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Economy

Japan-EU trade pact could accelerate Asia-Pacific deals

Trans-Pacific Partnership members don't want to lose out to Europe

BRUSSELS -- Now that years of trade talks with the European Union have born fruit, Japan hopes to harness momentum from that deal to advance other major free-trade pacts, including a Trans-Pacific Partnership with or without the U.S.

"The timing is outstanding," an official from Japan's Ministry of Economy, Trade and Industry said of a broad Japan-EU economic partnership agreement reached Thursday. In fact, they could not have asked for a better venue to show off their achievement. Prime Minister Shinzo Abe and EU leaders approved the pact here just one day before representatives of the Group of 20 advanced and emerging economies meet in Hamburg, Germany.

"Japan and Europe can set an example" for other major nations, according to Foreign Minister Fumio Kishida, by standing up for free trade at a time when protectionism is on the advance around the globe.

The agreement is said to expand the EU's gross domestic product by 0.76% and add 0.29% to Japan's by some estimates. The EU expects to levy 1 billion euros ($1.14 billion) less per year in tariffs on Japanese goods, but sees exports to Japan of processed foods and chemicals growing 180% and 22%, respectively. Countries covered by the pact make up nearly 30% of global gross domestic product. The 11-member TPP that excludes the U.S. would encompass less than 15% of global GDP -- compared to 40% in its original 12-member state.

Playing catch-up

As trade between Japan and Europe picks up, other countries will likely seek to deepen their own economic ties to those two parties, lest they be left behind. The new pact could thus add fuel to efforts to bring the TPP into effect without the U.S.

Lead negotiators from the 11 remaining nations will meet starting next Wednesday in Japan's Kanagawa Prefecture to discuss such a plan. The group aims to finish examining various paths to "TPP-11," as the proposed arrangement is known, by November, when a summit of those nations is planned.

The Japan-EU pact could light a fire under negotiators, and could also act as "a strong message" to the U.S. "that we want them back in the TPP," an official at Japan's foreign ministry said. Europe will undoubtedly export more dairy and agricultural products to Japan under the agreement, which cannot help but have some impact on Japan's imports from the U.S. Trade groups such as those representing the livestock industry will certainly lean on President Donald Trump's administration to take action.

But Washington may not respond as Tokyo hopes. During a June meeting, U.S. Trade Representative Robert Lighthizer called on Hiroshige Seko, Japan's trade minister, to remedy what he called the enormous trade imbalance between the two powers. America could continue to ramp up pressure for some sort of bilateral agreement, including a full-scale free-trade pact.

High standards

Beijing could be more amenable to a multilateral deal. Foreign ministers from China and Singapore in mid-June agreed to accelerate discussions on the Regional Comprehensive Economic Partnership, a China-led pact that rivals the TPP and the Japan-EU deal in size. RECP is part of China's plans to enhance its economic influence over neighboring countries, which also include President Xi Jinping's pet Belt and Road infrastructure-building initiative.

But the pact China seeks is less extensive than Japan and other economies would like, in terms of the degree to which it reduces tariffs or otherwise improves trade access. Beijing's goal with the agreement is thought to be protecting its own industry rather than opening up trade. Members of the Association of Southeast Asian Nations aim to reach an agreement to join RCEP by the end of the year. But Japan intends to hold would-be partners to a higher standard resembling its pact with the EU, which scraps 95% of tariffs between the two parties.

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