Tax & Accounting Blog

Japan-EU Economic Partnership Agreement is Coming Soon – Understanding its Substantial Benefits

Blog, Global Trade, ONESOURCE May 11, 2018

The Japan-EU EPA was finalized at a Japan-EU Summit on December 8, 2017, after almost five years of negotiations.  When including the scoping exercise as part of the process for this agreement, then in its entirety the agreement has been under discussion for almost seven years.

EU and Japan leaders expect to sign the agreement at a summit in Brussels this summer.  At earliest, it is targeted to come into force before Brexit in March 2019, or before the EU Commission President Jean Claude Junker’s term expires, October 2019.

Japan and the EU recognize each other as important global partners and have negotiated this agreement to create the world’s largest economic area.  They share fundamental values such as democracy, rule of law, and basic human rights. Together, Japan and the EU account for 8.6% of the world population, 28.4% of the world’s GDP, and 37.2% of the world trade (according to the IMF, World Economic Outlook Database, October 2017).

Areas of interest for the EU and Japan

Japan’s main areas of interest

– Elimination of high tariffs on industrial products (e.g. motor cars: 10%, electrical machinery: 14%)

– Reduction of regulatory barriers and other non-tariff measures (NTMs) facing Japanese companies in Europe

The EU’s main areas of interest

– Improvement of Market Access (MA) for agricultural products

– Reduction in NTMs on automobiles, chemicals, electrical machinery, food safety, processed food, medical devices, and pharmaceuticals, among others

– Protection of Geographical Indications (GI)

– Government procurement (e.g. railways)

– Sustainable Development

What the agreement achieved

Industrial products

  • Japan and the EU both agreed upon 100% elimination of customs duties on industrial products, with some sensitive items subject to staged reductions.  For example, chemicals, plastics, cosmetics, textiles and clothing. 
  • For EU imports, the customs duty on cars (currently 10%) will be eliminated in eight years. More than 90% of customs duties on automobile parts will be eliminated.
  • For Japan imports, the quota system currently applied to imports of leather and shoes will be eliminated.

Agricultural products

  • Rice is excluded from elimination of customs duty.
  • For EU imports, customs duties on almost all items will be eliminated including beef, tea and fishery products.
  • For Japan imports, customs duties on many agricultural products will be eliminated over years ensuring some sensitive items such as beef, pork, wheat and dairy products applying safeguard measures in the form of the gate price system [1], quota system and adjusting system.

Geographic Indication

  • Japan agreed to introduce the idea of GI (geographic indication) [2] that is already protected in the EU. The products subject to GI will receive the same level of protection in both the EU and Japan. 

Non-tariff measures

  • To facilitate import and export from both sides, many non-tariff measures were eliminated or aligned with other international standards. Areas covered include motor vehicle, medical devices and cosmetics, textile labelling, and beer.

Government procurement

  • Both Japan and the EU will expand access to each market.
  • Japan will allow EU suppliers to participate in bids held at prefectural (local government) level in addition to government (nation) level.  The EU will add thirteen procurement organizations.
  • Both Japan and the EU will reduce obstacles in the railway sector.

Sustainable development

  • Both Japan and the EU agreed to keep and promote implementing international standards on labor and environment.

JETRO survey in 2017

According to the survey by JETRO (Japan External Trade Organization) in 2017, and distributed to Japanese companies that run their business in Europe, more than 50% of the companies replied that they expect the profit impact of the Japan-EU EPA to be positively significant.

In the manufacturing industry, electric/electronics, transport machinery (cars and motorcycles), and chemical/oil producers all showed strong interest in utilizing the Japan-EU EPA for imports from Japan. On the other hand, transport machinery (cars and motorcycles), electric/electronics, food/food processing producers showed interest on utilizing the Japan-EU EPA for exports to Japan.

Beyond the Japan-EU EPA

Even though the Investment Chapter was divided from this agreement for further discussion, the Japan-EU EPA together with the SPA (Strategic Partnership Agreement) 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, cyber security, energy security, disaster management, migration.  It will also contribute to boosting economic growth, creating employment and strengthening business competitiveness both in Japan and the EU.

[1] Tariff system where the government sets a standard import price and Customs levies a tariff to fill the gap between the standard import price and the CIF price.  This was first introduced in Japan to protect domesticate pig farmers from imported pork.

[2] A sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.

REFERENCES

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