EU, Japan Trade Deal Defies Protectionist Wave

The deal sends a strong signal that two of the world’s major exporters still believe in the merits of open markets.

While other major economies are building walls and cutting ties, Japan and the European Union have inked a historic trade pact that encompasses close to 30% of global GDP. The so-called cars-for-cheese deal is “the most significant and far-reaching deal ever concluded by the EU in agrifood trade,” says Phil Hogan, the EU’s commissioner for agriculture and rural development.

“For Japan, facilitating car exports to the EU was the most important objective,” says Saori Nishida, a Brussels-based business consultant who advises companies on trade with Japan. “In return, Japan is free to accept more EU agricultural and food products.”

The timing is significant. The deal was announced on December 8, a day when British prime minister Theresa May was in Brussels for fraught negotiations over the UK’s exit from the EU.

“The EU has several problems, including Brexit and the rise of right-wing parties. One reason for that is its economy,” says Toshihiro Okubo of Keio University’s economics faculty. “The EU definitely needs a strong export market for reviving manufacturing in countries like France and Germany.”

For its part, Japan also is in need of a large export market, particularly following the US withdrawal from the Trans-Pacific Partnership. Gabriel Felbermayr, director of the ifo Center for International Economics at the University of Munich, anticipates that the agreement will boost EU exports of goods and services to Japan by some 60%, or €50 billion ($59.2 billion), over the next 10 to 12 years and boost Japanese exports to the EU by some 55%, or €36 billion.

Felbermayr considers the relatively fast conclusion of the deal a strong signal that two of the world’s major exporters “still believe in the merits of open markets in a world that has turned more protectionist.”

“It does send an important signal,” says Felbermayr, but he adds there are also many other initiatives that are going in the opposite direction. Lyckle Griek, a consultant with Netherlands-based advisory Japan Unlimited, remains optimistic: “If a deal between two of the largest economies is not going to turn the tide of protectionism, what can? Neither Japan nor the EU probably wants to have to deal with a China-driven free-trade regime.”