Largest Bilateral Free Trade Agreement: Japan, EU Conclude Bilateral Economic Partnership Agreement

European Union and Japan signed a free trade agreement—the EU-Japan Economic Partnership Agreement—the terms of which had been finalized in December 2017. The agreement eliminates tariffs on nearly all major goods traded between the two sides.

The agreement’s signing comes after both Japan and the EU—both U.S. allies—have faced heavy criticism from U.S. President Donald J. Trump for what he perceives as unfair trade practices. Recently, Trump described the 27-member EU as a “foe” for its trade practices.

Tusk underlined that the deal was the “largest bilateral trade deal ever.” Following China, Japan is the EU’s second-largest trading partner by volume in Asia. The total EU economy is and Japan together accounts for around a quarter of global economic output.

The agreement’s signing this week was scheduled to take place earlier in Europe, but Abe had to cancel travel due to heavy flooding in southern Japan for unusually heavy rains, which claimed scores of lives.

Even as the three leaders separated the conclusion of the agreement, they did not draw attention to their respective tensions with the United States. Both Japan and the EU are subject to ongoing steel and aluminum tariffs implemented earlier this year by the United States.

According to the European Commission, the EU primarily imports machinery, electrical machinery, motor vehicles, optical and medical instruments, and chemicals from Japan. Japan, meanwhile, imports motor vehicles, machinery, pharmaceuticals, optical, and medical instruments, and electrical machinery from the EU.

In the bilateral goods trading relationship, Japan maintains a substantial surplus. In 2017, Japan ran an 8.4 billion euro surplus on trade in goods. In services, the EU maintains a substantial surplus. In 2017, the EU’s services trade surplus with Japan was 13 billion euros.

The free trade agreement signed on Tuesday will eliminate 99 percent of tariffs on Japanese imports by the European Union and 94 percent of tariffs on European imports by Japan. Eventually, Japan will bring the number of lifted tariffs on European goods to cover 99 percent of all traded goods as well.

The two sides had been in talks over a free trade agreement for nearly five years. Last July, they reached an agreement in principle on the contours of the trade agreement.

For Japan, the conclusion of the agreement with Europe marks a major milestone. For Abe, the agreement is seen as a fillip to his ‘Abenomics’ set of monetary, fiscal, and structural policies.

While the EPA with the EU is Japan’s largest bilateral trade agreement, the country is the largest economy to participate in the Comprehensive and Progressive Trans-Pacific Partnership, a high standard-focused multilateral trade pact that succeeds the original twelve-member Trans-Pacific Partnership that the United States withdrew from last January.

Similarly, Japan is a participant in ongoing talks to conclude the Regional Comprehensive Economic Partnership between the ten member states of the Association of Southeast Asian Nations and other Asian states, including China and India.

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Sketchy deal: On OPEC oil output boost

When it comes to crude oil prices, politics dwarfs everything else. The Organization of the Petroleum Exporting Countries (OPEC) on Friday agreed to increase its daily output to address the problem of rising crude oil prices.

Countries across the world have been vocal in recent months about the need to bring down rising oil prices that threaten to put the global economy under stress. Emerging markets such as India that has been affected by the rising cost of oil imports have also been exerting pressure.

The present deal could help the Saudis appease major oil consumers to some extent. Meanwhile, Iran, which has been opposed to raising OPEC output as it would lower prices, is set to suffer a marginal loss as it lacks spare capacity to ramp up production. This works in favor of its rival, Saudi Arabia, which can recover from the impact of lower prices by capturing market share.

OPEC has failed to address two uncertainties that will shape the oil market over the coming months and years.

The first is the situation in Venezuela, which has gone from bad to worse over the past two months. In the short term, the situation remains the greatest uncertainty hanging over the oil market.

The second, and potentially more destabilizing, issue in the longer term is the prospect of a sharp increase in the production of so-called “tight oil” from shale rocks in the US.

The Organization of the Petroleum Exporting Countries (OPEC) is a group of oil-producing nations that was first established in Baghdad, Iraq, in 1961. OPEC is one of the most powerful international organizations in the world and was a major player in the shift towards state control over natural resources.

The OPEC Statute distinguishes between the Founder Members and Full Members – those countries whose applications for membership have been accepted by the Conference.

The Statute stipulates that “any country with a substantial net export of crude petroleum, which has fundamentally similar interests to those of Member Countries, may become a Full Member of the Organization, if accepted by a majority of three-fourths of Full Members, including the concurring votes of all Founder Members.”

The Statute further provides for Associate Members which are those countries that do not qualify for full membership but are nevertheless admitted under such special conditions as may be prescribed by the Conference.

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