On July 17, 2018, Japan and the European Union (EU) have signed an Economic Partnership Agreement (EPA) which will remove EU import duties on Japanese cars as well as the vast majority of tariffs on imports of European meat, wine, and dairy products. If approved by the Japanese Diet and European Parliament and put into force, the agreement will open up huge market opportunities for both sides:
What will change for Japanese and EU companies?
Trade negotiations between the EU and Japan have been conducted since March 2013. At the EU-Japan summit on July 6, 2017, both parties reached an agreement in principle on the main elements of a free trade deal. Its key elements include the following:
The EU-Japan negotiations also addressed many non-tariff measures that had constituted a concern for EU companies, as some Japanese technical requirements and certification procedures often make it difficult to export safe European products to Japan. The agreement will go a long way in facilitating the access of EU companies to the highly regulated Japanese market, especially with regard to motor vehicles. The EPA ensures that both Japan and the EU will fully align themselves to the same international standards on product safety and the protection of the environment, meaning that European cars will be subject to the same requirements in the EU and Japan, and will not need to be tested and certified again when exported to Japan. With Japan now committing itself to international car standards, EU exports of cars to Japan will be significantly simplified.
Additionally, it is remarkable that the EPA will be a specific chapter on corporate governance, based on the G20/OECD’s Principles on Corporate Governance and reflecting Japan’s and the EU’s best practices and rules in this area. Both Japan and the EU commit themselves to adhere to key principles and objectives, such as transparency and disclosure of information on publicly listed companies, accountability of the management towards shareholders, responsible decision-making based on an objective and independent standpoint, effective and fair exercise of shareholders’ rights and transparency and fairness in takeover transactions.
And what is next?
After today’s approval, the EPA will be sent to the National Diet for its approval. In the EU, the European Parliament must approve the agreement, which it is expected to vote on in autumn 2018. The aim is for the EPA to enter into force before the end of 2019. If a deal is entered into force before the Brexit date on March 29, 2019, the EPA could automatically apply to Britain during a post-March 2019 transition period of around two years. At a time when protectionist pressures are growing, the trade agreement between Japan and the EU sends a clear signal that two of the world's largest economies reject protectionism and are open for business and for trade on the basis of fair rules and high standards.
There is a good chance that the EPA will expand and deepen trade and economic relations between the two partners. Japan and Europe are regions with a high per capita income, highly developed industrial and service industries, and discerning consumer markets. Both parties are committed to similar areas of future development, such as digitization, interconnectivity, robotics, mobility, life science, and energy efficiency.
On June 26, 2018, the European Council also adopted a decision on the signing and provisional application of an EU-Japan Strategic Partnership Agreement (SPA). Both the EPA and SPA will enhance the two parties’ relations in many ways. On one hand, the EPA focuses on economic aspects such as elimination and reduction of customs duties and establishing rules to promote free trade. On the other hand, the SPA will provide the legal framework for cooperation between Japan and the EU to find solutions to common challenges, such as climate change, cybersecurity, energy security, disaster management and migration. It will also contribute to boosting economic growth, creating employment, and strengthening business competitiveness in both Japan and the EU.
The potential for positive synergies and network effects is, therefore, significant.