A first piece of commentary on the deal that was agreed today in Brussels.
Everyone is happy now: the EU Japan summit held in Brussels on Thursday went smoothly. Japan and the EU said they were ready to conclude a Strategic Partnership Agreement and to clinch their bilateral free trade agreement as planned.The EU and Japan are now ready to go to the G20 in Hamburg and stand up for free trade there.
Today’s press jamboree around the deal and that you find all over the media can be read here.
So what’s the deal? Based on a 15 page summary of the ‘Agreement in principle’ circulated to EU member states and made public on Thursday, these are the five key points our readers need to know about.
Overall assessment of the agreement
- It is a deal focused on the old economy, like so many free trade agreements, i.e. agriculture an traditional industries like autos. There are few achievements of interest in twenty first century trade issues such as services or data.
- The agreement is nonetheless innovative in that if goes a long way into delving into nitty gritty procedural and technical issues in the area of sanitary and phytosanitary measures and technical barriers to trade. That’s something few trade agreements world wide have ever achieved, and matches CETA for instance.
- The agreement also introduces innovations inherited from the EU-US TTIP process: a financial regulatory forum, for instance, and ambitions to have chapter on regulatory cooperation and good regulatory practices. An EU-US inspired agreement on the recognition of good manufacturing practices in pharmaceuticals is also in the deal.
- Let’s also not forget that this is the biggest bilateral trade deal on record covering one third of global output. With the US out of the picture for the Transpacific Partnership, and the TTIP also on ice, there’s nothing to match it in size and economic significance.
Overall tariff picture
- 91 percent of imports from EU to be duty free on entry into force (86 percent of all Japan tariff lines, going up to 97 percent after 15 years);
- EU to liberalise 99 percent of its tariff on Japanese imports on entry into force (96 percent of all tariff lines).
Agriculture and food: detailed commitments
Tariffs and quotas:
- 85 percent of Japanese tariff lines of interest to EU exporters of agri-food products to be liberalised over time;
- Pigmeat: A 4.3 percent duty to be phased out. Specific duties to be eliminated. Japan foresees safeguards;
- Wines and aromatised wines: 15 percent duty eliminated on entry into force;
- Cheese: Japanese tariffs of up to 28.9 percent to be eliminated over 15 years. Duty free quotas or TRQs for cheeses like mozzarella, blue veined cheese, camembert, brie, feta;
- Whey & products get duty free quotas: TRQs;
- Bovine meats: 38.5 percent tariffs to be reduced to 9 percent “over time”;
- 10 year tariff phase outs for pasta, chocolates, cocoa power, candies confectionary, biscuits, starch derivatives, eff albumin, prepared tomato and sauce (5 years), lactose and lactose syrup & gelatin (15 years).
- Malt & potato starch: a “meaningful TRQ”;
- Fish: no more quotas and tariffs. Blue fin tuna – key EU export – tariffs eliminated over 5 years.
Sanitary and phytosanitary measures:
- The ‘Agreement in principle’ announces “simplified approval and clearance processes”;
- Meat and meat products: agreement on “procedures for listing of establishments eligible to export to the other party”. There is agreement on how to deal with disease-free areas;
- Food additives: more transparency in approval of food additives and commitment to publish timeline for approval. The aim is to bring down the process in Japan to about 2 years, equivalent to the standard time for approval of food additives in the EU;
- Standard SPS committee
- The agreement seeks to promote of audits as means of inspection
- SPS to fall under the EPA’s dispute settlement procedures (state to state).
- 205 GIs are recognised, of which 132 wines. The EU cites roquefort cheese, Balsamic vinegar from Modena, Spanish Manchego cheese and Irish whiskey. Chablis, Chianti, Tiroler Speck;
- 35 EU wine additives will be recognised in Japan.
A wide ranging autos deal
- Tariffs: EU liberalises tariffs on autos in 7 years, car parts tariffs quicker. That was a key Japanese ask in the negotiations.
- Both sides agreed to an auto annex to the TBT chapter: the annex “has solved all issues mentioned by industry” – the negotiation text claims; UNECE regulations to be in force on entry into force of the sector; “robust cooperation procedures”, “robust compliance procedures”; hydrogen fuelled cars: METI to accept type-approved cars from the EU.
- Rules of origin for autos – a key haggling point in the last days of the negotiations: 45 percent maximum for non originating materials or NOM; passenger cars: staging period – 55 percent NOM first 3 years and 50 percent in following 3 years; enabling clause to discuss extended cumulations; xhassis fitted with engines : 45 percent NOM to 55 percent NOM in 5 years; car parts: 50 percent NOM on EIF, 60 percent NOM after 3 years.
- Railways: Japan removes its so-called Operational Safety Clause; Japan has also agreed to accept an exchange of letters on railways that “anchors” the current cooperation between the two sides such as the ‘Railway Industrial Dialogue’ and the ‘Technical Expert Group on Railways’;
- Japan has agreed to open up tenders to EU bidders for hospitals and academic institutions (87 entities) and electricity distribution (29 entities) ;
- Japan has agreed to grant non-discriminatory access for EU suppliers to the procurement markets of 48 cities of around 300.000 inhabitants;
- For its part, the EU has agreed to partially open its market in equipment for public transport in towns and cities, such as trains and signalling for metro systems, and facilities for overland railways;
- The EU also grants Japan improved access to procurement by towns and cities (municipal authorities) equivalent to what Japan has offered the EU.
Other industrial sectors
- Japan has accepted to refer to the International Council on Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) as the international standard-setting body and to use ICH guidelines as basis for its legislation.
- Care labels: Japan has reformed its system and aligned it with the ISO standard used by EU industry.
- The EU has tabled a chapter on regulatory cooperation “but further discussions are still needed”;
- The EU has tabled a separate chapter on Good Regulatory Practices and regulatory cooperation that involves a Regulatory Cooperation Committee made up of government representatives and regulators from both sides.
- Japan committed to ratify two more Core ILO conventions;
- Commitments to abide by: the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement on climate change; the Convention on International Trade in Endangered Species of Flora and Fauna (CITES), the Convention on Biological Diversity;
- Commitments on : conserving and sustainably managing natural resources; addressing biodiversity, including combatting illegal trade in wildlife; sustainable forestry, including fighting illegal logging, sustainable fisheries, including combatting illegal, unreported and unregulated (IUU) fishing;
- Logging : specific article on forests and trade in timber, including illegal logging.
It is striking that not much indicates there are concrete market openings. Most of what has been achieved so far concerns general rules. Key points:
- Commitments on Mode 4 – movement of natural persons;
- Regulatory chapter on domestic regulation, mutual recognition and administration;
- Regulatory text on postal services;
- International maritime transport services: specific rules on open trade;
- New: regulatory cooperation for financial services. Establishment of a Financial Regulatory Forum;
- E-commerce: rules on non imposition of customs duties, principle of no prior authorisation, e-signatures, consumer protection, and provisions for continued regulatory dialogue.
What still needs to be negotiated
- A proper services chapter and services schedule
- A chapter on regulatory cooperation
- A mechanism to resolve disputes between investors and states
- A text on data flows: the data flow issue has become a political topic at the highest level, and prompted a joint declaration.