A guide to the new EU-Japan Economic Partnership Agreement

Legislation | 10 January 2018

Businesses should begin making preparations for the new Economic Partnership Agreement between the EU and Japan, which represents one of the largest FTAs of its kind.

New free trade agreements (FTAs) create numerous benefits for businesses engaged in international trade, but also a number of challenges as they adjust to the new legal status quo and rethink their services to take maximum advantage of liberalized regulations.

In December 2017, the European Union and Japan confirmed the finalization of one of the most significant FTAs of its kind after signing off on the Economic Partnership Agreement (EPA), a multifaceted trade pact that is set to create a broad array of opportunities for importers and exporters in several key areas.

With the legal changes brought about by the EPA likely to come into effect in 2019, now could be the ideal time for companies that might be affected by the agreement to familiarize themselves with its key principles, as this will allow them to be ready to embrace and capitalize upon the changes as soon as they enter into force.

Key measures

The EPA has been described by the EU as the biggest bilateral trade agreement it has ever negotiated, and aims to strengthen cooperation between Europe and Japan in a range of areas, reaffirming their shared commitment to sustainable development and combating climate change, while also generating new market opportunities for businesses in both regions.

Specifically, it will do away with €1 billion of duties paid annually by EU companies exporting to Japan, as well as eliminating a number of longstanding regulatory barriers. This also means the Japanese market of 127 million consumers will be opened up for key sectors in ways that have never previously been achieved.

Agricultural exports are one of the key focus areas of the EPA, with the partners having agreed to scrap duties on wine exports and many cheeses - such as Gouda and Cheddar - while also allowing the EU to increase its beef and pork exports to Japan substantially. Additionally, the export of hundreds of high-quality agricultural products from Europe and Japan will receive new protections.

Other objectives of the EPA include the opening-up of services markets - in particular financial services, e-commerce, telecommunications and transport - and providing EU companies with access to large procurement markets of 48 Japanese cities. Specific sensitive sectors - such as the European automotive industry - will adopt a more cautious approach, with transition periods in place before markets are opened.

Potential legacy

It is expected that the deal will deliver considerable benefits for business, workers and consumers in both the EU and Japan, while reaffirming both regions' ongoing commitment to the principles of fair trade at a time when protectionist sentiments are on the rise in many other parts of the world.

European Commission president Jean-Claude Juncker said: "This is the EU at its best, delivering both on form and on substance.

"The EU and Japan have sent a powerful message in defence of open, fair and rules-based trade; this agreement enshrines common values and principles, and brings tangible benefits to both sides while safeguarding each other's sensitivities."

EU commissioner for trade Cecilia Malmstrom added: "The EU and Japan share a common vision for an open and rules-based world economy that guarantees the highest standards. Today, we are sending a message to other countries about the importance of free and fair trade, and of shaping globalization."

Next steps

Now that the details of the deal have been formally approved, the EU and Japan have commenced the legal verification of the text, which will then be submitted for the approval of the European Parliament and member states, with the aim of bringing it into force before the end of the current mandate of the European Commission in 2019.

Negotiations remain ongoing on a number of outstanding issues, including investment protection standards and investment protection dispute resolution, but convergence on these last few points is expected to be achieved soon. This should allow the EPA to be signed and fully ratified later this year, allowing businesses around the world to begin preparing in earnest for the new possibilities and trade opportunities it will bring.