EU-Japan: World’s Largest Free Trade Zone Unites Partners with Same Values

Tokyo Tower © Johanna Resch

Tokyo Tower © Johanna Resch

Entering into force in February 2019, the free trade agreement between the European Union and Japan (Economic Partnership Agreement, EPA) is the world’s largest free trade zone. The agreement removes most of the tariffs and many legal obstacles in trade between the two economies. Moreover, two partners sharing the same values have now established closer ties and can jointly set standards in the areas of labor, security, climate, and consumer protection.

The negotiations between the EU and Japan lasted for more than five years. They picked up speed when the trade policy of the United States under Donald Trump indicated to both negotiating partners that a strong signal was urgently needed to promote open markets and rules-based trade.

The newly created free trade zone comprises 635 million people and accounts for almost one-third of global gross domestic product. The EPA thereby forms the largest free trade area in the world. The expected increase in trade between the EU and Japan will have a positive impact on jobs, product diversity for consumers and growth opportunities for companies. According to estimates, European companies could save annually up to one billion euros, which would then be available to invest elsewhere.

Early Problems Quickly Addressed

Since the agreement entered into force, the interest among German companies in the Japanese market has already grown. Nonetheless, various hurdles had to be tackled in the first few months. For example, contrary to what had been agreed, the Japanese customs authorities granted the preferential tariffs guaranteed in the EPA only if companies had filled out additional customs forms. However, the European Commission was able to convince the authorities in Japanmodify the Japanese guidelines and solve this issue.

Despite these problems during the initial stages, the agreement is a major accomplishment in difficult times. Brussels and Tokyo have proven to be reliable partners and defenders of rules-based and open international trade.

While the implementation of the EPA continues and the first meeting of a bilateral committee to monitor this process has taken place, the two sides are aiming to reach agreement on a bilateral investment protection treaty. To ensure no delay in the adoption of the EPA, the negotiating partners decided to address investment protection in a separate agreement. Earlier, Japan did not accept the arbitration mechanism that the EU proposed based on its model in the agreement with Canada. The Commission, however, considers these rules to be the new benchmark for investment protection.

On the whole, the joint leadership by Japan and the EU in current fields of global governance yield positive results, e.g. on personal data protection. The two sides have agreed to recognise each other's data protection systems as adequate, creating the world's largest area of safe data flows. Under the so-called “adequacy decision” that entered into force in January, data can now be freely exchanged between the EU and Japan.

As like-minded partners, Japan and the EU should continue their efforts against protectionism and for open and rules-based markets. This is especially crucial regarding the current debate about reviving and reforming the multilateral trading system of the World Trade Organization.