The Journal The Authority on Global Business in Japan

Japan and the European Union wrapped up negotiations on December 8 on a far-reaching economic partnership agreement (EPA) set to encompass about 40 percent of the value of global trade.

Japanese Prime Minister Shinzo Abe and European Commission President Jean-Claude Juncker affirmed the move by phone. The finalized pact, which the parties aim to sign next summer at the earliest and take effect in 2019, will also cover about 30 percent of the world’s gross domestic product.

Japan will abolish about 94 percent of its tariffs, including those on manufacturing-sector goods and agricultural products. The EU will do away with about 99 percent. The pact also boasts high-level regulations in areas including intellectual property protections, as well as for facilitating e-commerce.

The deal will “form an economic bloc based on free and fair rules,” Abe told reporters at his official residence following the call with Juncker. “A new era for Japan and the EU is about to begin,” he said.

The joint statement said the finalization “demonstrates . . . the firm political will of Japan and the EU to continue to keep the flag of free trade waving high.” The agreement is also “of strategic importance,” it added.

The United States, under President Donald Trump, has abandoned its former role as the standard-bearer for free trade. The administration has turned its back on existing frameworks and is instead prioritizing combating deficits in its bilateral trade relationships.

In settling the EPA just before World Trade Organization ministerial meetings kicked off on December 10 in Argentina, Tokyo and Brussels were aiming to highlight the effectiveness of multilateral free trade agreements.

The EU agreed to abolish its 10-percent tariff on Japanese passenger cars eight years after the deal takes effect. Customs duties on 92 percent of all Japanese-made automobile components will be eliminated as soon as the agreement is implemented.

Japan will cut to zero its tariff on wine from the EU—now 15 percent or ¥93 (82¢) per bottle—when the pact is implemented. For soft cheeses—a European strength—Japan will set a quota for low-tariff imports and eliminate the duties altogether 16 years after the agreement goes into effect.

The parties also reached agreement on geographical indications (GI), which help protect the brands of certain specialty products originating from specific places, such as Camembert or mozzarella cheeses. After further negotiations following July’s general agreement, it was decided that more than 200 items from the EU, which has many goods strongly identified with their geographic origins, will receive GI protection in Japan.

Japan also won GI protection in the EU for more than 30 products, such as high-end Yubari melons from the northern island of Hokkaido and Kobe beef.

At talks begun on December 5 in Brussels, chief negotiators decided that establishing a system for resolving investment disputes—a problem lingering after the parties agreed on the trade deal in principle in July—should be handled separately. The goal was to put difficult matters aside and prioritize customs-related areas in hopes of reaching a deal quickly.

Tokyo and Brussels are having trouble seeing eye-to-eye on the investment issue, as Japan wants the deal to include an investor–state dispute settlement system under which plaintiffs can directly seek arbitration with national governments over alleged unfairness. The EU, on the other hand, favors the establishment of a special standing inter­national court for investment matters.

Talks on the issue will continue, with the possibility of forming investment agreements between Japan and individual EU member countries. Such agreements could be incorporated into the EPA in the future, according to Cecilia Malmström, the European commissioner for trade.