What Japan Gets and the UK Drops

The new trade deal between Japan and the EU is one of the greater challenges for the rest of the world.

It all started in April this year. Call it the intuition of Brexit, or the election of Trump. A historical trade deal has been struck between Japan and the EU. A trade deal that will certainly affect economics relationships around the world. Japan and the EU have agreed to lower barriers on all goods that will be traded between them. Although final approval will be made in the following months, this deal will certainly affect others, especially America.

The deal actually proposes what the UK and the EU have been waiting for, post-Brexit. Big tariff cuts and abolition of tariffs, and unfurling of markets, though there seem to be some restrictions on market access between Japan and the EU. But, this is the least that the UK and the EU can do in their own trade deals, according to many experts on Brexit. But there seems lesser probability that such an adroit deal would be struck between the them. More so, if the UK is no more a part of the EU two years away from now, then manufacturers in the UK could be immune to tariff reductions.

However, Steven Mnuchin, in the G20 summit in Hamburg, revealed that they would not support free trade. The US Administration will follow Trump’s presidential promise to put America first, and will seek new trade solutions that will be primarily in favour of the US. This statement may be completely opposite to the agreement of central bankers and finance ministers in Chengdu, China, a year ago, who agreed that the US and the EU should eliminate tariffs. But, when Trump pulled out of the Pacific Partnership and decided to change NAFTA with Mexico and Canada, everything changed. Therefore, it may not exactly be a surprise that others seek the best trade options for them in current circumstances; the EU-Japan trade deal is one result of that.

Indeed, this is a step ahead, no doubt. The deal is aimed at the increase of the Japanese car exports to Europe and European food exports to Japan. The EU the deal’s promises include removal of a 10 percent tariff on Japanese cars, mainly Toyota and Honda, while Japan will lower duties on European cheeses, mainly Gouda from the Netherlands, and allow European companies to make government contracts, particularly for train makers like Siemens of Germany and Alstom of France. However, Japan will leave its regulations on dairy products.

The deal definitely delivers mutual benefits. Currently, Japan is the EU’s 6th largest trading partner, while the EU is Japan’s 3rd largest trading partner. Japan will increase its market share as a major car manufacturer in Europe; Japan has been maintaining a low profile in cars in Europe, unlike their position in the US, or the rest of the world. The EU would benefit from new markets for its food products. Brexit and the US’s withdrawal from NAFTA have made decisions about future rather unpredictable for the UK, the US and the EU. This deal comes somewhat as a respite. Japan can become the replacement of these two major trade partners for the EU if the things go awry. Japan will be like a bonus for the US and the UK, if politico-economic situations become better between them too. In addition, Japan and the EU agree to cooperate on two significant issues today – cybercrime and climate protection.

There still are issues that need negotiations. Investor security is still a concern, and the managing this through ad hoc arbitration such as now, or by the court, is what the EU has proposed. Also, Europeans want easier flow of data which Japanese are not willing to accept for now. This aside, US’s answer remains pending. The effect on the US from this deal, cannot be undermined. US will have to experience lesser competitiveness on the global market and their imports will be less favourable than in other countries. This trade deal is the answer to Trump’s “America first”.

 

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