Trade agreement between the European Union and Japan: 3 keys to understanding why this pact is so important (and the message it sends to Donald Trump)

Trade agreement between the European Union and Japan: 3 keys to understanding why this pact is so important (and the message it sends to Donald Trump)

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The President of the European Commission Jean-Claude Juncker (left), the Japanese Prime Minister Shinzo Abe (center) and the President of the European Council, Donald Tusk (right).

Nobody pronounced his name, but the signature on Tuesday of the agreement between the European Union (EU) and Japan was a “clear message” against something that Donald Trump has been promoting since the first day he assumed the presidency of the United States: protectionism in the business relationships.

The pact between two of the largest economies in the world is the counterpoint to the policy of America First that Trump defends and that has led him to impose trade tariffs even on his traditional partners and allies.

The alliance between the EU and Japan, which will cover almost a third of the world’s GDP and directly affect 600 million people, comes as a signal to Washignton.

“We are sending a clear message that we are united against protectionism ,” the president of the Council of the European Union (EU), Donald Tusk, said Tuesday from Tokyo.

Two gloves from the United States and the European Union.
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Image caption United States imposed tariffs on steel and aluminum on June 1 to the EU (and other countries) and has even said it is “enemy” of Washington.

In the same line was pronounced president of the European Commission, Jean-Claude Juncker, who said that the agreement was “a plea for free and fair tradeand a demonstration that we are stronger and better when we work together.”

The United States has won the disapproval of many of its international partners, including the EU, for its threats of a trade war, the new tariffs in force since June 1 and its controversial declarations.

The last this past Sunday, where he described the EU as an “enemy” of the United States in commercial matters.

But also the prime minister of Japan, despite having good relations with Washington, made references to Trump’s policies .

“(This agreement) Shows the world the unwavering political will of Japan and the EU to lead the world as the champions of free trade at a time when protectionism has spread,” Shinzo Abe said after the signing.

Because it is important?

The President of the European Commission Jean-Claude Juncker (right), the Japanese Prime Minister Shinzo Abe (left) and the President of the European Council, Donald Tusk (center).
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Image caption The alliance between the EU and Japan will cover almost one third of the world’s GDP.

The agreement signed between the EU and Japan is important for several reasons:

1. For the size

Japan and the EU are, according to data from the World Bank of 2018, two of the four largest economies in the world and the agreement will bring billions of dollars.

The Japanese Ministry of Foreign Affairs believes that the Japanese economy will grow by 1% of its GDP, or what is the same, in US $ 44,000 million and 290,000 jobs.

The EU is expected to increase exports by 33%, according to a study by the London School of Economics and create up to 140,000 new jobs for every US $ 1 billion it gets from trade.

2. For the liberalization of the market in key sectors

Market with cheeses.
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Image caption The Japanese, once the agreement enters into force, can buy products such as cheese or pork much cheaper, once the tariffs are eliminated.

Both economies will be able to provide goods and services that both produce with a liberalization of 99% of the products traded once the transition period ends.

This will benefit exports of Japanese cars and make it easier for European farmers to sell their products in the Asian nation. Also the final consumer will find with lower prices in this type of articles.

Although not all the goods will be incorporated at the same time and there will be a wait until the end of January 2019 to allow time for the parliamentary institutions of both parties to ratify the agreement, it is the largest trade agreement ever signed by both economies. .

3. By the time it is given

With a global climate that questions the validity of trade agreements and the role of the World Trade Organization , the agreement could not have come at a better time.

Nissan truck
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Image caption Japan hopes to be able to release its automotive production that in recent years has competed hard with South Korea.

For Mireya Solis, an expert in Japanese economic policy and director of the Center for Political Studies for East Asia, this is a very important factor because the agreement comes at a ” moment of uncertainty among industrialized countries on trade agreements .”

“Send a clear message of ‘we continue to believe in the benefits that free trade agreements bring ,'” he tells BBC Mundo Solis, who also believes it is an important gesture of closeness between the two powers.

The same idea is shared by Simon Lester, associate director of the Herbert A. Stiefel Center for Trade Policy Studies.

“Send a signal to the rest of the world that the EU and Japan are leading trade liberalization and that despite the Trump administration’s movements … the system is intact,” he told BBC World.

United States and China flags opposed.
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Image caption Trump has raised a so-called “trade war” against China by imposing high tariffs on thousands of products produced by the Asian giant.

The agreement is, in Lester’s eyes, quite safe for both economies and very specific in the products that it includes, so after a period of adjustment and perhaps resistance on the part of some sectors, neither side is expected to be harmed.

Trump, catalytic effect

The agreement between Japan and the European Union is not something new since it has been taking place since 2013. But in recent months it has experienced an acceleration.

“(Trump’s protectionist policy) creates a new stimulus to reach agreements, ” says Solís.

Donald Trump, president of the United States.
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Image caption Trump maintains a protectionist policy because he believes that the United States has been harmed by the trade agreements signed in recent years.

Donald Trump withdrew the United States from the Trans-Pacific Economic Cooperation Agreement (TPP) on his first day as president in the White House, which put many international actors on alert and caused Europe and Japan to intensify the talks 18 months ago.

“This has been taking place for a few years but I think the reason why it has gone so fast is because both the European Union and Japan have reacted to the decisions of the Trump administration by accelerating the process,” says Lester.

Consequences for the United States 

Considering Trump’s protectionist policy and seeing that other countries are accelerating bilateral trade agreements that leave the United States out, it is worth wondering what consequences this has for the United States.

Both experts, Solis and Lester, agree in the same: The United States is in a disadvantaged position.

“The Japanese open their market to European products such as cheese, pork or beef that are goods exported by the United States, so US producers, at different levels, will suffer the damage of the agreement.”

Map of South America
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Image caption Experts consulted by BBC dismiss the direct repercussions of the European-Japanese agreement for the region.

Washington is negotiating with Tokyo to reach a bilateral agreement and the pact with the European Union could “determine certain rules and restrictions to access the Japanese market,” Solis concludes.

… and the rest of the world

The multimillion-dollar agreement does not imply greater consequences for the rest of the world, except for the producers who had been working on an agreement on the products covered by the European-Japanese pact and are now also in a disadvantaged position, according to the expert. free trade studies.

In what can affect, albeit minimally, Lester points, it is in giving a small boost to certain agreements and conversations about trade that have been going on for a long time but some of them are very difficult to negotiate.

For example, the EU with Mercosur that have been in talks for 18 years. Despite the statements of the European Trade Commissioner, Cecilia Malmström, who said in May this year that the agreement was “close”, Lester believes that it faces many difficulties and we will still soon see an agreement between Europe and the Southern Cone.

The European Trade Commissioner, Cecilia Malmström
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Image caption The first talks on a possible agreement between the European Union and Mercosur began in 1995.
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