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An Asian century

March 23, 2013

WITH no signs of life in the Doha round of trade liberalisation talks, the race is on among leading economic powers to strike trade-expanding bilateral deals which can generate domestic growth and jobs.

The European Union (EU) was for long a defender of the World Trade Organisation (WTO) and the multilateral trading system it represents. For the last few years, however, trade experts in Brussels have turned their attention to bilateral free trade deals to achieve global trade expansion.

EU trade officials argue that their heart is still in the WTO and efforts to boost global trade liberalisation. But with the Doha round stalled and European businesses clamouring for open markets and new investment opportunities, the EU has no option but to strike bilateral free trade agreements.

An EU-India free trade agreement (FTA) is expected to be finalised this year, after seven years of difficult negotiations. Discussions on FTAs are also under way with some Southeast Asian countries. But the real prize for EU policymakers and business leaders is the transatlantic free trade deal that Brussels and Washington are hoping to negotiate.

The agreement will be the “mother” of all FTAs, generating growth and jobs on both sides of the Atlantic and creating a harmonised regulatory environment that will in effect create a single, border-free transatlantic market. In recent discussions in Brussels, policymakers from the US and the EU were anxious to dispel impressions that they were “ganging up” against the emerging countries, especially China. But no one is convinced. If it ever sees the light of day, the transatlantic trade deal will in effect represent a major achievement of the West in what many view as the “Asian Century”.

Equally significantly, the EU and Japan are getting ready to launch negotiations on an economic partnership agreement which, along with a political accord, aims to open up a new era of closer relations between Japan and the EU. The two agreements can certainly inject fresh life into the EU-Japan partnership. To get good results, however, both sides will have to commit time, energy and effort to the exercise. Most importantly, European and Japanese policymakers will have to find the right balance between their high political ambitions and hard-nosed bargaining on key trade questions, including agriculture and automobiles.

The EU-Japan summit in Tokyo on March 25, to be attended by Japanese Prime Minister Shinzo Abe, EU Council President Herman Van Rompuy and José Manuel Barroso, the European Commission president, will kick-start the two separate political and economic talks.

The move to strengthen EU-Japan ties comes as Japan also prepares to join discussions on a Trans-Pacific Partnership, a free trade deal including the US and several leading Asia Pacific economies. A triangular trade deal is also being explored with China and South Korea.

“For Japan, the EU is a crucial partner, not just a strategic partner,” says Kojiro Shiojiri, Japan’s ambassador to the EU. “Both the economic and political agreements between the EU and Japan are very relevant.”

While it was important to reduce tariffs to boost EU-Japan trade, Shiojiri said he believed that regulatory reform and harmonisation were even more essential to reduce costs and step up competitiveness. “Regulatory change is the bigger prize with a bigger impact on economies and societies. We are more interested in reform to build a more resilient economy and society.”

Both the EU and Japan were becoming less competitive in their performance on East Asia’s dynamic markets, he added. The Economic Partnership Agreement (EPA) would help both Japan and the EU to upgrade their performance in a very competitive globalised world.

The EU mandate for the EPA with Japan was agreed at the end of November last year. According to EU Trade Commissioner Karel De Gucht, the mandate sets out a strict and clear parallelism between the elimination of EU duties and non-tariff barriers in Japan.

There’s a safeguard clause to protect sensitive European sectors and the EU will “explicitly reserve the right ‘to pull the plug’ on the negotiations after one year if Japan does not live up to its commitments on removing non-tariff barriers”.

Japan is serious about opening up its market and had already started to remove a number of key non-tariff barriers up front — such as granting liquor licences to European operators, the commissioner said, adding: “Such moves have given us all the reassurance we could reasonably expect before a formal negotiation is opened.”

The European Commission says a trade deal with Japan will boost Europe’s economy by 0.8 per cent of GDP, adding that 420,000 additional jobs in the EU are expected as a result of this agreement. Japan is the EU’s second biggest trading partner in Asia, after China. Both the EU and Japan have low tariffs on goods. But non-tariff measures are major barriers to EU exports to Japan.

Parts of the Japanese market, e.g. some agricultural products and some transport equipment and aeronautical products, are almost totally closed to EU exports. Seven business sectors that cover the bulk of EU exports to Japan are those most affected by existing non-tariff measures including chemicals, automotive, medical devices, processed foods, transport equipment, telecommunication and financial services.

Shiojiri and EU officials insist that any trade agreement between the EU and Japan must be negotiated quickly so that both sides can start reaping the benefits sooner rather than later. But that may be asking for too much: free trade deals may sound attractive on paper but negotiations are often painful and long-winded. As such, the jury is still out on whether the EU-Japan trade talks will break this tradition.

The writer is Dawn’s correspondent in Brussels.