAbenomics.AmongthethreearrowsofAbe’seconomicpolicies,theJapaneseGovernmenthasreliedmoreonproactivefiscalstimulusandaloosermonetarypolicyfromtheBankofJapan,butthestructuralreformshavebeenineffective.PublicopinioninJapanregardstheEPAasanimportantachievementofstructuralreforms;thusitwillhelpAbe’sadministrationachievethegoalofusingexternalopportunitiestopromotedomesticeconomicdevelopment.
Newtradepatterns
TheEPAisofgreatsignificanceinthereconstructionofglobaltraderulesandpatterns,withthetwosidesoccupying40percentofthetotalglobaltradevolume.ThemutualrecognitionofrulesandstandardsbetweentheEUandJapanisnotonlyaresultoftradefacilitationthatwillserveasadrivingforceforbilateraltradeandinvestment,butalsohasimplicationsforothercountries.
TheEUandJapanplantoshapeandintegraterulesonlabor,environmentalprotectionandproductstandardsundertheEPA,sothatanyonewhowantstocompeteforashareofthemarketwillberequiredtofollowtheserules.Therefore,throughthisprocess,domesticcompaniesfromtheEUandJapanwillconsolidatetheirexistingcompetitiveness.
Inits2015tradeandinvestmentstrategy,theEUproposedFTAsasatooltohelpexpandEUvaluesandstandards.Italsoproposedtheformationofanewglobaltradepatternwithfewertariffsandnontariffbarriers,butwithbetterrulesandstandards.Atthesametime,lackofprogressintheWTODohaRoundnegotiationsandthedevelopmentoffreetradeareasandregionalcooperationmechanismsaroundtheworldrepresentedthedeconstructionofmultilateralmechanisms.Theyalsodemonstratedtherearrangementandintegrationofsystemsamongdifferenteconomies,pavingthewayforanewsystemofglobaltraderules.TheEU-JapanEPAisofvitalimportanceinleadingmultilateralcooperation.
TheEPAwillexertitsinfluenceontradeliberalizationintheAsia-Pacificregion,theworld’smostpromisingmarket.Majorpowershaveincreasedtheirinvestmentinthisregioninordertostrengtheneconomicandtradetieswithitscountries.TheregionisthecornerstoneofJapan’seconomicandtraderelationswiththerestoftheworld,asevidencedbyitscontinuedeffortstomaintaintheTPPaftertheU.S.withdrawal,andfinallypushingtheremaining11countriestoreachtheComprehensiveandProgressiveAgreementforTrans-PacificPartnership(CPTPP).
WiththesigningoftheEU-JapanEPA,Japannotonlycompleteditsbasicfreetradearealayout,butitalsomaintainedtheoverallframeworkofindustrialrulessetbydevelopedcountries.Inaddition,itleftsomeroomfortheUnitedStatestoreturnorforanotherlayoutguidedbydevelopedcountriesinthefuture.
TheEUhascontinuedtoemphasizetheimportanceofanFTAstrategyintheAsia-Pacificregion,signinganFTAwithSouthKorea.FTAnegotiationswithVietNamandSingaporehavebeencompletedandnegotiationswithAustraliaandNewZealandhavebegun.TheEU-JapanEPAgivestheEUmoreconfidenceandpowertoshaperulesinfutureFTAnegotiations.Atthesametime,byadoptingtherulessetupbytheEPA,theEUisalsoplanninginadvanceforthereturnoftheUnitedStatestoglobalfreetrade.
OnJuly25,EuropeanCommissionPresidentJean-ClaudeJunckervisitedTrumpanddiscussedeconomicandtradeissuesconcerningtheEUandtheUnitedStates.Inajointcommuniqué,thetwosidesagreedtoworktogethertoward“zerotariffs,zeronon-tariffbarriers,andzerosubsidiesonnon-autoindustrialgoods.”TheydiscussedrestartingTTIPnegotiations,solvingeconomicconflictsthroughbilateralnegotiationsandconstructingaframeworkoftransatlanticeconomicandtraderules.
InpromotingthereformofthemultilateraltrademechanismrepresentedbytheWTO,theEUandtheUnitedStateshaveshowntheirwillingnesstostrengthencommunicationandseekcooperation.TheEPA,asahigh-standardtemplateofeconomicandtraderules,willplayanimportantroleinfuturebilateralnegotiationsbetweentheEUandtheUnitedStates,aswellasbetweenJapanandtheUnitedStates.ItmayfurtherhelpshapetheCPTPPandeventheWTO.
Intheireffortstoresistprotectionism,theEU,Japanandothermajoreconomiesintheworldhavelaunchedamulti-prongedapproachtosafeguardtheirowninterests.TheyhavepursuedbilateralandmultilateralcooperationandatthesametimemaintainedcommunicationandcoordinationwiththeUnitedStates.Thesemovesareintendedtogainanadvantageatatimewhentheglobaleconomicandtradepatternsandruleswillsoonbechanged.
China,asamainbeneficiaryofmultilateraltraderules,shouldcarefullydealwiththeU.S.-initiatedtradeconfrontationandstrengthenitspolicycommunicationwithothermajortradingpartners.ItalsoneedstoupholdthelegitimateinterestsofdevelopingcountriesintheprocessofWTOreformandpromotenegotiationsontheChinaEUBilateralInvestmentTreaty,theRegionalComprehensiveEconomicPartnershipandotherbilateralandmultilateraltradeandinvestmentagreements.
JapanesePrimeMinisterShinzoAbe(center),EuropeanCommissionPresidentJean-ClaudeJuncker(right)andEuropeanCouncilPresidentDonaldTuskatthesigningceremonyoftheEU-JapanEconomicPartnershipAgreementinTokyoonJuly17VCGCopyeditedbyRebecaToledoCommentsto