The biggest ever deal of its kind, “JEEPA” reveals the hollowness of Brexiteer claims that leaving the EU will give us a trade boost. And businesses across the Atlantic will be looking on with concern, tooby George Magnus / July 11, 2017 / Leave a comment
The announcement of “JEEPA,” or the Japan-EU Economic Partnership Association, just before the Hamburg G20 meeting, was a masterpiece in timing, a great piece of political symbolism, and a demonstration that the economic advantages of big free trade, liberal, rules-based agreements are still worth striving for. For the United States, which withdrew from the Trans-Pacific Partnership free trade deal almost as soon as President Trump took office, JEEPA is a kick in the teeth. JEEPA also makes the case for Brexit—including claims that leaving the EU is essential if we are to strike up better trade agreements—look small and deluded.
We should note that the agreement is not done and dusted. It has to be signed, ratified by both sides, and there are as yet unconcluded negotiations on dispute settlement procedures and data protection issues, but this agreement is potentially a big deal.
JEEPA is the biggest ever free trade agreement, with Japan and the EU together accounting for about a third of the world economy. Japan is the EU’s sixth largest trade partner, and the EU is Japan’s third biggest. Negotiations started four years ago, and but for the Brexit referendum and the election of Donald Trump, might still be on-going. These two events doubtless accelerated the process and the Hamburg G20 provided an appropriate backdrop for both the EU and Japan to hail their agreement. Trade experts have estimated that it could end up boosting two-way exports by roughly 30 per cent.
JEEPA will lower Japanese tariffs on a wide range of EU agricultural exports, including beef, pork, wine, some cheeses, and chocolate. It is significant for Japan, which has traditionally been quite protectionist about importing agricultural goods. Japan will benefit by the phased reduction over seven years of tariffs on Japanese automobiles, which experts believe will account for about half of the total benefits of the wider agreement.
“JEEPA makes the case for Brexit—including claims that leaving the EU is essential if we are to strike up better trade agreements—look small and deluded”
Yet, JEEPA is not only a food for cars deal. It also provides for easier access to procurement of government contracts, for potentially wider trade benefits if technical and regulatory interests are aligned in areas such as pharmaceuticals and services, including financial services. There are separate agreements, details of which still have to be hammered out, on climate change and cybercrime.
The agreement certainly comes at a bad time for the US, which has been doing its best to shun large free trade agreements, and which is poised to announce new trade tariffs any time. US companies selling agricultural and manufacturing goods and services to Japan and the EU will be disadvantaged without question as bilateral tariffs between the latter two are lowered. Even though American beef exporters, who sold $6bn of goods in 2016, hope to capitalise on China’s $2.5bn beef market, for example, they have lost out to an agreement between Australia and Japan already, and could lose more as a result of JEEPA. US exporters of chemicals, electronics, car parts and machinery may also be squeezed out of new trade opportunities by the Japan-EU deal.
All US exporters will be looking with concern now not only at JEEPA, but also at Japan’s attempts to conclude the Trans-Pacific Partnership with 11 countries—but not the US. They will also be worried about China’s strategy to complete the Regional Comprehensive Economic Partnership comprising 14 countries in Asia and Australasia—also without the US.
America, moreover, seems on the cusp of actions designed to undermine trade—and jobs, for that matter—rather than create both. 16th July marks the end of the 100 day plan, agreed in April, to re-set US-China trade in the wake of the Florida meeting between Presidents Trump and Xi Jinping. Notwithstanding an interim agreement to resume US beef exports to China, admit US credit rating agencies into China, and allow foreign payment providers, such as Visa and MasterCard, to apply for licenses to settle payments in Renminbi in China, US-China relations have taken a negative turn.
“It is inconceivable that the UK could strike a better free trade deal with Japan or the EU than the two global trade giants have reached themselves”
President Trump’s honeymoon with Xi Jinping, based on unrealistic expectations that the latter would bring pressure to bear on North Korea regarding its nuclear programme and ballistic missile tests, has gone sour. In the last week, the US has imposed sanctions on a bank in China because of alleged financing to North Korea, resumed arms sales to Taiwan, and sent a destroyer close to a disputed island China claims as it its own. On, or shortly after, 16th July, Trump will doubtless approve higher tariffs on steel and aluminum if, as expected the Commerce Department recommends action based on national security concerns, which was the Administration’s remit for investigation. China wouldn’t even be the major casualty, as it doesn’t even figure in America’s top 10 steel importers. But it would be piqued, and would be affected as the US imports steel from Vietnam, courtesy of Chinese manufacturers there. Higher steel costs in the US would be borne by a wide range of US companies at home, with negative consequences for consumers and for employment, and retaliatory actions in and outside the World Trade Organisation.
For Brexit Britain, JEEPA reveals the hollowness of the Brexiteers’ claim that the world is the UK’s trade oyster. It is inconceivable that the UK could strike a better free trade deal with Japan or the EU than the two global trade giants have reached themselves. Japan’s benefits in being able to sell cars to the EU cast huge doubt over the issue of Japanese automobile foreign direct investment in the UK. This will be all the more marked if the UK leaves the Customs Union, and affect not just investment but trade, since it will be more expensive and logistically troublesome for car parts to be traded between the UK and the EU. Britain also stands to lose out to future technical and regulatory agreements between the EU and Japan.
For over a year, Remainers have been trying to tell the major British political parties that in matters of trade, size matters. When it comes to JEEPA, the UK falls short by a long way. Even if the UK, outside the Customs Union, managed to strike free trade agreements with both Japan and the EU in the next several years—and we won’t know for at least that long—the benefits would be dwarfed by staying inside the EU to enjoy the potential impact of JEEPA. Instead, the benefits will accrue to other EU countries and to those inside the Customs Union, such as Turkey. JEEPA is the latest in a series of warnings to the UK that Brexit is likely to be ruinous to the nation’s economic health.