New York Times - Economy

E.U. and Japan Reach Deal to Keep ‘Flag of Free Trade Waving High’

The agreement also reaffirms its parties’ commitment to the Paris climate accord, from which the Trump administration has said it will withdraw.

Tokyo and Brussels began trade talks in 2013, and said in June that they were nearing a deal. Japan trades less with the European Union than it does with the United States or China. But completing a deal with the European Union became a more urgent priority for Tokyo after President Trump’s decision in January to withdraw the United States from another agreement, the Trans-Pacific Partnership. Japan has also pushed to revive that deal, even without the United States.

Japan had effectively paused its talks with the European Union while it focused on the larger Pacific Rim deal, which included 10 other nations along with the United States and Japan. Mr. Abe has made liberalizing trade a centerpiece of his economic agenda — a notable shift in a country that, despite its success exporting cars, electronics and other merchandise, had long shied away from trade deals.

The change of direction on trade owes partly to the waning power of Japan’s farm lobby, which has fought to keep tariffs on imported agricultural products high, impeding the country’s ability to strike agreements. Japanese negotiators still focus much of their efforts on protecting farmers, but with Japan’s rural population rapidly aging and shrinking, governments no longer see making concessions on agriculture as politically fatal.

The European Union and Japan have a combined annual economic output of around $ 20 trillion, and together would constitute a trading area roughly the size of the one created by the North American Free Trade Agreement. The future of Nafta, which comprises the United States, Canada and Mexico, has also been cast into doubt by tense renegotiations.

Still, while Japan and the European Union have expressed confidence over the agreement they announced on Friday, political interests are still at play. National and some regional legislatures in Europe will have a say, a process that nearly derailed a trade deal with Canada.

The main beneficiaries from the agreement are likely to be Japanese carmakers and European food and beverage producers.

The deal will make it easier for European producers of cheese, beef, wine and processed meat to sell in Japan, which imposes duties of as much as 40 percent on some products. European makers of pharmaceuticals, medical equipment and trains are also expected to come out ahead.

The pact also presents Japanese carmakers with an opportunity to increase sales in Europe, which has long been difficult for them. Toyota and other Japanese manufacturers have only a 13 percent share of the auto market in the European Union, in part because of import tariffs, compared to the United States where they account for about 40 percent.

But Japan’s carmakers already have major manufacturing operations in Europe which are not subject to import duties, suggesting that their meager sales also stem from lack of products that appeal to European tastes.

While the pact will be important for some industries, said Angel Talavera, senior eurozone economist at Oxford Economics in Britain, its overall economic impact will be modest.

The deal “does not materially alter the outlook for the eurozone, as Japan represents only around 2 percent of total exports,” Mr. Talavera said in an email. “I don’t think this is a game changer.”

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