A new trade deal between the EU and Japan

Besides slashing tariffs on cheese and cars, it sends a message to Donald Trump

FREE-TRADE agreements have seemed out of fashion as President Donald Trump has set about scotching some of America’s. But on July 5th Cecilia Malmström, the EU trade commissioner, and Fumio Kishida, the Japanese foreign minister, announced they had achieved consensus on a Japan-EU Economic Partnership Agreement (JEEPA). In front of the cameras, they swapped Japanese Darumadolls, talismans of perseverance and good luck, and, they hope, of a win-win agreement.

The timing of JEEPA was just as carefully co-ordinated. When negotiations started in 2013, it was neither side’s main priority. But now both want to show that they can fill the vacuum left by America’s withdrawal under Mr Trump from its role as the world’s trade leader. To highlight its political importance, they note that this is the first trade agreement to mention the Paris climate accord, another deal Mr Trump has spurned. Haste is handy: the EU wanted success before Brexit negotiations and national elections swamp its agenda.

The deal is about more than political symbolism, however. Average tariffs between the two sides are already low, but prizes are still there to be grasped. Exporters from the EU pay €1bn ($1.1bn) in export duties to Japan each year, and on agricultural products face average tariffs of 21%. JEEPA will slash Japanese tariffs on beef, pork and wine, eliminating 85% of the tariffs on agricultural food products going into Japan. European producers of Roquefort cheese or prosecco can cheer: their products become two of 205 protected “geographical indications”. Similarly, only feta from Greece will be sold under that name.

Tariffs on European exports of textiles and clothing will also be cut. When the deal enters into force, Japanese tariffs on shoes will drop from 30% to 21%, and then to zero after ten years. The Japanese have won concessions, too. Tariffs on Japanese cars going into the EU are currently 10%, but will be lowered over seven years. An assessment of the impact of the deal (before the final details were agreed on) suggested that almost half of the benefit to Japan would be from these lower tariffs. It found the deal could raise the EU’s exports to Japan by 34%, and Japan’s to the EU by 29%.

For all the doll-swapping bonhomie, however, the deal bore the scars of a difficult negotiation. Both sides haggled fiercely. Japan had started the negotiation expecting to offer the EU a version of the Trans-Pacific Partnership (TPP), a 12-country agreement from which Mr Trump has withdrawn America but which Japan is still pursuing. But they found the Europeans were much more interested in lowering tariffs on cheese, chocolate and wine than on basic agricultural crops such as rice that were sticking-points in TPP.

Offering concessions on some cheeses was relatively straightforward in JEEPA as in TPP. Under both deals tariffs on cheeses like Cheddar and Gouda will be phased out. Other cheeses, like Camembert and Mozzarella, were trickier. A strong domestic Japanese lobby had resisted concessions even under TPP. (Japanese eat an average of only 2kg of cheese per person a year, but Camembert is produced domestically. The website of its largest producer suggests spreading the melted cheese on rice balls seasoned with soy sauce.) This put the Japanese government in a bind. Offering tariff concessions to the EU could scupper its efforts to revive TPP, as miffed Mozzarella producers from Australia could demand better terms too. So JEEPA ended up with a compromise: a duty-free quota.

Described in these terms, as a deal easing the flow of cheese in one direction and cars in the other, JEEPA sounds like an old-style trade haggle prey to national vested interests. In theory, both Japan and the EU have higher ambitions. They see trade deals as a way to shape globalisation by moving beyond tariff cuts to agreements on shared standards and procedures. But in practice, Japan and the EU may have different ideas about what this should involve. The agreement, to be signed after The Economist went to press, will include agreement neither on procedures for settling disputes between investors and governments, nor on data protection. Both will be dealt with separately.

The Japanese have so far refused to sign up to the EU’s proposed investor courts, which are supposed to settle trade disputes in a more transparent and accountable way. They are reluctant to pay for a new expensive structure, particularly since Japanese companies tend to shun such legal procedures. Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, a Brussels-based think-tank, suspects that the Japanese are also wary of adopting a system that could become a template for future deals, in which state-appointed judges might rule on claims by Chinese or Korean companies against Japan’s government.

The politics of JEEPA made it too important to be held up by such issues. But that means there are more details to be negotiated, as well as plenty more procedure to go through. Once the text is finalised, it will need to be ratified by both houses of the Japanese parliament, as well as each European national government. Depending on what the European Commission decides, it may also need the approval of regional and local European parliaments too—a requirement that almost scuppered the EU’s most recent trade deal, with Canada. It will take a while for the rounds of European Camembert to reach Japan.