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Sunday, June 30, 2019

The Trade Liberalization of the Asia-Pacific Region Moving Forward by CPTPP and EU-Japan EPA

Wang, Sheng-Ming

    The Comprehensive and Progressive Partnership(CPTPP) and the Japan and EU Economic Partnership Agreement (EPA) came into force separately on December 30,2018 and on February1,2019. These two large free economic trade agreements include the Asia-Pacific area and major economies in Europe. The coverage is very extensive, and the affected economies and populations are huge, so that the trade liberalization in Asia-Pacific and European region is moving forward.


Trade Protectionism and REI

    The United Kingdom passed the UK’s Brexit vote in June 2016. On October 2nd of the same year, British Prime Minister Theresa May announced that the procedures of Brexit would be launched at the end of March 2017 and Brexit had shocked the development of regional economic integration. After U.S. President Trump assumed office in January 2017, he expressed that trade liberalization
should be based on the principle of fairness and thus announced the U.S.’s withdrawal from the Trans-Pacific Partnership (TPP) and reevaluated the content of FTA signed again for renegotiation and conclusion. Brexit and the new U.S. FTA policy give rise to concern whether trade protection would revive and slow down the development of regional economic integration.

    Although the U.S. has changed their trade policies, the development of regional economic integration has continued. After the U.S. announced its withdrawal from the TPP, Japan and Australia led the remaining 11 member countries to complete the negotiation and to sign the revised version of the agreement in March 2018, namely Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

The Main Content of CPTPP

    The content of CPTPP is still based on the original TPP, and member countries have a flexible arrangement by putting off some disputed content to make CPTPP to be effective as soon as possible. For example, the disputed content includes "Investor-To-State Dispute Settlement Mechanism", "Intellectual property protection",and "Governmental procurement",etc. It aims to reserve the U.S.
joining in the future. CPTPP accounts for 13% of global GDP, with a total amount of GDP over US$10 trillion and around 500 million people in 11 economies. After the agreement takes effect, 95% of tariffs for agricultural and industrial products would be cancelled among the member countries. CPTPP has been effective since December 30, 2018, and tariffs of various products will be gradually abolished among member countries.

    The tariff elimination schedules differ among member countries. For example, the tariff on beef exported to Japan will be reduced gradually from originally 38.5% to 9% over 16 years. Meanwhile, the tariff on fish exported to Japan was reduced to 0% on the effective date of CPTPP, while the tariff on red wine will be gradually reduced to zero in 8 years. The tariff on automobiles exported to Canada from Japan will be gradually reduced from originally 6.1% to zero in 5 years, while the tariff on automobiles exported to Vietnam will be reduced from 70% to zero in 10 years. Japan’s automobile manufacturing industry will benefit from the reduced tariff in the future. For Japan, CPTPP would eliminate more than 95% of tariffs on all kinds of products, including industrial and agricultural products. Japan reserves the tariffs on rice, wheat, beef, pork, dairy products, and sugar, but 10 other member countries of CPTPP would eliminate 99% of tariffs on all kinds of products. For domestic consumers in Japan, they will buy cheaper food products in the near future.

The Elements of EU-Japan EPA

    The EU-Japan EPA has been effective since February 1, 2019. The scale of the EU-Japan EPA economic circle has surpassed CPTPP which came into effect at the end of 2018. This EPA, which covers 640 million people while the trade amount accounts for 37% worldwide and 28% the global GDP, has become the biggest global free trade zone.

    The EU expects to be more active in terms of global trade, economic growth and employment opportunities, and business competitiveness; therefore, it has aggressively promoted the establishment of the free trade agreement. On July 17th, 2018, the Chairman of the EU Commission and President of the EU Council Tusk signed the agreement with Japan's Prime Minister Shinzo Abe. The EU is Japan’s third largest trade partner, while Japan is the second largest trade partner of
the EU in Asia. The export amount of EU enterprises to Japan is 58 billion euros approximately every year, while Japan annually exports around 28 billion euros to the EU.

    Following the implementation of the EU- Japan EPA, The EU will cancel 97% (around 1 billion euros) of import tariffs for goods, including such imported products as agricultural and aquaculture products. However, the automobile tariff will not be cancelled until the eighth year of EPA effectuation. Japan will also cancel tariffs over 99% of products but also reserves the tariffs of five agricultural products in sensitive areas, including rice, wheat, beef and pork, dairy products,
and sugar. The EU-Japan EPA will open up the service market, especially financial services, telecommunication, e-commerce, and transportation. Japan estimates that the EPA will increase JPY$5 trillion (about US$44.1 billion) of GDP and create 290,000 jobs. However, the Japanese government also estimates that the production amount of domestic agricultural products will be reduced by as much as JPY$110 billion (around NT$30.9 billion) every year. Japan will eliminate the tariffs on wine, spaghetti, and chocolate imported from Europe. Meanwhile, Japanese consumers also expect advantages from daily consumption.

The Impact of Brexit on the EU-Japan EPA

    With regard to the impact of Brexit on the EU-Japan EPA, the UK Parliament has vetoed the draft Brexit agreement in May’s version, and the original withdrawal deadline of March 29th had been postponed to April 12th. To avoid market fluctuations as a result of Brexit, British Prime Minister Theresa May applied to the EU for the extension for the withdrawal to June 30th. Finally, the EU decided to postpone the deadline from April 12th to October 31st. However, the UK government must still sign the extension agreement in June. The EU-Japan EPA was effective prior to the formal Brexit, so the EU-Japan EPA will be automatically applied to Britain during the transitional period by the end of 2020.

    The U.S has taken bilateral position toward regional economic integration.In addition,it has been seeking fair trade much greater trade liberation. For example, the U.S., Canada and Mexico signed the “U.S.-Mexico-Canada Agreement” (USMCA) to replace NAFTA on November 30, 2018. The important contents included tax-free regulations on the automobile manufacturing industry, the open partial dairy market, and medicine patents in Canada. With regard to the automobile manufacturing industry, the USMCA requests that the percentage of parts to be manufactured in the U.S., Canada and Mexico for tax-free automobiles shall be increased from 62.5% to 75%. Of the new intellectual property chapter, the regulations on patents and trademarks are stricter, covering biotechnology, financial services, domain names, etc.

Conclusion

    British Parliament has vetoed the draft of Brexit agreement several times and has delayed the withdrawal deadline. Brexit will complete in what kind of form is unknown. The attitude of the U.S toward regional economic integration and Brexit have been uncertain factors for wide and multilateral regional economic integration. However, the successive effectuation of CPTPP and EU-Japan EPA was a shot in the arm for the development of multilateral economic integration.
We can expect that regional trade liberalization could keep moving forward.

(The author is an associate research fellow of Taiwan Institute of Economic Research)

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