Japan trades on its increasingly impressive reputation

Japan trades on its increasingly impressive reputation

 

In this June 18, 2018 photo, containers are piled up to be exported at a port in Tokyo. (AP Photo/Koji Sasahara)

Japanese Prime Minister Shinzo Abe and top European leaders are making final preparations for this week’s important EU-Japan summit. The meetings will not only deepen their bilateral strategic partnership but also set the agenda for the G20 summit in Osaka in June.

The discussions on Thursday will therefore be broad-ranging on issues stretching from climate change to connectivity. However, one topic might stand out above all others: the future of international trade and the rules-based economic order.

Japan — which is the world’s third-largest economy after the United States and China, and Europe’s second-largest export market in Asia — has recently stepped up its leadership of the international trade agenda. Given that it holds the G20 presidency this year, this issue is likely to be a key one not only this week but also in Osaka, which could cause diplomatic fireworks given the Trump administration’s protectionist leanings.

This same issue was a source of contention last year during the G20 summit in Argentina, and in Germany where it provoked a clash between Donald Trump and German Chancellor Angela Merkel. The latter pushed for a strong G20 re-affirmation of international trade, while the US president secured a partial victory by inserting a provision in the end-of-summit communique that allows countries to protect their markets with “legitimate trade-defense instruments.”

The reason why trade will be so central to this week’s summit is the fact that the EU-Japan free-trade agreement will come into effect in January 2020. Both sides want to take stock of implementation of this mammoth deal, which affects about a third of global gross domestic product and almost 650 million people.

The accord, which took years to agree, captured the headlines by scrapping duties on 97 percent and 99 percent of Japanese and European imports respectively. This could be a particular boon for key EU exports to Japan, such as dairy and food products, while Japan’s automobile manufacturers might be big winners, too.

It is not only the United States that is perplexing Tokyo right now on the economic front, but also another long-standing Japanese ally, the United Kingdom. UK ministers are in damage-limitation mode with their Japanese counterparts after reportedly angering Tokyo with their tactics over securing a new post-Brexit trade treaty.

Andrew Hammond

Beyond the headline numbers, however, the co-host of this week’s summit — European Commission President Jean Claude Juncker — has stressed that the EU-Japan trade treaty is important because it rests on “values and principles.” In part, this relates to the fact that the agreement is the first struck by Brussels that includes language upholding the Paris climate agreement. Specifically, there is a commitment to support the Paris treaty by making a “positive contribution” to reducing the effects of climate change by cutting greenhouse-gas emissions. This follows a move by the European Commission to try to ensure that all future EU trade bargains include references to the key climate deal.

It is not only on the European front that Japan is making waves on international trade, however. In March last year, Tokyo was at the vanguard of 11 Asia-Pacific and Americas nations that signed the so-called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

In this context, the United States (after reversing course under Donald Trump and deciding not to join the CPTPP) earlier this month began negotiations for a bilateral trade agreement with Japan. The Washington-Tokyo talks, which might not be concluded during Trump’s presidency if he is not re-elected next year, are set against a backdrop in which, despite political tensions over the bilateral economic relationship, US-Japan trade topped $300 billion last year and Japanese firms invested nearly $500 billion dollars in the US market.

This underlines the fact that one of the ironies of the timing of Japan renewing its international credentials on trade issues is that it comes at a time when the US is rolling back its global leadership of this agenda. Washington, for instance, has not only backtracked on joining the CPTTP but has also slapped tariffs on several key nations, including China.

It is not only the United States that is perplexing Tokyo right now on the economic front, but also another long-standing Japanese ally, the United Kingdom. UK ministers are in damage-limitation mode with their Japanese counterparts after reportedly angering Tokyo with their tactics over securing a new post-Brexit trade treaty.

This comes after Japan decided against replicating the terms of the agreement Tokyo reached with the EU in any post-Brexit trade treaty with the UK. Tokyo is instead reportedly seeking a tougher stance amid the alarm of many firms headquartered in Japan, who employ about 140,000 UK-based employees, about the prospect of a no-deal Brexit.

This underlines the all-too apparent hollow prospectus of many Brexiteers who, while wishing to see a “global Britain,” will through their commitment to leaving the EU exclude the nation from the benefits of the EU-Japan deal. This agreement has created exactly the type of free-trade area “beyond Europe” that is one of the key ambitions of many leading Brexiteers.

Taken overall, this week’s summit will again burnish Japan’s international trade-leadership credentials. Amid the growing uncertainty over the future of the multilateral trade system, rules-based economic order and liberal democracy itself, Tokyo will leverage this week’s EU dialogue during June’s G20 to help promote an agenda based around a commitment to multilateralism over bilateral deals, and internationalism over nationalism at a time of growing populism.

 

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics

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