JEEPAs Creepers: Cars, cheese and competitive advantage

Japan and the EU have reached agreement in principle on ‘JEEPA’ – the Japan-EU Economic Partnership Agreement. Although some details are still to be resolved, the announcement represents an affirmation of support for more open markets by two of the world’s largest economies. For others including New Zealand, however, JEEPA could result in a significant competitive disadvantage. That only serves to increase the pressure on securing a TPP-11 deal in short order.

Japan and the EU have now reached a hard-fought “political agreement” on an FTA (as foreshadowed in our blog last week). The deal has been derided in some quarters as an old-fashioned “cheese-for-cars” trade-off, although the strategic significance is far greater.   The announcement, on the eve of the G20 meeting in Hamburg, enabled both sides to deliver a strong supportive message about trade liberalisation.

There are still some significant details of JEEPA to be resolved, including the highly contentious issues of investment protection and data flows, which could take several more months to settle. Assuming those details can be resolved, however, an eventual deal could set a new benchmark for trade in much the same way as the Trans Pacific Partnership (TPP) was originally intended to do.

It is also the case that an eventual deal may leave other trading partners at a competitive disadvantage, particularly while the TPP remains in limbo.   Access to Japan has high commercial value for many New Zealand exports, including beef, cheese and wine.

JEEPA includes provisions to eliminate Japanese duties on all these products with different timeframes. In beef, for example, JEEPA brings down the current tariff to 9% over fifteen years – compare this with the TPP outcome, which would also reduce the tariff to 9% over 16 years, with a sharp cut on entry into force.

Clearly, without a timely outcome to the initiative to conclude TPP-11 amongst the remaining members, the position of New Zealand food and beverage exporters in the Japanese market is likely to be increasingly uncomfortable once JEEPA is implemented (which is likely to be at least a couple of years off).  This adds to the disadvantage already created by the Australia-Japan trade agreement now in effect, where the beef tariff has dropped to 27.2% for frozen beef and 29.9% for chilled beef; New Zealand and others pay 38.5%.

Likewise for post-Brexit Britain, JEEPA seems unlikely to be cause for much celebration. Agriculture aside, the UK has already been grappling with how to reassure large Japanese investors – whose car plants in the UK mainly supply the Continental European market – about the prospects of a ‘hard Brexit’ (that is, an abrupt departure from the EU Customs Union and Single Market). Under the implemented JEEPA, however, Japanese exporters will eventually have duty-free access to the EU-27, where they already have alternative assembly plants and a large consumer market – not a great prospect for British-assembled cars.

JEEPA is a further sign that global markets do not remain static: trade negotiations clearly matter! For New Zealand, JEEPA has raised the stakes for a successful outcome to the TPP-11 initiative.

This post was prepared by Stephanie Honey, Associate Director of the New Zealand International Business Forum.