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What the EU-Japan Trade Deal Means for In-house Counsel

Photo: Japan's Prime minister Shinzo Abe is welcomed by EU Council President Donald Tusk and EU Commission President Jean-Claude Juncker at the EU Japan leader's summit meeting in Brussels on July 6, 2017.

O n July 17, 2018, the European Union and Japan signed a free trade deal that will cut or eliminate tariffs on nearly all goods between the two nations beginning in 2019. The deal will affect approximately 600 million people and a third of the global economy.

In-house counsel working for companies that offer international business services, financial services, telecoms, transport, and/or distribution will be affected in particular as these sectors are expected to benefit greatly from the agreement. However, counsel can rest assured that there will be no changes to safety, health, or environmental standards, qualification requirements, labor rights, or any working conditions that already exist for trade between the nations.

The agreement will eliminate 99 percent of tariffs on Japanese goods sold to the European Union, presenting more opportunities for Japan to export automotive and electronic products to Europe. Approximately 94 percent of tariffs on European exports to Japan will be removed, particularly for food and wine, with plans to increase the percentage to 99 as the deal progresses.1

In addition to removing tariffs for both countries, which will increase their competitiveness in the respective foreign markets, over 70 areas of Japanese rules and regulations will undergo changes to be more in line with international practices. This will result in cost savings for European exporters as they will no longer need to have separate production lines for Japanese markets.   

[Related article: How Free Trade Between the European Union and Canada Will Affect In-house Counsel]

The overall benefits of the trade deal are that it will be easier for EU firms to sell goods and services to Japan, and vice versa, due to the removed trade barriers. The agreement will effectively prevent the European Union or Japan from discriminating against the other’s service providers. According to the European Commission, increased exports to Japan equals increased jobs in Europe — every €1 billion that the European Union exports to Japan represents 14,000 jobs in Europe.

Given the influx of business opportunities that will result from this agreement, in-house counsel should prepare internally for their companies’ cross-border deals. The ACC Docket article “Preparing for Your Cross-Border Deal: Practice Tips for In-house Counsel” offers the following guidance:
Developing and enacting a global acquisition strategy will require thoughtful planning and proactively partnering with counsel and other advisors early on. Identify potential roadblocks and keep your management team informed, particularly if they are inexperienced with global acquisitions. Requirements in different countries may run counter to those in others. Staying ahead of the curve and managing your leadership team’s expectations will go a long way to ensure your deal’s success and keeping your leadership team happy.

The free trade deal will formally strengthen ties between two already strong trading partners. Japan is the European Union’s second biggest trading partner in Asia, and 10 percent of Japan’s overall trade is with the European Union. Last year, the two countries traded a total of US$152 billion worth of goods.2

With Japan, the world’s fourth largest economy, working on other trade agreements with countries such as Australia, Mexico, and Vietnam, more global economic changes may be on the horizon. Therefore, in-house counsel should sharpen their knowledge of Japanese contract negotiation customs and tactics. ACC Docket article “The Secret to Japanese Contract Negotiation: Patience, Pragmatism, and Polite Manners” by Vijita Verma offers tips on negotiation and specific contract clauses and models used in Japan. Verma, senior legal counsel at Infosys Limited, cautions that “doing business in Japan requires an in-depth understanding of Japanese culture. Japan is a perfect example of a country that considers the code of social conduct the paramount law of the land.”

[Related article: Learn Your World - Japan]

To mitigate possible challenges, “Preparing for Your Cross-Border Deal: Practice Tips for In-house Counsel” recommends that in-house counsel consult local counsel for “useful knowledge and insight on local customs and procedures.” For example, Verma notes that over 90 percent of all large Japanese companies, including government agencies, follow a consensus decision-making process known as ringi. Being aware of such customs can help in-house counsel plan negotiations in a timely manner.

While the free trade deal solely impacts exports and imports between the European Union and Japan, its message and implications for other nations and the global economy cannot be ignored. Part of the advertised purpose of the agreement is that “two of the world’s biggest economics reject protectionism,” according to the European Commission.3 It is difficult to interpret this message as anything other than a direct response to the United States’ recent trade policy decisions, including leaving the Trans-Pacific Partnership (TPP) earlier this year and increasing tariffs on a range of foreign imports like European steel and aluminum.
According to the article “Preparing for Your Cross-Border Deal: Practice Tips for In-house Counsel,” cross-border deals often move slower and face more hurdles than domestic transactions. In-house counsel should anticipate these challenges and be prepared to be flexible and restructure the deal if necessary. As the EU-Japan trade deal will not go into effect until 2019, in-house counsel should monitor potential regulatory and political changes that may affect their companies and any proposed deals.

About the Author

Danielle Maldonado is the editorial coordinator of the Association of Corporate Counsel.

The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.