EU–Japan trade agreement

On 6 July 2017 the European Union and Japan reached a political agreement on a major free-trade treaty, in the midst of a protectionist wave in the United States. The news came after months of negotiation and was presented as a sign that two large economies wanted to keep opening their markets at a time when others were deciding the opposite. For the EU, it was also a way of strengthening its position in a region of enormous economic weight.

For the business world, the agreement had a double reading. On one hand, it was good news for European exporters looking to Asia, because it opened the prospect of lower tariffs and fewer administrative obstacles. On the other, it was a reminder that the final text and its ratification still lay ahead, and that the real timetable for feeling the effects in day-to-day activity would be long. A considerable time can pass between announcement and application, and not every chapter applies at once.

What a political agreement is

A political agreement is a commitment on the broad principles of a treaty, which must then be completed with the final legal text and ratified by the parties. It does not mean the treaty has entered into force, but it sets the direction and reduces uncertainty. It is an intermediate step between negotiation and application, and in it the main balances between the parties are fixed.

After this step a considerable technical job remains: drafting the chapters with legal precision, translating them and submitting them to each party’s approval procedures. Until that process is complete, the current rules remain in force, and companies should not adjust contracts or prices assuming a tariff or a procedure that does not yet exist. Prudence and contractual flexibility are the best combination while the text is not closed.

A message in a specific context

At a time when the United States was withdrawing from trade agreements, the EU and Japan chose the opposite: opening markets. For European exporters, a treaty of this kind can mean lower tariffs and fewer administrative obstacles, although the practical effects take time to materialise. The political signal is relevant because it indicates what frameworks of cooperation are being built and between whom.

Free-trade agreements do not benefit all sectors equally. Some gain new export opportunities; others face more competition from imported products. That is why they usually include adaptation periods and safeguards. Understanding which side of that balance the business sits on, and over what horizon, is the first step in deciding whether the agreement represents an opportunity, a threat or both. That initial assessment should be made with the company’s own data rather than general impressions.

Medium-term opportunities

Companies that sell, or could sell, to Asia should follow the progress of the treaty and study which sectors benefit. It is worth preparing ahead on aspects such as certifications, logistics, intellectual property protection and contracts with local partners. Entering a distant market requires knowing its technical standards, its buying habits and its way of doing business, which cannot be improvised.

A reasonable first step is to identify which of the company’s products or services fit best and what barriers prevent their sale today: tariffs, technical requirements or lack of contacts. Consulting foreign-trade advisers, chambers of commerce and legal experts makes it possible to assess costs and timescales realistically. Treaties open doors, but it is the company that has prepared that walks through them.

Trade agreements are opportunities only for those prepared to take advantage of them.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.