EU and Japan – A New Era of Free Trade

Immanuel Kant once said that trade is a crucial precondition for peace and prosperity. In these days of increasing protectionism, Japan and the EU are sending a clear signal to the western world – a unique declaration of their belief in free trade, based on mutual values and even friendship: at the EU-Japan summit in Tokyo, the EU-Japan Economic Partnership Agreement (EPA) was signed on 17 July 2018. It is a world-record-like agreement with over 560 pages (without annexes) and 23 chapters, negotiated in a comparatively short period of time. Maybe, future historians will state that 17 July 2018 was the beginning of a new trade era to continue and enlarge the fruitful exchange and trustful cooperation between Japan and Europe for centuries.

Increasing significance of EU-Japan Trade

Japan “rocks”: according to the EU Commission, over 12.000 German companies, primarily including machine production, the chemical industry, the pharmaceutical industry, the automotive industry, and the electrical industry, have maintained successful business relations with Japan. In Japan, 450 German companies, particularly medium-sized companies (420), have established affiliated companies in Japan, with the real number estimated to be significantly higher. JETRO or INVEST JAPAN support European companies by offering a wide range of market entries. There are also several organisations (e.g., NRW.INVEST) that offer their support to Japanese companies investing in Europe.

Cut in trade costs

The EPA will create plenty of opportunities for the key sectors of the Euro-Pacific market space, eliminating nearly all tariffs. Europe and Japan will strengthen their leading position in areas such as life sciences, food products, clothing, ICT, and motor vehicles. For instance, the agreement allows a wide range of agricultural exports; it opens up service markets, in particular, financial services, e-commerce, telecommunication, and transport, including procurement. The agreement also covers core aspects of sustainability, high standards of labour, safety, consumer, and environmental protection.

Cuts in trade costs will improve the return of investment in Japan. The agreement also allows European companies to invest in Japan – the average return of investment is 6.6 percent – which is almost double the rate of direct investments in other countries. One reason is certainly the reliability of Japanese companies and the fact that the overall investment conditions are stable and business-friendly. The EU Commission can tell several success stories of European companies that created sustainable business in Japan.

Great Chance for Digitalization

With regard to digitalisation, the EPA has a considerable impact. Kazuo Kodama, Ambassador of Japan to the EU, explained that the trade agreement is closely connected to the digital economy, and that this may be demonstrated by the simple fact that, nowadays, industrial goods are more and more connected with data transferring sensors. If this simple example is connected with the completion of the negotiations on reciprocal adequacy and the conclusion of a separate agreement the EPA will, as a result, create the world’s largest area of safe data flows. Data transfer between Japan and the EU will be become much easier for companies. The numbers speak for themselves: companies will have access to the data of over 127 million customers.

The EPA will open up new business opportunities for e-commerce or telecommunications. Details concerning e-commerce and telecommunications are regulated in Chapter 8 of the EPA. For instance, the EPA will provide easier access to telecommunication services (including regulations regarding reasonable roaming rates) by specifying the regulatory framework. Further, the EPA truly believes in the growth and the increase in trade opportunities e-commerce will offer and contains provisions regarding the electronic authentication and signature, or the electronic conclusion of contracts.

Conclusion

In a nutshell: the EPA will create the world’s largest area for digital economy in a contemporary, adequate framework, balancing the interests of customers, companies and the society alike. It will create a vast market space with considerable business opportunities. It is an honour, but also the duty of international lawyers to support this clear statement on the belief in free trade and the clever use of its opportunities.