EU-Japan FTA Paving the Way: Free Trade Without US Leadership?

Written by | Monday, September 11th, 2017

The free trade agreement between the European Union and Japan has the potential to become a very symbolic and substantive move when it comes to challenging the stance of US President Donald Trump towards multilateral trade liberalization. The EU-Japan deal, which was aptly timed with the G20 summit in Germany, may serve as a turning point for Washington as the new US administration is deciding on its future trade agenda.

Both Europe and Japan have a very special connection to the United States – their present-day security and prosperity is largely derived from the US-led international rules-based order. As major export-oriented economies, they have a huge stake in shaping the future of world trade. Both sides have for years been focused on separate trade agreements involving the United States – Japan on the 12-nation Trans-Pacific Partnership (TPP) and the EU on the Transatlantic Trade and Investment Partnership (TTIP).

The rationale behind the economic integration with the United States was both economic and geostrategic for both Europe and Japan. They saw their respective prospective FTAs as a way to uphold the international rules-based world trade by setting high joint standards in multiple areas such as labor, digital, environment, safety and consumer protection underpinned by shared values, thus essentially forcing emerging countries, such as China, to adhere. Moreover, free trade deals with Washington would also boost their security partnership with the United States, which would be more than desirable at a time of growing pressure from Russia in Europe and China in Asia.

The rise of Donald Trump and his immediate decision to withdraw the United States from TPP and de facto freeze the TTIP negotiations was a major setback for both Brussels and Tokyo. The EU and Japan, however, turned this disappointment into an opportunity and decided to intensify works on their own free trade pact – the Japan-EU Economic Partnership Agreement (JEEPA).

The swift progress with JEEPA demonstrated that neither Tokyo nor European capitals are planning to sit idle and wait for Washington to make up its mind. However, beyond symbolism and negotiation tactics, the potential impact of JEEPA is what counts the most. American businesses that produce or market pork, beef, wine, shoes, cosmetics, or plastics to Japan could face a substantial drop in price competitiveness, as tariffs will fall for EU exports. US automakers could be in turn disadvantaged in both the EU and Japanese markets and, importantly, rules around auto safety standards, intellectual property rights or trade in services might end up being written without US input.

Although JEEPA does not include important part of today’s economy – such as digital trade – and its ratification might be a lengthy process, it raises the question of whether global trade liberalization is possible without Washington’s leadership. And as such, the JEEPA is already a potential landmark deal and a significant milestone.

‘Can the EU-Japan Deal Prompt a US Recalibration on Trade?’ – Op-ed by Erik Brattberg and James L. Schoff – Carnegie Endowment for International Peace.

(The Op-ed can be downloaded here)

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