Japan, UK at forefront of pushback against protectionism
After four years of negotiations, Japan and the European Union signed a broad agreement on free trade in a move hailed on both sides as a sign of joint efforts to promote an open economy worldwide. Once ratified, the deal will remove 99% of tariffs on bilateral trade, forming a market of nearly 640 million people and combining more than a quarter of global output.
A final deal is expected to be reached in early 2019, when the Japan-EU Economic Partnership Agreement (JEEPA) will form one of the largest free-trade agreements ever.
The timing, coinciding with the Group of 20 meeting in Germany, was significant. Amid ongoing controversy over rising protectionist sentiment in the West, the EU-Japan pact is a symbol of enduring free trade. Both Japan and the EU have expressed concern over US President Donald Trump’s “America First” trade policies, which have seen suggestions for punitive tariffs on steel imports from Europe, Japan and other source markets.
For Tokyo, the FTA is of special importance. Japan has been looking to seize new opportunities after Trump unceremoniously dumped the Trans-Pacific Partnership upon taking office, torpedoing the 12-nation agreement after years of hard negotiations. JEEPA could ignite new momentum for implementing the TPP without the US, and might even help Japan raise the bar in Asia-Pacific trade talks like the Regional Comprehensive Economic Partnership (RCEP).
With the EU FTA, Japan also hopes to jump-start an economy struggling to shake off more than a decade of inconsistent growth. The EU, for its part, has just won unfettered access to one of the world’s wealthiest markets.
The timing of the agreement sent a clear message to Trump, but EU leaders also took the opportunity to fire off a few snide remarks at the UK. European Council President Donald Tusk, for example, pointed to the deal as proof of the EU’s “global engagement”. By contrast, the UK’s Brexit vote has been consistently portrayed as a protectionist project conceived to remove Great Britain from a globalized world.
The UK supposedly faces an insurmountable task in reaching favorable FTAs, not only with its European neighbors but with the world at large. Ongoing tensions over the settling of accounts between Brussels and London have exacerbated this image: The EU’s chief Brexit negotiator, Michel Barnier, went so far as to insist the UK prove its capacity for “trust” and “responsibility” before negotiations can progress.
Europe’s newest trade partner, however, does not seem to agree. In fact, Japanese Prime Minister Shinzo Abe’s government made it clear early on that his country wants to hold early FTA talks prior to Britain’s official departure from the EU. British Prime Minister Theresa May and Abe also planned to hold informal talks on the sidelines of the G20 summit last week.
The eagerness on both sides makes sense: There are more than 1,000 Japanese companies currently operating in the UK, employing some 140,000 people. Collectively, those firms had £72 billion (US$93 million) in turnover in 2015. Tokyo is also the fourth-largest source of foreign direct investment (FDI) in the UK. The Japanese clearly consider their economic presence in Europe to be tied to Britain’s economic security and overall standing. Abe is no doubt also listening to Japanese industry voices calling on the government to ensure minimal disruption.
Japanese officials are not the only ones engaging closely with British counterparts. The UK has reached out repeatedly to India, where a bilateral FTA could increase British exports to the world’s second-most-populous market by more than £2 billion. Free-trade negotiations between the EU and India have been held up for close to a decade, because of India’s refusal to comply with EU regulations on intellectual property and data protection. The British are reportedly willing to cast those rules aside for the sake of an agreement.
Unfortunately, despite Indian Prime Minister Narendra Modi sharing an interest in a deeper trade relationship (he was apparently “very positive” about a post-Brexit agreement at the G20), immigration has proved to be a major stumbling block. In multiple high-level visits to India, British ministers from Theresa May on down have been unwilling to budge on the issue of visas for Indians traveling to the UK. That, in turn, has held up concrete discussions from moving forward.
Fortunately for the British, talks further west have progressed more quickly. With major investments in London and as longtime customers of British financial and consulting services, the Gulf Cooperation Council countries are trying to secure the terms of their relationship quickly. The GCC has aggressively pursued an FTA after offering to draft an agreement itself. Here again, British trade negotiators could be set to outpace their European counterparts: Talks over an EU-GCC free-trade agreement have been stalled for years, despite German Chancellor Angela Merkel prodding Gulf leaders during a visit this past May.
Theresa May has been happy to meet the Gulf states halfway. The GCC’s biggest economy, Saudi Arabia, is in the midst of a large-scale economic restructuring – Vision 2030 – and May has been a vocal supporter of the Saudis’ steps to bring their highly centralized, state-run economy in line with liberal market norms. The British prime minister has strongly encouraged them to choose London as the setting for the expected initial public offering of state oil company Saudi Aramco, and visited Saudi Arabia just weeks before Merkel to lobby for the IPO in person, with the head of the London Stock Exchange at her side.
May has cause to focus on the Saudis and their Gulf neighbors: Since she arrived at Downing Street, they have been more receptive to May’s overtures than any potential partner outside of Donald Trump. Of course, Trump’s eagerness at the G20 may not actually reflect US government policy.
Taken together, all of this outreach on the part of the British puts the lie to a widespread piece of received wisdom: that both Brexit and Trump’s election can be considered protectionist reactions. Trumpism is no doubt a protectionist, verging on isolationist, project, but it’s a mistake to put Brexit in the same category.
By engaging with Japan, India, the GCC, and a host of other Asian and Middle Eastern partners, the UK is doing anything but turning its back on the global economy. This is a valuable nuance for economic policymakers in both Asian and Western markets to keep in mind: The global “protectionist” wave may not be as global as we are often tempted to think.