Japan, EU to narrow gaps in auto, farm, eye free trade deal in July

Japan and the European Union are in the final phase of negotiations on sealing a broad agreement on a free trade pact early next month, seeking to strike deals on sensitive issues such as market access in agriculture and automobiles.

The two sides plan to scrap the 28-member bloc's 10 percent tariff on Japanese automobiles some 10 years after the deal takes effect, sources close to the matter said recently.

The bloc also eyes an immediate elimination of tariffs on around 80 percent of auto parts exported from Japan, which are currently at 3 to 4.5 percent, they said.

Progress in negotiations over automobiles would be a boost for Japan, which in 2016 exported some 600,000 cars to the European Union. In return, however, the bloc is likely to force Japan to make concessions over market access in agriculture.

The European Union is urging Tokyo to cut tariffs on products such as cheese, wine and lumber, while the Japanese side is reluctant about opening its agriculture market, especially to a level higher than it agreed to in the Trans-Pacific Partnership free trade pact, signed in February 2016.

After years of FTA negotiations launched in 2013, Japanese Prime Minister Shinzo Abe, Donald Tusk, president of the European Council, and Jean-Claude Juncker, president of the European Commission, plan to meet on July 6 in Brussels, a day before the Group of 20 major economies' meeting kicks off in Hamburg, to strike a broad agreement on the FTA, diplomatic sources said.

At their previous meeting in May, the three confirmed their desire to reach an agreement on fundamental elements of the FTA as early as possible and said that the agreement is "within reach," according to the Japanese Foreign Ministry.

Abe is eager to accelerate talks on the Japan-EU FTA after U.S. President Donald Trump announced his country's withdrawal from the TPP deal soon after taking office in January.

"Amid moves promoting protectionism, as seen in Britain's exit from the European Union and in the policies of President Trump, Japan is looking to strike a broad agreement with the European Union as soon as possible," a senior Japanese Foreign Ministry official told a group of lawmakers from the ruling Liberal Democratic Party, headed by Abe, on Friday.

In the agricultural field, Japan is making final arrangements to slash a tariff on pork to the level agreed under the TPP pact, while setting up low-tariff import quotas for powdered skim milk and butter, the sources said.

The LDP has established an in-house headquarters to discuss ways to protect Japanese farmers from possible negative effects stemming from the Japan-EU FTA. It is set to compile a proposal addressed to Abe by the end of this month.

Agriculture minister Yuji Yamamoto told a recent press conference that "careful consideration is needed, keeping in mind the possible effects on our agriculture, fisheries and forestry industries."

A Japanese government source said that striking a Japan-EU FTA could pressure the United States into considering a return to the Pacific Rim deal.

The European Union's chief negotiator Mauro Petriccione arrived in Japan on June 13 for talks with the Japanese side ahead of the envisioned Japan-EU summit next month.

Japan is the European Union's second biggest trading partner in Asia after China. The bloc and Japan together account for more than a third of the world's gross domestic product, according to the European Union.

Another contentious issue in the Japan-EU negotiations concerns a system to settle disputes between a company and the country it is investing in.

But the two sides are set to put off an agreement on the system and prioritize striking a broad agreement first, sources close to the matter said.

Japan urges the use of an investor-state dispute settlement system, which allows a company the right to sue a state for compensation if it believes its investment has been harmed by a government decision.

The European Union opposes that approach, which it calls a U.S.-led system, and proposes setting up a permanent international investment court. Tokyo, however, is against the idea because of the costs involved.