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On the economics of an EU-Japan Free Trade Agreement

Author

Listed:
  • Gabriel Felbermayr
  • Fukunari Kimura
  • Toshihiro Okubo
  • Marina Steininger
  • Erdal Yalcin

Abstract

The negotiations between Japan and the EU over a free trade agreement are taking place during times in which global economic integration is increasingly questioned. With TTIP on hold and TTP no longer pursued by the US, a successful trade deal between two leading economic powers such as Japan and the EU would be a strong political message: economic integration between countries is still achievable and is favorable because of welfare gains for all participating parties. This report revisits the case for an EU-Japan free trade agreement, and provides estimates of its potential economic impact. It employs advanced quantitative methods to shed light on the economic effects that can be expected from a bilateral trade agreement between the EU and Japan. A key innovation in the proposed approach is to use the recently implemented EU-Korea free trade agreement as a benchmark and to employ the most recent available data in the simulation model. While a less ambitious trade liberalization, which is based only on tariff eliminations, is predicted to yield very low welfare benefits, economic gains turn out to be substantial if the negotiating parties pursue a comprehensive free trade agreement that would reduce non-tariff barriers across various sectors. A conservative estimate, which is modelled on the experience of the EU-Korea trade agreement, puts the welfare effects for Japan at about EUR 9 bn, which is equivalent to 0.23% of Japanese GDP in 2014. At the same time, the EU Member States can expect total income gains worth about EUR 11 bn per year. For Europe, simulations predict that the agreement would have positive value added effects in the pharmaceutical industry, in the food, beverages and tobacco, and in the motor vehicle industries. At the same time, some losses can be expected in the machinery industry. Amongst the services sectors, wholesale trade would benefit the most. In the area of services, minor losses are likely to appear in computer programming or the enter

Suggested Citation

  • Gabriel Felbermayr & Fukunari Kimura & Toshihiro Okubo & Marina Steininger & Erdal Yalcin, 2017. "On the economics of an EU-Japan Free Trade Agreement," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 86, October.
    • Handle: RePEc:ces:ifofob:86
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    Citations

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    Cited by:

    1. Walter, Timo, 2018. "Trade and welfare effects of a potential free trade agreement between Japan and the United States," Hohenheim Discussion Papers in Business, Economics and Social Sciences 16-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Fritz Breuss, 2017. "A Macroeconomic Model of CETA's Impact on Austria," WIFO Working Papers 532, WIFO.
    3. Ansgar Belke & Daniel Gros, 2017. "The Economic Impact of Brexit: Evidence from Modelling Free Trade Agreements," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 317-331, September.
    4. Rumiana Górska, 2022. "Sectoral effects of the Japan-EU Economic Partnership Agreement for the European Union countries," Asia Europe Journal, Springer, vol. 20(2), pages 99-114, June.
    5. Luisa Kinzius & Alexander Sandkamp & Erdal Yalcin, 2019. "Trade protection and the role of non-tariff barriers," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(4), pages 603-643, November.
    6. Julia Grübler & Oliver Reiter & Robert Stehrer, 2021. "On the new gold standard in EU trade integration: reviewing the EU-Japan EPA," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 611-644, August.
    7. Monica Hernandez, 2019. "The Rising Importance of Non-tariff Measures and their use in Free Trade Agreements Impact Assessments," GDAE Working Papers 19-03, GDAE, Tufts University.
    8. Julia Grübler & Oliver Reiter & Robert Stehrer, 2019. "The EU-Japan EPA: A Case for Non-tariff Measures," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 20(02), pages 17-25, July.
    9. Chae-Deug Yi, 2022. "The impact of the Japan-European Union Economic Partnership Agreement on the trade and income of Japan, the European Union, and South Korea," Asia Europe Journal, Springer, vol. 20(3), pages 329-356, September.
    10. repec:wsr:ecbook:2018:i:vii-001 is not listed on IDEAS
    11. Dimitar Hadjinikolov & Paskal Zhelev, 2018. "Expected Impact of EU-Vietnam Free Trade Agreement on Bulgaria’s Exports," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 467-479, December.
    12. Richard Grieveson & Julia Grübler & Peter Havlik & Roman Stöllinger, 2019. "Monthly Report No. 1/2019," wiiw Monthly Reports 2019-01, The Vienna Institute for International Economic Studies, wiiw.
    13. Hidetaka Yoshimatsu, 2020. "The EU-Japan free trade agreement in evolving global trade politics," Asia Europe Journal, Springer, vol. 18(4), pages 429-443, December.
    14. Fritz Breuss, 2020. "Pro-Globalization via FTAs in Times of COVID-19," WIFO Working Papers 617, WIFO.
    15. Julia Grübler & Oliver Reiter & Robert Stehrer, 2018. "The EU-Japan Economic Partnership Agreement and its Relevance for the Austrian Economy," wiiw Research Reports 434, The Vienna Institute for International Economic Studies, wiiw.

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