Japan and EU “conspire against the U.S.” through free trade deal?
On Tuesday, the European Union and Japan came together to sign a major free trade deal: the “Economic Partnership Agreement”. Expected to come into effect in 2019, the agreement is one of history’s largest free trade deals. When it comes into force, it will create the world’s largest free trade bloc that will account for around 30 percent of the world’s GDP and cover a population of about 600 million people.
Japanese Prime Minister Shinzo Abe (C) signs an agreement with European Council President Donald Tusk (L) and European Commission President Jean-Claude Juncker (R) at the Prime Minister’s Office in Tokyo on July 17, 2018. [Photo: Pool/AFP/Martin BUREAU]
Last year, Japan was the European Union’s sixth largest trading partner, after the United States, China, Switzerland, Russia, and Turkey. The volume of bilateral trade reached 129.4 billion Euros (150 billion U.S. dollars). Once the new free trade agreement takes effect, it will eliminate 99 percent of the tariffs paid by European Union exporters to Japan, and the remaining tariffs will be decreased. According to an assessment by the European Union, the bloc’s exporters will save about 1 billion Euros annually. At the same time, the Europeans will eliminate 85 percent of their tariffs on Japan’s agricultural products. Furthermore, the new agreement contains clauses regarding investment channels that will provide more job opportunities and improve the competitiveness of the signatory’s enterprises.
Japan and the European Union held many rounds of negotiations, and for a time the two sides kept failing to reach an agreement because the deal involves issues that are sensitive in Japan, such as those related to its agricultural products. But Brexit increased the necessity of the two sides to reach an agreement, as did the withdrawal of the United States from the Trans-Pacific Partnership – it seems that U.S. President Donald Trump, to some extent, contributed to the determination of Japan and the Europeans to seal a deal.
This month, 16 countries including China, Japan, India, and members of the Association of Southeast Asian Nations held a ministerial meeting of the Regional Comprehensive Economic Partnership in Tokyo. Hiroshige Seko, Japan’s minister for the economy, trade and industry, said that he hoped a basic agreement could be reached by the end of the year. This followed the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in March by the 11 participating countries, at the conclusion of negotiations that had been led by Japan.
Why did Japan choose to sign a free trade deal with the European Union now? Why did it work so hard to promote multilateral trade? The reason lies not only in Japan’s diplomatic policies, but also in its determination to unite with the Europeans in an act of resistance against the pressures bought about by trade sanctions introduced by the United States. It also helps both sides of the deal to strengthen their economic foundations.
Pursuing multilateral free trade is Japan’s well-established national policy. As a nation founded on trade, Japan has sought to take the lead in multilateral trade, and to take the initiative in developing its relationship with the United States.
Since taking office, President Trump has been making great efforts to promote his “America First” policy of unilateralism, and has been rejecting multilateral deals and relationships. Japan was shocked when President Trump announced that he would withdraw from the Trans-Pacific Partnership just days after he took office, since it led to the sudden collapse of the trans-pacific economic and political system that had been painstakingly constructed by Japan and the administration of former U.S. President Barack Obama. Japan’s Prime Minister Shinzo Abe tried in vain to persuade the Trump administration to return to the negotiating table. In the end it cut a deal with its partners in the Asia-Pacific region that excluded the United States.
With this agreement, Japan hopes to boost its economic and political strength through some of the small and medium-sized countries in the region. This is an important step for Japan. The message that it wants to convey is that it can be a leading player in international institutions without American support. From Japan’s perspective, the Trump administration can only last for eight years at most, and President Trump’s successor will very likely want to join their Asia-Pacific trade deal.
The pressure the United States has exerted through economic sanctions and hard-line bilateral trade negotiations has pushed Japan to further its economic relationships with other countries. During his presidential campaign, Trump accused Japan of taking advantage of America on trade and vowed to never allow it to maintain its huge trade surplus with the United States. After he took power, President Trump forced Japan into bilateral trade talks, demanding that the country trim its trade surplus.
The Trump administration then imposed tariffs on steel and aluminum products on countries including Japan, prompting Japan’s Prime Minister Shinzo Abe to visit the United States to ask President Trump for an exemption. Abe left with an offer of an export quota of 30 percent of the current trade, which is a deal that no one could reasonably expect Japan to agree.
So it seems there are two reasons for the Abe government to push so adamantly for the Economic Partnership Agreement with the European Union. First, it is an answer to the Trump administration’s apparent snub of its long-standing ally. And second, it is part of Japan’s efforts to create and expand the space for its economic activities on the world stage, giving the country more room to maneuver in the promotion of its exports, in line with its long-term goal of establishing economic and political ties in a way that is conducive to its own interests.
Judging from the published Economic Partnership Agreement plan, the signing of the agreement between Japan and the European Union is more a matter for strategic consideration, because it lacks clarity in the details. Japan is highly dependent on the United States when it comes to matters of security. If it wasn’t for the recent aforementioned American trade sanctions, it’s hard to image that Japan and the European Union would have chosen this time to ink their free trade agreement. But judging from the multitude of economic cooperation agreements Japan has signed recently, it is quite clear that the country wants to rid itself of its economic dependence on the United States, and that it is seeking to gain the upper hand in its political and diplomatic relations with the Americans.
Japan’s Prime Minister Shinzo Abe and European Council President Donald Tusk issued a joint statement after the signing the free trade agreement. Hailing it as a historical step, they said “The Economic Partnership Agreement demonstrates to the world the firm political will of the European Union and Japan to keep the flag of free trade waving high, and to powerfully advance free trade.” For the outside world, these remarks appear to be targeted at President Trump. By striking out like a bully in its trade relationships, the United States will only find itself further isolated from the rest of the Western world.