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EU-Japan pact could help solve Brexit (and dinner) dilemmas

Time running out for trade deal that would benefit automakers, wine lovers alike

TOKYO -- Japanese wine lovers have been longing for an economic partnership agreement with the European Union, which would eliminate import duties and could make it more affordable to regularly uncork a French bottle.

Standing in the way, however, are cheese producers in Japan and automakers in Europe. They vehemently oppose the elimination of tariffs, fearing a rush of imports of both products would hurt their businesses.

Now, the head of a major European business lobby is warning that the clock is ticking on an agreement that has implications far beyond the dinner table.

Markus Beyrer, the director general and CEO of Business Europe, talks to the Nikkei Asian Review in Tokyo.

"It is a crucial year for getting the EU-Japan EPA done," Markus Beyrer, the director general and CEO of Business Europe, told the Nikkei Asian Review in an interview on Monday.

"After the German elections in September, Brexit will become the hot potato. The real discussions will begin," he said, suggesting there is little room on the European Parliament's calendar to discuss the Japan deal.

The EPA is all the more important in the context of Britain's decision to leave the EU, Beyrer said. "A good agreement between the EU and Japan could significantly facilitate the future settlement on the terms of trade between Japan and the EU, and Japan and the U.K."

If a comprehensive free trade agreement were to be signed between the EU and the UK, "it could facilitate the cumulation of value added in order to qualify for preferential access to each other's market, which would simplify trade and avoid additional tariffs for Japanese companies."

Without such an agreement, Japan might be forced to negotiate a bilateral FTA with the U.K. from scratch. This would take time, and in the interim, the many Japanese companies manufacturing in the U.K. could face complications in exporting to the EU.

"We want to avoid the worst-case scenario," Beyrer said, when asked whether Japanese companies would no longer enjoy preferential treatment from the EU. "Even if preferential treatment were not excluded, exporting from the U.K. to the EU is bound to face more customs procedures, customs controls and paperwork, leading to more cost."

Since EU-Japan trade talks were officially launched in March 2013, there have been 17 rounds of negotiations. "A lot of progress was made in recent months, particularly in December, after which the momentum faded slightly," Beyrer admits.

The EPA would gradually eliminate the import duty on wine, which is currently 125 yen ($1.13) per liter or 15% of the unit price -- whichever is lower. While that is not expected to affect prices of expensive clarets, it would bring many table wines under the 1,000 yen psychological barrier.

Japan has seen a major jump in Chilean and Australian wine sales after tariffs were reduced under similar economic agreements.

Meanwhile, the EU is pressuring Japan to abandon its expensive duty on cheese -- 29.8% -- while Japan wants the EU to immediately abolish the 10% tariff it slaps on Japanese vehicles.

The cheese proposal is being met with stiff opposition from farmers in Hokkaido, a major dairy production area, and the agricultural lobby in the Diet -- Japan's parliament. Currently, cheese is used as a convenient adjustment valve when there is a surplus of fresh milk. Farmers worry that an influx of high-quality European cheese would push Japanese consumers away from domestic products, leaving them with no outlet for leftover milk.

As for cars, there has been an increase in South Korean vehicles imported to Europe after the EU-South Korea Free Trade Agreement provisionally came into effect in 2011. European automakers fear the impact would be much greater if Japanese rivals are given free access to their home market, possibly forcing them to cut jobs.

Prime Minister Shinzo Abe met with European Council President Donald Tusk and other EU leaders in Brussels earlier in March. They reaffirmed their goal to quickly conclude a broad deal on the EPA.

In a wider context, Beyrer said it is important for the EU and Japan to show a commitment to free trade. "It will mean that two of the largest economies in the world are showing strong support for rules-based trade at a moment when protectionism is rising."

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