The European Union and Japan announced a broad agreement on Thursday that would lower barriers on virtually all the goods traded between them, a pointed challenge to US President Donald Trump on the eve of a summit meeting of world leaders in Germany.
Though the deal still needs further negotiation and approval before it can take effect, it represents an act of geopolitical theater.
Prime Minister Shinzo Abe of Japan said the deal signified the creation of “the world’s largest free, advanced, industrialised economic zone.”
Here is a look at the main aspects of the deal:
The Europeans are expected to scrap a 10% tariff on passenger cars made in Japan, over a period of seven years. Duties would be reduced for some car components.
The Japanese, in return, are expected to lower duties on European cheeses like Gouda from the Netherlands, while retaining their unusually complex regulations on dairy products.
Tokyo is also likely to make it easier for European companies to bid for major government contracts, a move that could benefit train makers like Siemens of Germany and Alstom of France.
Negotiators have refused to include whaling and logging in the talks, which has angered environmental groups — Greenpeace has characterised the deal as “a huge transfer of power from people to big business.”
Together, the EU and Japan would constitute a trading bloc of a size to rival that created by the North American Free Trade Agreement, presently the world’s biggest free trade zone.
The biggest issue is how to ensure that investors have a way to resolve disputes arising as a result of the deal. The Europeans want to employ a court system rather than ad hoc arbitration. The Japanese, say existing institutions are enough.
What happens now?
Negotiations have been going on for years, but were accelerated after Trump abandoned the TPP.
The new deal was a clear sign that other parts of the world will continue to pursue a liberalising trade agenda, even without the United States.
Sources: The New York Times, Treading Economics, Top Exports