Government and Institutions

What can we learn from the EU/Japan Free Trade Agreement?

On Tuesday of last week, the European Union and Japan signed an Economic Partnership Agreement (EPA). Following over four years of negotiation, the EPA covers 600 million people and an impressive third of global GDP. In an atmosphere of increasing trade barriers, this provides some relief for the global trading system.

The EPA removes Japanese tariffs on European cheese, wine, beef and pork. It opens Japanese service markets and grants access to the lucrative procurement markets of 45 Japanese cities. The current EU ten per cent tariff on Japanese cars will be gradually reduced to zero over a period of up to seven years.

Part of the wider Abenomics project, the Japanese prime minister is seeking to galvanise domestic reform by liberalising services and shock a highly protected agriculture sector into life. Such effects are the real benefit of trade deals.

A noticeable omission from the EPA is a comprehensive and binding reciprocal agreement on the free flow of data. Instead an agreement on “reciprocal adequacy” has been reached. A January 2017 press release by the Commission on data protection outlined that adequacy decisions would allow for the free flow of personal data to countries with essentially equivalent rules. This point was made with specific reference to Japan.

In order to establish reciprocal adequacy and comply to the criteria of the EU’s white list, Japan reformed its APPI privacy law in May 2017. Amendments included legislation on international data transfers, expanding the definition of personal information and a more stringent identification of sensitive information. Notably the establishment of an independent data protection authority, the Personal Information Protection Commission, brought Japan and the EU’s data privacy law far closer together. Even so, the systems in place remain materially different and by no means identical.

A joint statement released in early July of the same year noted that discussions had “significantly strengthened mutual understanding” and that the recent reforms had “further increased the convergence between their two systems”. On Tuesday the EU and Japan confirmed recognition of “each other’s personal data protection systems as equivalent” in turn creating the world’s largest area of safe data transfer. The system is by no means perfect, crucially it is not binding to either party. But the notion that an agreement can be reached on mutually recognised standards creates another intriguing precedent (contrary to what some have asserted, there are numerous examples of the EU agreeing to recognise equivalence of regulation in third countries).

In the light of ongoing discussions over the nature of the United Kingdom and EU’s future trade agreement this system of reciprocal equivalence is of significant interest. If the EU can agree a reciprocal arrangement on the basis of mutually recognised standards on data, it is surely possible that a similar agreement could be reached on services more widely and on goods. This is true of CETA where Canadian automotive regulations conform to UNECE standards and are recognised as equivalent.

At the point of Brexit, the UK’s regulatory standards on goods will be far more than merely equivalent to those of the EU – they will be identical.  This is an unprecedented point from which to establish a UK-EU agreement. From this position, an economic partnership based on shared regulatory values and a desire to maintain high global standards is easily within reach. One where alignment is natural and need not be subject to the ultimate authority of the ECJ.

The EU-Japan trade agreement is an important achievement in its own right, but it is also a timely example of what can be achieved through negotiation. Moreover, it demonstrates how flexibility in procedure can be combined with an agreement on outcomes in different, autonomous regulatory systems.

Jack is a former research intern at the IEA. He studied History at the University of Edinburgh focusing on the politics and culture of post-war Europe and is now studying an MSc in International Relations at the LSE where he is an Anniversary Scholar.

1 thought on “What can we learn from the EU/Japan Free Trade Agreement?”

  1. Posted 24/07/2018 at 22:20 | Permalink

    but it is also a timely example of what can be achieved through negotiation
    That’s fair enough, but where’s the discussion of what could have been achieved at lower cost and without negotiation? I refer of course to UFT.
    I ‘m also curious to know what tariffs and quotas will remain after the 7 year period. It’s a bit of a units shift to say that EU and Japan account for 1/3rd of global GDP when the agreement presumably does not cover all the economic activity in each country. Take something as elemental as prostitution which is part of GDP – a Japanese person could not ply her or his trade in the EU. So why is this included in the comparator to say how great and big and encompassing is this deal. Better comparators are available, such as the % of world trade accounted for by the EU and Japan.

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