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European Commission Proposes Signature of Trade Agreements with Japan and Singapore, with Reduced or No Duty on Wide Range of Goods

On 18 April 2018, the European Commission presented the outcomes of negotiations for three trade agreements with Japan and Singapore and recommended their ratification. The agreements are ambitious in scope and are likely to set an example for future trade agreements. Hong Kong businesses exporting to the EU will face stiffer competition as a result of these agreements which free up bilateral trade on both sides (Japan to the EU, Singapore to the EU, and vice-versa). Hong Kong traders will also note that the EU is pursuing an ambitious policy of trade liberalisation in Southeast Asia, with a number of negotiations currently taking place with ASEAN members.

There are three agreements in the package announced by the Commission: an Economic Partnership Agreement with Japan, an EU-Singapore Trade Agreement, and an EU-Singapore Investment Protection Agreement.

EU-Japan Economic Partnership Agreement: The EU-Japan Economic Partnership Agreement (EU-Japan Agreement) seeks to deepen the relationship between the EU and Japan beyond only trade issues. An agreement on investment protection is being negotiated to complement the trade agreement. The main provisions of the EU-Japan Agreement concern the reduction or elimination of tariffs, as well as non-tariff measures and technical barriers to trade.

Customs duties: the EU-Japan agreement provides for the elimination of customs tariffs on more than 90% of trade between the two trading partners. Once it is fully implemented, 97% of EU exports will be exempt from customs duties.

Industrial products: tariffs on industrial products will be fully abolished in a number of important sectors. These include chemical, plastics, cosmetics, textiles and clothing. Quotas on leather and shoes will be abolished and tariffs significantly reduced (from 30% to 21% for shoes, for example) with a progressive reduction over the following ten years. The Japanese markets for leather goods and sports shoes have traditionally been highly protected, so this marks a significant development in EU-Japan trade.

Motor vehicles and parts: the EU and Japan have agreed to both align their safety and environmental standards to international norms. This will simplify trade in motor vehicles and vehicle parts between the two trading partners. Moreover, by aligning their safety and environmental standards, the EU and Japan will increase the possibility for cooperation in international bodies. If non-tariff barriers to trade are increased, however, the EU is entitled to introduce safeguard measures and to reintroduce its own tariffs on Japanese imports. The EU-Japan Agreement will be particularly important in light of the growth of the market for hydrogen-fuelled cars, as approval of such cars in one jurisdiction will be automatically valid in the other.

Other sectors: Japan has confirmed its adherence to international standards for medical devices and textile labelling. In November 2014, Japan adopted the international standard on quality management systems, on which the EU rules for medical devices are based. Similarly, in March 2015, Japan adopted the international system for textile labelling. This will reduce the costs of duplicating labels on garments traded between the two jurisdictions.

Technical barriers to trade: both the EU and Japan have committed to ensuring that all other standards and technical regulations conform to international norms as much as possible. This is likely to encourage greater trade of electronics, pharmaceuticals, textiles and chemicals, as well as food products and other highly-regulated products.

EU-Singapore Trade Agreement: The EU-Singapore Trade Agreement has been presented as an important step in increasing EU engagement with Southeast Asia. It is the first bilateral trade agreement between the EU and an ASEAN Member State, and is likely to form a blueprint for on-going negotiations with Malaysia, Vietnam, Thailand, the Philippines and Indonesia. Like the EU-Japan Agreement, the EU-Singapore Trade Agreement is, moreover, an example of the EU’s ‘new generation’ of bilateral agreements, in that it provides for additional trade-promotion measures including provisions on intellectual property protection, investment liberalisation, public procurement, competition and sustainable development.

Customs duties: tariffs on electronics, pharmaceuticals, petrochemicals and processed agricultural goods will all be eliminated with immediate effect. Customs duties on certain textiles and carpets will be progressively reduced over the next three years, while duties on bicycles, fruit, cereals and sports shoes will be progressively reduced over a period of five years.

Electronics: the EU-Singapore Trade Agreement provides for a range of measures to reduce technical and non-technical barriers to trade in important sectors. Both trading partners have agreed to align their standards, technical regulations and conformity assessment procedures for electronic goods on the relevant international norms. Just as with the EU-Japan Agreement, this will reduce the regulatory burden on traders and allow for increasing cooperation in international fora. The EU-Singapore Trade Agreement will also eliminate mandatory third-party conformity assessments for product safety schemes for certain categories of electronic products. As a result, other forms of conformity assessment (such as the supplier’s declaration of conformity and post-market surveillance) will be prioritised.

EU-Singapore Investment Protection Agreement: This agreement aims to ensure a high level of investment protection while balancing the EU and Singapore’s rights to regulate and pursue public policy objectives in public health, safety and the environment. The EU-Singapore Investment Protection Agreement includes provisions on non-discrimination and fair and equitable treatment, and sets up a modernised Investment Court System. The Investment Court System will include a first-instance tribunal and an appellate body, and is of particular interest in light of the EU’s commitment to establishing a Multilateral Investment Court system through the UN Commission on International Trade Law.

Next steps: The agreements must now be approved by representatives of the EU Member States before being sent to the European Parliament for ratification. The Singapore investment protection agreement must also be ratified by the individual EU Member States. Following the ratification procedure, the Commission intends to have the agreements enter into force by the end of 2019.

Content provided by Picture: HKTDC Research
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