Monday, 23 july 2018 | Redacción CEU
Europe and Japan signed a free trade agreement that will eliminate tariffs and favor the flow of goods in both directions. This treaty has not been approved by the European Parliament or the National Diet of Japan yet, but everything seems to indicate that it will succeed. If this is the case, the European Commission points out that its application will mean savings of up to € 1 billion per year in European exports and the elimination of 90% of tariffs that Japan imposes to EU imports. This treaty will help to simplify customs procedures and open new business opportunities which may have a special incidence in the agri-food sector. But, what impact will the signing of this agreement have on the motor world?
Last tuesday in Tokyo, The European Union agreed on a free trade agreement with Japan which was signed by the President of the European Council, Donald Tusk, the President of the European Commission, Jean-Claude Juncker, and the Japanese Prime Minister, Shinzo Abe. The signing is a first and decisive step towards the elimination of duties on the products that both countries market to each other. It must be remembered that these countries together account for almost 30% of world GDP.
The free trade agreement between Europe and Japan will affect the automotive industry significantly, and will have a considerable impact on the commercialization of Japanese cars on the continent. So far, these vehicles have been levied taxes of 10%, and 3% on components produced in Japan. These tariffs will disappear with the entry into force of the agreement (scheduled for early 2019) and, as a result, prices might fall. Therefore, the Japanese brands with a presence in Europe may be the ones that benefit most from its implementation.
Everybody points to Suzuki, Toyota, Nissan and Honda as the big winners of this agreement in the automotive sector, since these are the firms that have a solid productive infrastructure in the continent. Oddly enough, the last three manufacturers have plants in the United Kingdom. Undoubtedly, this is one of the many factors that the country will have to consider when making its final divorce with the EU. On the other hand, the Japanese brands that do not produce cars in Europe, such as Mazda, Subaru or Mitsubishi, could also benefit from the agreement: their prices may be more competitive.
The European brands that use components from Japanese companies may also take advantage of this agreement, although not to the same extent as the manufacturers from this country. Likewise, Europe can increase the export of some models to Japan and check how the maintenance of Japanese cars on the continent may become more affordable.
The automotive industry has played an important role in the negotiation of this international agreement. It has been one of its most sensitive points, since its implementation could cause an imbalance in the European automotive market. It is one of the reasons why the deal includes the elimination of tariffs in the industry in a transitory period of seven years and the European Union reserves the right to respond with new duties in case a "great damage" is detected in the industry.
The Japan Europe Free Trade Agreement (also known by the acronym JEFTA) will also affect the motorcycle world. Japanese vehicles and components will stop being liable to duties of 8% and 3.7% respectively. This measure might favor a drop in the prices of these vehicles. The firms which will benefit most from this agreement are also some of the best-selling companies in Europe: Honda, Kawasaki, Suzuki and Yamaha.
"We are sending a clear message that we stand together against protectionism" said Donald Tusk who has also described this agreement as the "the largest bilateral trade deal ever" choosing not to name his namesake directly. Although this agreement was conceived in 2013, the signing of the agreement seems to have been accelerated by the commercial battle which is being led by the president of the United States, Donald Trump.
As part of its protectionist agenda, Washington has imposed duties on Europe that entail a tax of 25% on steel and 10% on aluminum. Trump recently reiterated his firm intention to apply tariffs in other sectors in case the EU does not offer some concessions -such as the access of American products to the European market-. The automobile industry is precisely one of the key industries of this commercial struggle. The US president threatens to impose tariffs of 20% on imports of European vehicles.
The European Commission has indicated its intention to retaliate, if the United States finally decides to increase tariffs on the automotive industry. The European Trade Commissioner, Cecilia Malmström, has assured that they are working on some countermeasures to respond to this possible scenario, as they did before in order to face the increase of taxes on steel and aluminum -with the imposition of 25% tariffs on US products like whiskey, jeans or corn-.
Next Wednesday, Malmström will accompany the president of the European Commission on a trip to Washington to speak with the president of the United States about this commercial dispute. It will not be long before we discover how this mercantile battle continues. Meanwhile, curiosity grows among car lovers: Will Europeans end up driving "kei cars"?
The automotive industry demands professionals which are increasingly prepared to respond successfully to these new and complex challenges. At The CEU IAM Business School, we have designed a Master´s Degree in the Automotive Industry Businesses whose final goal is training students who are capable of dealing with a sector that is in constant transformation and who can make right decisions thanks to their solid knowledge about the business.