Usual standards:

Unsurprisingly, the goods part of the Japan EU free trade agreement includes two standards which are found very commonly in all free trade agreements.

One of these standards is known as the ‘National Treatment’ standard and ensures that no distinction will be made on nationality grounds. Practically speaking, Europeans must treat Japanese products as European products and cannot discriminate against them (and vise versa).

The other very common standard is known as the ‘Most Favoured Nations’ standard. Simply put, again, it ensures that the negotiating parties will not give a more favorable deal to any third party. In sum, if Europe signed a free trade agreement with China tomorrow, Japan would benefit from any ‘more favorable’ terms included in the new EU – China agreement.

Additional good-related features:

The Japan EU free trade agreement also provides that export licensing procedures should be eased and managed with fairness. Furthermore, all the non-duty-based barriers to trade will be reviewed after ten years (2.17 and 2.19).

In this context, JEEPA particularly opens space for trade in agricultural products, which shall not be subject to “any” duties… although some safeguards may be applied in specific circumstances (2.5). Agricultural subsidies remain possible but”the utmost restraints” should be observed (2.14). The facilitation of wine exports is also considered, which includes commitments to facilitate authorization procedures and the recognition of self-certification mechanisms on both sides (2.24 to 2.32).

Like for all the other subject-matters, the Japan EU free trade agreement finally creates a committee on trade in goods responsible for reviewing and monitoring future developments. A working group on wine is also established (2.34-35).

The scope of application of the JEEPA: the Rules of Origin.

The Japan EU free trade agreement defines the circumstances in which a product ‘originates’ from one or the other signatory. The point is significant because as a two-sided preferential agreement the JEEPA can only apply to products originating from Japan and the EU.

Hence, the agreement defines ‘originating products’ in various terms (Chapter 3)… including sets, altered products, returning products (i.e. products transformed in a third party country), accessories or spare parts. As usual, the agreement also includes a standard Statement of Origin provision, and it creates an obligation to keep records and to optimize verification records by the domestic public authorities (3.17 to 3.21).

Again, the agreement also establishes administrative cooperation and sanctions in case of fraud (3.22, 3.26). Finally, a committee on rules of origin and customs is established.

JEEPA on Customs and trade facilitation

The Japan EU free trade agreement includes Customs and trade facilitation commitments. This is dealt with in Chapter 4, which insists on the necessity to simplify and modernize customs and trade procedures.

These facilitation commitments do not open trade without constraints, however. To the opposite, the agreement particularly preserves “the fulfillment of each party’s policy objectives such as public morals or the environment” (4.2).

Otherwise, the agreement’s provision on customs facilitation includes a significant transparency commitment which obliges the Japanese and European authorities to publish new measures while ensuring that existing and new legislation is to be applied “in a predictable, consistent, transparent and non-discriminatory manner”, in line with international standards (4.3 – 4.4).

Moreover, the public authorities commit to ensuring the prompt release of goods originating from the other party. Simplification procedures are agreed upon, a system of administrative appeal is created, and as per the other topics, a specific committee is also established (4-5 to 4.12).

JEEPA on Trade Remedies.

The Japan EU free trade agreement does provide trade-related safeguards.

Under Chapter 5 on Trade Remedies, it says that safeguard measures may be taken when imports and exports “cause or threaten to cause serious injury to a domestic industry”. In such cases, the reductions in customs duties may be suspended (5.2). Having said this, such measures must remain temporary, as necessary to facilitate the “adjustment” of the said industry during a “transition period” (5.3). Provisional measures may also be taken in emergency situations, but these must be limited to 200 days (5.7).

Again, more transparency requirements are provided. Prior to imposing trade remedies, a proper investigation must be concluded. The other party must be notified and a consultation process must be undertaken. The counterpart is entitled to compensation, in the form of concessions on other matters for instance (5.4 to 5.6).

Of course, the authorities must conclude investigations in a fair and transparent way. And all investigations must take into account the public interest including the impact on the producers and for the users, as well as the opinion of representative organizations (5.12 – 5.13).

JEEPA and Sanitary and Phytosanitary Measures.

Trade facilitation does not mean that sanitary security is given away.

The Japan EU free trade agreement includes a section on sanitary and phytosanitary measures (chapter 6). The objective here is to “protect human, animal or plant life or health”, in line with the WTO Sanitary and Phytosanitary (SPS) agreement. In sum, the agreement makes sure that the import standards to be set by Japan and the European Union will “achieve the appropriate level of protection”.

To implement this, new technologies and electronic certification schemes must be promoted, together with transparent exchanges of information and technical consultations (6.7 to 6.12).

Also worth noting here is the equivalence requirement included in the Sanitary and Phytosanitary part of the agreement. Simply put, Japan and the EU both commit to recognizing the other party’s measures and standards provided that a common and satisfying level of protection is met (6.14).

Again, the matter is to be supervised by a specifically established committee. A specific dispute settlement framework is also created (6.15 – 6.16).

JEEPA and Technical Barriers to trade.

We mentioned previously that the Japan EU free trade agreement aims at facilitating trade through, in particular, the reduction or cancellation of any duties limiting trade opportunities. In practice, however, trade barriers are not only a matter of tariffs and duties. They can also take the form of administrative procedures also-known-as ‘Technical Barriers to Trade’.

For this reason, JEEPA includes a Technical Barriers to Trade section (Chapter 7) which aims at “ensuring that technical regulations, standards, and conformity assessment procedures do not create unnecessary obstacles to trade” (7.1). This part of the agreement is drafted to be in line with the equivalent TBT agreement under WTO regulations and it is also in conformity with the various international standards on the matter (7.3).

Japan and the European Union commit to conducting systematic impact assessments to identify less constraining alternatives in order to “harmonize standards on as wide as possible” (7.5 to 7.8). The agreement creates once again some transparency and consultation obligations. These must allow “reasonable intervals” before the entry into force of potentially constraining regulations (7.9 to 7.11).

As per the other sections, the agreement provides for cooperation mechanisms, including in the form of a specifically established committee (7.12 – 7.13).

JEEPA on Trade in Services, Investment Liberalisation, and Electronic Commerce

FTAs are normally very similar when it comes to trade in services and investment promotion and protection. Interestingly, the Japan EU free trade agreement is drafted in an alternative way.

Typically, the trade in services section is completely independent of the investment section, which in turn tends to focus on investment protection through the establishment of standards and dispute settlement procedures. Electronic commerce then tends to be managed in isolation, in a distinct article which usually does not attract much attention. In this case, however, the various elements are dealt with altogether as part of one large chapter on Trade in Services, Investment Liberalisation and Electronic Commerce (Chapter 8).

Overall, JEEPA liberalizes trade and investment between Japan and Europe. Nonetheless, some limitations can be implemented in certain circumstances, i.e. if the said measures are not arbitrary nor discriminatory, if they are not disguised restrictions, if they are taken to protect public security and morals as well as public order maintenance and human, animal or plant life (non-exhaustive list, see 8.3).

Again, a special committee on trade in services, investment liberalization, and electronic commerce is also created (8.5).

JEEPA on Investment:

Investment liberalization comes first. Liberalization commitments do not apply to several sectors such as maritime services, air services or audio-visual services, but otherwise, the Japan EU free trade agreement negotiates a broad open market access to cross-border investors.

No limitation is to be placed on the number of enterprises from the other party. No numerical quotas can be imposed. The value of transactions and assets cannot be used to create restrictions. The same goes for the total number of operations, for the total amount of capital invested and for the total amount of individual present on the country’s soil. Finally, performance requirements are strictly prohibited (8.6 to 8.11).

As in the “goods” chapter of the agreement, the investment section makes sure that the ‘national treatment’ and the ‘most favored nation’ (MFN) standard are applicable (8.8 and 8.9). This means that Japanese investors in Europe must be treated like European investors and cannot be treated less favorably than investors from another non-European country (say, China for instance).

Note: in contrast with the vast majority of modern FTAs, the Japan EU free trade agreement lacks a dispute settlement provision in relation to investment. These provisions are usually included systematically in this kind of agreement and they represent a key pillar of international law. Due to ideological differences, however, no such mechanisms have been included in JEEPA which means that private investors would not be entitled to question the decisions made by public authorities that they could deem adversarial and detrimental to their investments.

JEEPA on Trade in Services:

In line with the Chapter on good and with the previously mentioned conditions on investment, the Japan EU free trade agreement facilitates cross-border trade in services.

On the selling side, the agreement allows the production, the distribution, the marketing, the sale and the delivery of services across borders. On the buying side, it moreover facilitates the purchase, the use, the payment and the access to such services (section C).

As in the investment, this part of the agreement also contains a ‘national treatment’ provision and a ‘most favored nations’ provision. Again, this means that from a trade in services perspective Japanese investors in Europe must be treated like European investors and cannot be treated less favorably than investors from another non-European country – and vise versa.

JEEPA on Trade in Financial Services:

Trade in financial services is a subcategory of trade in services, obviously. Nonetheless, in the Japan EU free trade agreement like in most free trade agreements this category is treated separately from the Trade in Services section.

The agreement covers financial services from a broad perspective. In the text, JEEPA opens “any service of a financial nature” (8.59), which generally includes insurance and auxiliary services. More precisely, however, banking services including deposits, lending of all types (consumer credit, mortgages, commercial financing, etc.), but also leasing activities, payments and transfers activities, trading and foreign exchange, derivative products, securities, money broking activities, asset management, clearing services or banking advisory services all make fall under the Japan EU free trade agreement’s liberalization effort.

In addition to that, Japanese and European financial services providers will be entitled to provide their new consumers with new types of services (8.60) while getting access to domestic financial clearing infrastructures (8.61).

Japan and the European Union also commit not to prevent the transfer and processing of information and data across borders (6.3). “Effective and transparent” financial regulation is also part of the commitments, together with financial cooperation. Of course, like many FTAs, the Japan EU free trade agreement ensures that restrictions on financial openness are made possible when financial stability is threatened (6.4 to 6.7).

JEEPA on Electronic Commerce:

The Japan EU free trade agreement also covers Electronic commerce.

Japan and the EU are both committed not to impose customs duties on electronic transmissions (8.72). The signatories also commit to administrating electronic commerce matters in “a reasonable, objective and impartial manner” without any “prior authorization” being required (8.74-75). Without surprise, both parties also recognize the idea that contracts concluded by electronic means must be recognized (8.76). The agreement also provides commitments in relation to consumer protection and personal data protection (8.78). Finally, the notion of “free flow of data” is included in the agreement even though it needs to be clarified within three years following the JEEPA’s entry into force.

Additional aspects:

This part of the Japan EU free trade agreement contains more provisions aimed at facilitating the entry of natural persons (i.e. individual rather than companies), at guaranteeing the stability of the legal framework and at organizing trade in specific types of services.

On the natural person side of things, the agreement is to “facilitate the entry and temporary stay of natural persons for business purposes on a reciprocal basis”, a commitment which of course comes with more transparency and procedural fairness conditions (8.20 to 8.23). On the legal framework stability aspect, it guarantees that licensing procedures are to be established together with technical and transparency rules. Review procedures are also planned for (8.31 to 8.34).

Finally, trade in specific services is also to be organized. This includes postal courier services, telecom services and so on.

JEEPA on Capital Movements, Free Payments , and Transfers.

The issues of capital movements, free payments and free capital transfers are another typical feature of free trade agreements. Hence, they are also present in the Japan EU free trade agreement (Chapter 9).

As in most FTAs, this part of the agreement provides that the two economies’ current account is to be liberalized – meaning that transactions between Japan and the EU are not to be restricted – whilst capital movements also need to be free to permit such transactions to take place (9.1 – 9.2).

As most FTAs, however, the Japan EU free trade agreement does not open financial flows without restrictions. Exceptions and limitations can be applied to protect creditors, if serious balance of payment issues arise, or if financial difficulties threaten to generate financial instability. This, of course, is applicable provided that these actions remain non-arbitrary and non-discriminatory, and that they are in line with IMF policy on the matter (9.3 and 9.4).

JEEPA on Government Procurement.

Government procurement is another classical feature of modern free trade agreements. In the Japan EU free trade agreement, the relevant provisions are present in Chapter 10.

The agreement’s public procurement commitments are in line with the WTO’s agreement on the matter. They ensure that public contracts in Europe and Japan are now easily accessible to the providers of the other partner. Territorial limitations are waived even though some authorizations and business evaluations may be necessary on a non-discriminatory basis (10.5 – 10.6). ‘Selective tendering’ is also possible in certain situations. At all times, however, competition distortions are not acceptable, and objectivity becomes a key assessment criterion when it comes to imposing technical requirements to bidders. Environmental conditions included (10.7 to 10.10).

As usual, the agreement also provides for both a review mechanism and an Implementation Committee.

JEEPA on Competition Policy.

Trade facilitation hardly works without a competition framework.

Therefore, Chapter 11 of the Japan EU free trade agreement prohibits anti-competitive practices. On the EU side of things, abuses of dominant position, distortive deals, and anti-competitive mergers are prohibited. As far as Japan is concerned, similar measures shall be taken in relation to private monopolies, unfair trade practices and anti-competitive mergers (11.2).

As for the other parts of the agreement, the parties commit to guaranteeing the independence of the competent authorities. A principle of non-discrimination, procedural fairness, transparency and enforcement cooperation is also highlighted (11.4 to 11.8).

JEEPA on Subsidies.

The contentious issue of subsidies is considered as part of Chapter 12 of the Japan EU free trade agreement.

Here, the idea is that “subsidies may be granted […] when they are necessary to achieve public policy objectives“. It is noted, however, that “certain subsidies have the potential to distort the proper functioning of markets and undermine the benefits of liberalisation of trade and investment”. Hence, the agreement clarifies that “subsidies should not be granted [when] they have or could have a significant negative effect on trade or investment between the parties” (12.1).

In addition, subsidies shall also be prohibited if aimed at restructuring ailing or insolvent companies without a proper financial plan (which matters very much in the case of Japan). It is added that no restrictions apply to general public services companies implementing public policy objectives (12.3). Otherwise, notification and consultation obligations apply (12.5-6).

JEEPA on State-Owned Enterprises (SOES) and Monopolies.

Another typical issue in free trade agreements is that of state-owned enterprises (SOEs), monopolies, and companies with special rights and privileges… which are thus considered in the Japan EU free trade agreement’s thirteenth chapter. A special regime is provided regarding companies supplying financial services supporting exports and imports, but otherwise, the freedom left to these entities is limited and, in line with WTO rules, these shall not act or trade in a discriminatory manner.

JEEPA on Intellectual Property

Intellectual property is another typical (and important) FTA topic.

Under Chapter 14 of the Japan EU free trade agreement, Japan and the EU “shall grant and ensure adequate, effective and non-discriminatory protection fo intellectual property rights” while promoting innovation and creativity, facilitating the diffusion of information, knowledge, technology or culture, and fostering competition, market efficiency and market openness (14.1 14.2).

The intellectual property part of the agreement is very long and will be detailed in another article. Suffices to say at this stage that the agreement provides for a framework in relation to copyright protection, trademarks, and geographical indications for wines and agricultural products. Intellectual property rights also need to be enforceable while additional topics are also covered separately (industrial designs, patent protection systems, trade secrets, new varieties of plants, etc.).

Again, a specific Committee is being created for monitoring purposes.

JEEPA on Corporate governance.

Japan and the EU also take commitments in relation to corporate governance, justified by the “necessity to create effective corporate governance frameworks to achieve economic growth through well-functioning markets and sound financial systems based on transparency, efficiency, trust and integrity” so as to encourage investment and trade competitiveness (15.1).

The point includes accountability commitments for management boards, shareholder protection elements as well as board monitoring aspects (15.3 to 15.5).

JEEPA on Sustainable Development

The inclusion of sustainable development goals into the Japan EU free trade agreement is interesting. While free trade agreements are permanently questioned for their negative impacts, it sends a political message.

According to Chapter 16, the Japan EU free trade agreement is intended to “contribute to sustainable development, for the welfare of present and future generations” in line with international efforts and initiatives. More importantly, the agreement also contains a clause which asserts the right of Japan and the EU to regulate according to their needs and to “establish [their] own levels of domestic environmental and labour protection”, while committing not to reduce regulatory standards (16.2).

The point may seem obvious, but it is not. Over the past decades, numerous debates have taken place as a result of numerous arbitration proceedings opposing foreign investors to regulators, on the ground that domestic regulations had negatively impacted such investments. Hence, whilst for years the ability of governments to regulate has been questioned, including such a provision in the text of JEEPA sends another major political message.

This suggests that under JEEPA government policymaking abilities ought to be preserved, especially in relation to climate change mitigation and renewable energies policy, biological diversity protection, forest management, fisheries resources and aquaculture (16.5 to 16.8).

Again, a review mechanism is provided for, together with cooperation systems and a specific monitoring committee.

JEEPA on Transparency and Good Regulatory Practices

Transparency is a very common word in the Japan EU free trade agreement. In fact, we have mentioned it repetitively already.

Yet, the agreement contains a Chapter exclusively focused on the signatories’ transparency commitments (Chapter 17). The main purpose here is to ensure a transparent environment so as to further facilitate and encourage investment and trade. The keywords here are “effective” and “predictable”. And they come with an obligation for Japan and the EU to maintain “impartial and independent […] judicial, arbitral or administrative tribunals or procedures for the purpose of the prompt review or appeal”.

The transparency point comes along with Chapter 18 on Good Regulatory practices which similarly aims at ensuring an effective, transparent and predictable regulatory framework. The provision focuses more on regulatory mindset, however. The text, indeed, promotes “compatible regulatory approaches and reduc[e] unnecessarily burdensome, duplicative or divergent regulatory requirements” (18.1). In other words, the focus is placed on coordination, transparent decision-making processes, early information commitments, preliminary impact assessments, retrospective evaluations and good practices designed to ensure regulatory compatibility at large (18.4 to 18.13).

Note that the right to regulate is also reiterated in this chapter, interestingly, together with the usual establishment of a monitoring committee.

More cooperation… on agriculture and SMEs.

Cooperation on agriculture and SMEs is also considered as part of Chapters 19 and 20 of the Japan EU free trade agreement. The former promotes a mutual interest towards an improved business environment and more sustainable practices, particularly in relation to rural development and a safe/high quality of food. The latter rather promotes SME cooperation as a goal. In both cases, specific committees and contact points are again to be established.

Dispute Settlement.

While there are a few more chapters in the agreement, Chapter 20 on dispute settlement is the last one worth mentioning in this article. if only because the dispute settlement mechanism of the Japan EU free trade agreement differs from the ones normally found in the recent FTAs.

The usual dispute settlement system is twofold. On the one hand, the agreements systematically provide for a mechanism allowing the participating parties (here, Japan and the European Union) to solve their issues, state to state. In addition, the investment chapters of modern free trade agreements also tend to provide an investor-state dispute settlement mechanism aimed at solving disputes opposing the host to an investor of the other party, outside of the normal system.

The mechanism is very common and has one key role: ensuring that the foreign investor’s case is decided upon by a neutral judge (arbitrator) outside of possibly biased domestic tribunals which may apply a discriminatory law or face pressure from the executive. Over the past years, however, these dispute settlement forums have been criticized for allowing foreign investors to question public policies. Hence, no such

Bottom line

The above suggests that the Japan EU free trade agreement is a fairly comprehensive agreement which, interestingly, answers the most pressing issues in international trade and investment regulation.

From a facilitation perspective, the Japan EU free trade agreement contains the typical provisions on the market. On trade in goods, note for instance that the scope of application is very broad and tends to prohibit “any duty or charge of any kind”. Otherwise, the agreement facilitates trade in services, trade in financial services, investment and e-commerce whilst ensuring fair competition and intellectual property rights preservation. To cite but the most significant elements.

At the same time, it also preserves some regulatory room to Japan and the EU. Worth noting is the presence of at least two provisions highlighting a right of the parties to regulate and decide on their ideal level of protection. Not to forget the preservation of the so-called “geographical indications” and the notable absence of the usual investor-state dispute mechanism.

For a more general overview of the Japan Eu Free Trade Agreement, read also:

JEEPA: Understanding the EU – Japan Economic Partnership Agreement.

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