12 July 2017

4 minute read

Asia

Japan and the EU reached a broad agreement on the free trade deal last week to start abolishing or reducing tariffs on food and industrial goods as soon as early 2019.

Under the pact, Japan will set a low-tariff import quota of 20,000 tons on European soft cheeses such as Camembert and mozzarella in the first year and lift the tariff entirely for up to 31,000 tons after 15 years. Japan currently imposes a 29.8 per cent tariff on cheese.

Tariffs on other products such as European wine will be eliminated immediately, while levies on pasta and chocolate are slated for a more gradual removal period stretching about 10 years.

In exchange, the EU will bring tariffs on Japanese cars down from 10 per cent to zero over seven years, reports The Japan Times.

The Foreign Ministry believes signing the economic partnership agreement (EPA) with the EU will establish "one of the world’s largest free and advanced economy zones," accounting for about 28 per cent of global GDP.

The ministry also said signing the EPA amid rising protectionism will send a "strong message to the world” that the two parties will become “the standard bearer of free trade."

Kunihiko Miyake, a research director at the Canon Institute of Global Studies and a former diplomat, evaluated the accord as a "significant step forward" for Japan and the EU in sending a signal to the increasingly protectionist US and Britain.

“As uncertainty stemming from the protectionism in US and Britain spreads... I believe the move will send the message that Japan and EU will lead the global momentum toward free trade," Mr Miyake said.

But the deal could significantly hurt domestic industries — in particular, dairy farmers producing raw milk for cheese products, said Yasufumi Miwa, a senior economist at the Japan Research Institute Ltd. who specializes in the domestic food industry.

Although the agreement should boost domestic consumption of cheese and wine, it will introduce competition with high-quality European products, Miwa said, drawing a comparison to the potential impact on farmers from the Trans-Pacific Partnership.

Currently, the TPP is languishing since President Donald Trump signed an order in January to withdraw the United States from the 12-party pact.

When Japan signed the TPP, rice farmers were worried that cheap imports would eat away at the market for rice used in processed foods but were less concerned about direct competition for domestic rice, which tends to be of higher quality than foreign-grown, he said.

"But the quality of European cheese and wine is usually as good as or even better than that produced in Japan," he said, adding that the competition with high-quality European products will hurt the sales of domestic cheese and wine brands.

Domestic dairy farmers and wine producers will have less of a buffer against these risks compared with rice farmers, who were afforded guarantees when the government signed the TPP.

When Japan agreed to join the TPP in 2015, the government declared that it would buy up the same amount of domestically grown rice as the volume of the zero-tariff import quota for stockpiling, in order to protect local farmers from price drops.

Miwa said that behind the government’s rather "hasty" deal with Europe may be an urgent desire to make up for the overall slowing-down of international free trade deals.

"When it comes to bilateral free trade accords, Japan is behind other countries like South Korea. From the manufacturing industry’s standpoint, I think Japan certainly needs to put trade deals like EPAs in effect promptly so as to overcome the handicap," he said.

"Some experts say that it is still too early to evaluate the deal as few details have become clear, while others view it negatively" if no measures to protect domestic farmers will be taken, he said.

Mr Miyake of the Canon Institute also warned that reaching the broad agreement doesn’t necessarily mean the process for finalizing the deal will be as smooth as planned.

"There are still many points where the two parties need to find a compromise," he said.

"You have to keep in mind that the devil is always in the details."

TheCattleSite News Desk