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Japan, EU reach broad trade agreement

Japan's Foreign Minister Fumio Kishida, left, shakes hands with EU Trade Commissioner Cecilia Malmstrom after reaching an agreement in principle on a Japan-EU free trade deal, in Brussels, on July 5, 2017. (Photo taken from the European Commission website)

Japan and the European Union (EU) have reached a broad free-trade Economic Partnership Agreement (EPA) following negotiations in Brussels on July 5.

The two sides are expected to work out a final version of the EPA in due course. The agreement is certain to have a ripple effect on subsequent trade negotiations across the world, as the economies of Japan and the EU together represent about 30 percent of the world's gross domestic product (GDP) and nearly 40 percent of the total amount of global trade.

Once the EPA goes into effect, it is anticipated that tariffs will be removed from more than 90 percent of items that flow between Japan and the EU.

Significant financial benefits are expected for both sides. It has been provisionally calculated that the increased trade will boost the GDP of Japan by at least 1 percent, and that of the EU by about 0.76 percent.

"The major benefits of creating a strong free-trade agreement between developed nations have been acknowledged anew," a senior official at the Ministry of Foreign Affairs said.

The development could influence the United States' outlook on the Trans-Pacific Partnership (TPP) negotiated by 12 Pacific Rim countries. U.S. President Donald Trump announced the United States' withdrawal from the TPP and stated that he wants the U.S. to prioritize bilateral trade talks. Therefore, Japan is wary that it could face pressure from the U.S. to open its markets to an extent beyond that stipulated in the TPP.

If tariffs on EU goods such as agricultural products are reduced under the Japan-EU EPA, U.S. companies that export pork and other such items to Japan will be left at a disadvantage. With regard to the prospect of an 11-nation TPP that does not include the U.S., there is a chance that Australia, which competes with the EU in the field of dairy products, and Canada, which is an EU lumber-trade competitor, will press hard for a deal to be finalized as early as possible.

Given the latest developments, some Japanese government officials hope that Trump might re-examine his trade policy, and take the U.S. back into the TPP.

As for negotiations with the Association of Southeast Asian Nations (ASEAN) on a Regional Comprehensive Economic Partnership (RCEP), China is expected to take a firm stance to protect Chinese-made products. However, it is thought that the creation of a sophisticated free trade agreement between Japan and the EU will put pressure on China in terms of trade.

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