Japan and European Union Signs Biggest Free Trade Deal

After the tariff imposition by U.S. on steel and aluminium imports and subsequent trade war between two major economies China and U.S., this trade deal is a clear message by EU and Japan against protectionism.

The pact signed between Japan and EU will come into effect by March 2019 and will see Japan eliminate tariffs on 94% of all imports from EU. The single bloc eurozone, for its part, will eliminate tariffs on 99% of imports from Japan.

The agreement between Japan and EU will lead to the creation of one of the world`s largest economic blocs and will constitute around 30% of global gross domestic product, according to industry experts forecast.

Under this trade agreement, the EU will open its market to Japan`s auto industry, with Tokyo in return scrapping barriers to EU farming products, especially dairy. The EU is seeking access to one of the world`s richest markets, while Japan hopes to jump-start an economy that has struggled to find solid growth.

With this pact in place, it may happen that EU which is planning to impose quota on country’s steel imports will exclude Japan from its trade restrictions, however, no concrete conclusion can be drawn as clarity on the same is still awaited. But if this happens then Japan which is among the world’s biggest steel producers will have quite an advantage over other steel producing nations such as China, India and South Korea. This is because Japan can then easily export steel to the free trade zone created by this pact.

Nonetheless, if this happens, the implementation of steel quota by EU on steel imports will have a loophole as other steel producing nations can circumvent EU’s import quota by exporting their surplus steel produce via Japan. Thus it remains to be seen whether EU will exclude Japan from its quota imposition on steel and if this happens what will be its subsequent repercussions.