Columns, Opinion

Worldview: EU-Japan economic partnership demonstrates superiority of free trade

It is undeniable that protectionism has experienced a revival in recent years by way of President Donald Trump’s trade war with China, withdrawal from the Trans-Pacific Partnership and criticism of NAFTA, but this does not mean the rest of the world has succumbed to similar sentiments.

While the United States has resorted to protectionist measures unseen since before the General Agreement on Tariffs and Trade was signed in 1947, we also saw the implementation of the world’s largest free trade agreement at the beginning of this month.

The so-called megadeal between the European Union and Japan eliminates the majority of tariffs and other trade barriers between two of the world’s largest markets — the EU is the world’s largest and Japan is the fourth largest market. The EU-Japan Economic Partnership Agreement covers 27.8 percent of the world’s GDP and over a third of world trade.

Once the agreement is fully implemented over the course of the next 15 years, Japan will have scrapped 97 percent of customs duties on European imports, saving European exporters around $1.13 billion in customs duties per year. In turn, the EU will have eliminated 99 percent of tariff lines on Japanese imports, saving Japanese exporters about $2.26 billion in customs duties per year.

This monumental trade agreement will undoubtedly deepen ties between the European and Japanese markets and is projected to greatly enhance their economies. Back in December, European Commission President Jean-Claude Juncker said of the agreement that “Almost five centuries after Europeans established the first trade ties with Japan, the entry into force of the EU-Japan Economic Partnership Agreement will bring our trade, political and strategic relationship to a whole new level.”

As of 2017, EU exports to Japan stood at about $103 billion while Japanese exports to the EU stood at about $98 billion. Once the deal is fully in place, it is projected that trade between the two giants will increase by about $41 billion.

For Japan, the signing of the EPA with the EU and the salvaging of the TPP, now known as the CPTPP and including all the original signatories of the TPP sans the United States, represents a huge victory. The historically isolated and inward-looking archipelago nation has redefined itself as a champion of free trade and global interconnectedness.

The EPA is a transformative agreement in more ways than one. In addition to it being the world’s largest free trade agreement, it is the first of its kind to include language addressing issues directly pertinent to the 21st century, such as climate change and data protection.

Japan has therefore clearly gained a powerful partner both economically and politically. While any free trade agreement has domestic consequences, the benefits that the EPA creates for Japan clearly outweigh the costs. This is particularly clear when contrasting Japan’s current situation to that of its first ally and historical geopolitical equivalent: the United Kingdom.

Given that the United Kingdom is still technically a part of the European market, it will get to experience the benefits of the EPA with Japan for the next two months, until the UK is scheduled to leave the EU on March 29. This is unfortunate for all parties involved, because the United Kingdom has historically served as Japan’s “Gateway to Europe,” and was the second-largest destination for Japanese foreign direct investment after the United States.

Now that the EPA is in place and the UK plans to leave the EU, Japanese companies operating inside the UK are looking for a way out. Gianluca de Ficchy, car manufacturer Nissan’s chairman for its European operations, remarked that “the continued uncertainty around the UK’s future relationship with the EU is not helping companies like ours to plan for the future.”

In reference to the UK’s automotive industry, James Ramsbotham, North East England Chamber of Commerce chief executive, said that “Brexit is making it incredibly difficult and it is exacerbated by the fact that the EU and Japan have now concluded some very complex trade negotiations to have a really leading free trade arrangement between them and the threat that we might be outside that is potentially very, very serious to this particular business.”

The UK’s precarious and uncertain future is sharply different from Japan’s, which appears slated for an economic boom as it is now the centerpiece of two very substantial free trade agreements. Protectionism and isolationism may appeal to nationalist sentiments and be politically valuable, but it is undeniable that Japan’s embrace of free trade and globalization has put it in a vastly superior economic and political position.

 

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