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July 17, 2018 01:00 AM

Japanese automakers set for European sales boost from trade pact

Toyota, Honda, Nissan could gain from EU-Japan free trade deal

Stanley White
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    Bloomberg

    TOKYO -- The European Union and Japan signed a trade pact that will remove EU tariffs of 10 percent on Japanese cars and 3 percent on most car parts.

    Japanese automakers could increase their sales to Europe, where they have lagged behind European rivals. The accord is expected to benefit Toyota, Nissan, Honda, Suzuki and Mazda.

    Toyota's Group's market share in the EU was 4.7 percent in the first half, data from the European industry association ACEA shows. Nissan had a 3.3 percent share while Honda had a 0.9 percent share. The three automakers have factories in Europe.

    Japanese suppliers Denso, Aisin Seiki, and JTEKT also stand to gain from the fall of a 3 percent tariff on auto parts.

    The trade pact creates the world's largest open economic area. It comes amid fears that a trade war between the U.S. and China will diminish the role of free trade in the global economic order.

    "There are rising concerns about protectionism, but I want Japan and the EU to lead the world by bearing the flag of free trade," Prime Minister Shinzo Abe said at a news conference on Tuesday after the signing ceremony.

    The U.S. this month imposed 25 percent tariffs on $34 billion of Chinese goods to lower the U.S. trade deficit, and China quickly retaliated with an increase in tariffs on U.S. goods.

    The Japan-EU trade deal is also a sign of shifting global ties as Trump distances the U.S. from long-time allies like the EU, NATO and Canada.

    "We are sending a clear message that we stand against protectionism. The EU and Japan remain open for cooperation," European Council President Donald Tusk, who speaks for the 28 EU national leaders, told reporters.

    EU food sector win

    Europe's food sector is one of the biggest winners from the deal, which should allow it to capitalize on Japanese demand for high-quality cheese, chocolates, meats and pasta.

    EU exports of processed food, including meat and dairy products, are expected to rise by up to 10 billion euros ($11.7 billion) once the deal takes full effect and tariffs are gradually dropped, the European Commission says.

    Japanese dairy companies such as Meiji and Megmilk Snow Brand will face greater competition. They are protected by tariffs of up to 40 percent on processed cheese, which will slowly be removed. Megmilk has two-thirds of the domestic market for soft cheese and could lose customers. Competition in the dairy sector will come from European firms such as Danone, Lactalis and Nestle.

    Meat products were the largest single EU food export to Japan in 2017. Exporters from Denmark and Spain hope to capitalize on growing Japanese demand for speciality processed meats such as ham, salami and cured bacon.

    Japanese trading house Kanematsu, beverage maker Kirin Holdings and drinks maker Asahi Group Holdings import wines from Europe and could see higher profits once wine tariffs fall.

    French suppliers Pernod Ricard and Moet Hennessy Louis Vuitton should also benefit from a reduction in tariffs for premium liquors, wines and spirits

    Both Japan and the EU, having seen Trump pull back from free trade relationships, are keen to show they remain committed to removing barriers they say hamper growth, analysts said.

    "Trade liberalization and market openness continue to march ahead in Asia-Pacific," said Ajay Sharma, the regional head of global trade and receivables finance at banking and financial services provider HSBC.

    EU accords with Singapore and with Vietnam were at the ratification stage, while deals with Indonesia, Australia and New Zealand were being negotiated, he said.

    Trump pulled the U.S. out of the Trans-Pacific Partnership with Japan and 10 other states on his first day in office in January 2017 and has pushed to renegotiate a free trade pact with Canada and Mexico.

    Trump says he is taking a hard line on trade to protect U.S. workers and U.S. companies, but critics say his approach is upending the rules of multilateral global trade.

    Japan and the EU account for about a third of global GDP and their trade relationship has room to grow, according to EU officials, who expect the deal to boost the EU economy by 0.8 percent and Japan's by 0.3 percent over the long term.

    The agreement is now awaiting ratification by the European Parliament and the Japanese Diet following which it could enter into force in 2019, the European Commission said.

    Automotive News Europe contributed to this report

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