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A warning shot for Xi and Trump

06 Jul 2017 - 20:56
Source: Benny Ang;flickr

Trade is often about more than  trade itself. On Friday, the leaders of the twenty largest economies (G20) are meeting in Hamburg. High on the agenda is the future of the international trading system: expect a tug of war between free-traders and protectionists.

By concluding a free trade agreement, right before the summit kicks off tomorrow, the EU and Japan are making a clear statement. After four years of negotiations, a deal will be sealed, thanks in no small part to the changing international context and plenty of political will. The agreement is good news for the EU and Japan, and sends a clear message to both US president Donald Trump and Chinese president Xi Jinping.

Largest of its kind
The EU’s trade agreement with Japan will be the largest of its kind ever concluded by Brussels. Together, the EU and Japan account for more than a third of the world’s GDP (the total value of goods and services produced). In recent weeks, officials have shuttled back and forth to get the agreement finalised. EU trade commissioner Cecilia Malmström visited Tokyo last week. A few days later, the Japanese Ministers of Foreign Affairs and Agriculture were in Brussels, and on Thursday, on his way to the G20 summit, Premier Shinzo Abe makes a stop-over in Brussels to seal the deal.

The trade pact gives European businesses better access to the Japanese market, Europe’s second-largest trading partner in Asia after China. Import tariffs will be reduced and regulations simplified. European producers of medical equipment, agro food, motor vehicles and other goods will reap the rewards. European consumers will benefit from lower prices on Japanese products, such as Japanese cars.

Statement against protectionism
Less evident than the economic benefits, but equally important, is the political statement this agreement makes. The EU and Japan are taking a powerful stand against protectionism and in favour of free trade. They are joining hands to maintain – and deepen – the liberal, rules-based international economic system that both trading giants, and many other countries, have benefited from so much.

The message is aimed at President Trump. Under his leadership America has degenerated from the  system’s protector to its greatest challenger. Consider, for example, Trump’s America First (‘and only America first!’) policy, his aversion to multilateral trade agreements and his aggressive views on World Trade Organization rules. The EU and Japan are promoting trade liberalisation, just when the US is about to significantly raise tariffs on steel imports.

But the message is also aimed at Chinese president Xi Jinping. In a speech in Davos, shortly after Trump took office, Xi presented himself as protector of global free trade. China as the beacon of free trade sounds great, but Xi’s words are somewhat ironic given the complaints European companies have voiced repeatedly about restricted market access, the absence of a level playing field and Beijing’s failure to enact economic reforms. The EU has more trade disputes with China than with any other country.

A practical step
Europe and Japan now present themselves as like-minded countries that want to strengthen international trade based around their high standards – for example in the area of climate and labour conditions – and shared values such as openness, transparency and the rule of law. The deal also shows that trade agreements are not dead, despite increasingly critical voices from sceptical publics. Recall the near-failure of the EU-Canada deal last year, demonstrations against the transatlantic trade talks (TTIP), and the fact that Trump withdrew from the Trans-Pacific Partnership on his first day in office.

As is usual for the EU, a political accord will accompany the trade deal. This political agreement aims to further cooperation on issues such as sustainable development, environmental protection, tackling climate change, safe supply of energy sources and even regional stability, including the non-proliferation of nuclear weapons. It is not a ‘big bang’ which will redefine the relationship between the two parties. Instead it is a practical step towards more cooperation. This is welcome. After years of discussing more cooperation, these trade and political deals will allow Tokyo and Brussels to actually make it happen. But  this will not be easy. The EU and Japan differ markedly about how to deal with  the US and China. Still, more cooperation is a step in right direction. In this period of growing uncertainty and protectionism, the EU and Japan need each other. And the global trade system needs them.

The Dutch version of this opinion was published in NRC Handelsblad on July 5, 2017.