Your cars in exchange for my cheese

Monday, 6 august 2018 | Redacción CEU

The first signature of a free trade agreement to eliminate tariffs between the European Union and Japan has not come to public attention with an intensity which lives up to its magnitude. It is true that this alliance has not been ratified by the Japanese Diet or the European Parliament yet -although everything seems to indicate that no obstacles will be posed in the way to its final approval. That is not to say that the impact that its effective implementation could have on the global economy is less significant: the joining of their strength is equivalent to 27.8% of the world’s gross domestic product and 36.8% of the trade in goods. How can this treaty change the global economic scenario? What are the keys to understanding this alliance?

It is not the first time that this free trade agreement captures the attention of our newsroom. As we have recently analyzed, this agreement has a direct impact on the automotive industry. Its implementation will involve the progressive elimination of duties on Japanese cars in a period of seven years (currently there is a 10% tax on these vehicles). However, limiting the analysis of this alliance only to this sector would mean adopting a reductionist approach of the treaty. This is the reason that has led us to the writing of this article.

The agri-food sector, the great European winner

When analyzing the headline of this article some readers may perceive a degree of delusion in its writer. Although we do not deny that it may be true, it should be noted that this treaty is popularly known as the "cars for cheese" agreement. This name responds to the impact that this pact could have on the European agri-food sector. With its implementation, Japan will mainly benefit from the commercialization of its vehicles in the Continent and the European Union will be favored by the reduction of rates in some food products like beef meat (tariffs may fall from 18.5% to 9% in fifteen years) and the elimination of duties in other products such as cheese and wine. In all, the agreement will help the marketing of 205 agricultural products with an European origin, of which 42 are Spanish products.

This agreement may allow the access of the agri-food sector to a market with 127 million consumers. The European Commission has indicated that its application will mean savings of up to €1 billion per year in tariffs and, according to a study carried out by the London School of Economics, this alliance will favor the growth of 33% of European exports. On its behalf, the Japanese government believes that, once the total reduction of duties occur, its economy will grow 1% annually.

More than a matter of tariffs

This treaty stands out for the volume of its participants, the EU and Japan are two of the four largest economies in the world. The level of ambition in this deal is also noteworthy, the elimination of tariff barriers can reach a liberalization between 90% and 99% of the products that both markets trade with each other. Nonetheless, the most striking thing about this alliance is not that aspect, but rather the fact that it transcends the commercial sphere, and goes a step further.

The agreement between Japan and the European Union reflects the mutual recognition of their data protection systems. In other words, this agreement aims at creating the largest global area of data transfer. The treaty also establishes a strategic framework so that these markets can cooperate in fields like climate change, migration and security. To accomplish this, it considers the harmonization of the legislation that regulates sectors such as cars, health and cosmetics.