With Japan against China
TOKYO/BRUSSELS/BERLIN (Own report) - With the conclusion of their free trade agreement, the EU and Japan are about to establish the world’s largest free trade zone. As was reported, the agreement between the two highly export oriented economic blocks, generating nearly 30 percent of the global economic output, could already take effect in early 2019. According to the EU Commission and German economic institutes the Japan-EU Free Trade Agreement (JEFTA) could lead to significant economic growth and the creation of hundreds of thousands of new jobs. On the one hand, the agreement is aimed at making up for eventual slumps on the US market and, on the other, is part of the containment strategy against China, the emerging powerhouse. Despite their differences, Berlin and Washington continue to cooperate in their opposition to Beijing. Parallel to the JEFTA agreement, the EU, Japan and the USA have declared that they will jointly take on China more aggressively over trade issues.
JEFTA
In early December, Brussels and Tokyo announced their finalization of the free trade agreement, they had been discussing for several years, the “biggest and most comprehensive agreement” of its kind.[1] The Japan-EU Free Trade Agreement (JEFTA) - negotiated between 2013 and 2017 - is not only of considerable economic value, but also of strategic importance, the President of the European Commission Jean-Claude Juncker and the Prime Minister of Japan Shinzo Abe wrote in their joint statement on December, 8. Both contracting parties were fighting the “temptation of protectionism.” This formulation was generally understood as a jibe at the US' isolationist tendency under President Donald Trump, who aims to reduce the huge US trade deficit through trade barriers. With JEFTA, which could already come into effect in 2019, a free trade zone would be established encompassing 600 million inhabitants, which - in terms of economic output - would represent the largest alliance of its kind. Together the EU and Japan generate nearly 30 percent of the global economic output.
Optimistic Prognoses
Currently, the European-Japanese trade volume reaches nearly 125 billion euros. The EU Commission and German economic institutions are almost euphoric in their estimates of a rapid growth of the bilateral trade, which would also stimulate the labor markets of both sides. The European Commission expects to increase its exports to Japan by 20 billion euros. This could lead to the creation of up to 280,000 jobs in the EU. Based on the projected additional exports to Japan, the Munich-based Institute for Economic Research (ifo) expects a 0.7 percent medium term annual average increase of Germany's GDP. Japan, which, for decades, has been suffering economic stagnation, could even expect a 1.6 percent average annual economic boost, according to ifo's researchers. Critics consider these prognoses as too optimistic, because the economies of both blocks are geared toward export, particularly toward reaching the largest possible export surplus. A free trade agreement between two export-oriented economic zones will thus increase competition, but will not solve the problem of an absence of markets for their respective export surpluses. Because of the USA's growing protectionist tendencies, both contractual parties are threatened to loose an important market, the preferred destination of their export surplus.
Japan under Pressure
In fact JEFTA has only become possible through a threatening slump on the American market. Donald Trump's renunciation of the Trans-Pacific Partnership (TPP) had been an important incentive for the finalization of the EU and Japan's years of sluggish free trade negotiations, it was reported. Only after Washington backed out of TPP, did "Japan advance toward the EU."[2] When the agreement comes into effect, 90 percent of all remaining customs duties between the EU and Japan should be eliminated and, following a transitional period, almost all trade restrictions, lifted. This applies also to motor vehicles. EU exporters are hoping to save around a billion euros. At the same time, German automobile manufacturers have been able to impose an exception clause, stipulating the possibility of re-imposition of customs tariffs, should Japan's car producers be too successful and "overrun" the EU market. Tokyo has also agreed to recognize certain international standards in pharmaceutical and medical products, to facilitate the importation of European products. EU companies will be able to participate in bids for public procurement tenders, for example, in the railway sector. Conversely, Geographical Indications (GIs) of several hundred European regional products will be recognized and protected on the Japanese market, and the beer tax will be lowered. No agreement has been reached on the question of investment protection - both sides' relegation of legal disputes between state institutions and private investors to international arbitration tribunals.
Following in the USA's Footsteps
The impending slump on the US market has also increased pressure on Germany and the EU to find alternatives, thereby increasing the urgency for new free trade agreements. For example, shortly following President Trump's election, Chancellor Angela Merkel intensified a number of free trade initiatives with South America, India and other emerging economies. Besides her intention of being able to offset any export slumps in the USA, Berlin hopes to be able to follow, to a growing extent, in the USA's footsteps - even geopolitically. This applies also to the free trade agreement with the South American Mercosur international alliance, which has been in planning for more than 15 years, and, like JEFTA, has now taken on renewed impetus. Most recent prognoses predict an agreement at the beginning of next year. Whereas the free trade agreement with Mercosur is aimed at reinforcing the EU's influence in the USA's traditional sphere of influence, JEFTA's strategic significance lies in its confrontation with China. The agreement contributes to the implementation of a containment strategy against the People's Republic of China, as was already implemented during the Obama administration. Berlin seeks to obstruct - or even roll back - the emergence of China, as a powerhouse, with a series of free trade agreements in its geographic vicinity.
Together Against China
Berlin and Washington are cooperating in their containment policy against Beijing.[3] On the sidelines of the 11th Ministerial Conference of the World Trade Organization (WTO) last week in Buenos Aires, the United States, Japan and the EU agreed to put China more "under pressure" on trade issues. Together, they will "more aggressively" take on China over trade issues such as overcapacity in steel and forced technology transfers, it was reported. Especially German companies producing in China, have repeatedly complained that the Chinese state requires that they transfer technology. The joint approach taken by the USA, Japan and the EU, is an indication of the extent Beijing has "angered" the industrial nations with its modernization policy, according to media reports - and "how much they are worried, other countries could follow China's example."[4]
[1] EU und Japan schaffen Durchbruch bei Freihandel. derstandard.at 08.12.2017.
[2] Hendrik Kafsack: EU und Japan vereinbaren Freihandelsabkommen. faz.net 08.12.2017.
[3] EU, Japan and US to ramp up trade pressure on China. ft.com 11.12.2017.
[4] Einig im Kampf gegen Industrie-Subventionen. faz.net 13.12.2017.
