A free trade agreement (FTA) is a treaty between two or more countries designed to facilitate trade by reducing or eliminating trade barriers such as tariffs, import quotas, and export restrictions. These agreements promote closer economic ties and cooperation amongst the member countries, creating a more favourable trading environment.
For Japanese businesses, these global trade deals present a valuable opportunity to export overseas at reduced costs and with fewer restrictions, thereby expanding their market reach and enhancing their competitive edge on the global stage. Understanding the benefits of free trade and how to leverage these agreements is crucial for businesses in Japan looking to maximise opportunities.
How Japanese businesses can benefit from FTAs
FTAs offer significant advantages that can impact an exporter’s strategy and bottom line:
Reduced tariffs
One of the most immediate economic benefits of free trade is the reduction or elimination of tariffs on goods sent for export overseas. Lower tariffs translate into lower costs for exporters, making Japanese products more competitive in foreign markets.
For instance, the Japan-European Union Economic Partnership Agreement (EPA) has led to the removal of tariffs on 94% of goods traded between Japan and the EU, significantly cutting costs for Japanese exporters.
Easier access to overseas markets
Besides a reduction in tariffs, FTAs provide Japanese businesses with easier access to overseas markets by simplifying customs and shipping procedures. Bilateral or regional trade agreements facilitate smoother trade flows between member countries, reducing the likelihood of issues such as rejected goods or additional costs. By ensuring goods have an official certificate of origin, Japanese exporters can enter overseas markets more competitively and efficiently.
For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes 11 member countries, facilitates smooth trade by harmonising regulations and standards across its members to reduce red tape and barriers to trade.
Investment opportunities
FTAs can create a favourable environment for investments or business expansion by establishing clear rules and protections for investors, which can lead to increased foreign direct investment (FDI). For instance, the Japan-EU Economic Partnership Agreement (EPA) facilitates easier investment flows between Japan and the EU by providing robust protections and clear regulations, including the non-discrimination of businesses on both sides.
Specifically, the EU-Japan EPA makes it simpler for businesses to establish branches or subsidiaries and operate smoothly in each other's markets. This encourages more investment activities, which are crucial for economic growth and business development in both regions.
Enhanced protection of intellectual property
FTAs also provide stronger enforcement of intellectual property rights, ensuring the safety of proprietary information and products. For example, the Japan-EU EPA includes provisions that bolster the protection of Japanese intellectual property in Europe, covering a wide range of IP rights, including patents, trademarks, copyright, geographical indications (GIs), and trade secrets.
Prominent FTAs for businesses in Japan
To effectively leverage the benefits of FTAs, exporters must first be aware of the Japan free trade agreements list and understand the specific advantages each one offers. Here are some prominent FTAs involving Japan:
Japan-European Union Economic Partnership Agreement (EPA)
Entered into force on 1 February 2019, the Japan-EU EPA is a comprehensive trade agreement that aims to enhance economic cooperation by removing trade barriers and facilitating smoother trade and data flows between Japan and the European Union. To date the global trade agreement has increased total trade in goods by 14.2% and total trade in services by 27% since its implementation.
Countries involved: Japan and the 27 member states of the European Union.
Notable product categories/sectors affected: Industrial products, automotive, electronics, and agricultural products.
Key benefits for Japanese Businesses:
- Elimination of tariffs: Tariffs are eliminated on 99% of goods exported from Japan to the EU.
- Access to the full European market: Japanese businesses can penetrate niche markets within the EU where there is high demand for specific products such as high-quality green tea, seafood, and sophisticated machinery.
United States-Japan Trade Agreement (USJTA)
Entered into force on 1 January 2020, the Japan-US Trade Agreement focuses on reducing tariffs and improving regulatory frameworks to enhance trade between Japan and the United States. This bilateral agreement has facilitated increased market access and trade flows between the two nations.
Countries involved: Japan and the United States.
Notable product categories/sectors affected: Agricultural products (beef, pork), automotive, and industrial goods.
Key benefits for Japanese businesses:
- Tariff reductions: Reduced tariffs on industrial goods from Japan such as machine tools, fasteners, steam turbines, bicycles, bicycle parts and musical instruments.
- Greater digital trade: Reduced prohibitions on imposing custom duties on digital products transmitted electronically such as videos, music, e-books, software, and games. This makes it easier for Japanese creators and businesses to distribute digital content like manga, anime, music, and games in the US market.
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
Entered into force on 30 December 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11, is a trade agreement that includes 11 countries across the Asia-Pacific region. The agreement aims to reduce tariffs and enhance trade and investment cooperation among member countries.
Countries involved: Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
Notable product categories/sectors affected: Automotive, electronics, agriculture (beef, pork, seafood), professional services.
Key Benefits for Japanese Businesses:
- Tariff reductions: The CPTPP eliminates tariffs on approximately 94% of traded goods among member countries, allowing Japanese exports to be more competitive in member countries. Additionally, electronically transmitted products like e-books and digital media and free from import duties.
- Preferential market access: The agreement provides Japanese businesses with improved access to diverse and dynamic markets within the CPTPP region. This includes countries with growing economies and increasing demand for high-quality products and services, opening up new opportunities for Japan exports.
- Trade facilitative rules of origin: The CPTPP's trade facilitative rules of origin enable Japanese businesses to source materials from any member country and still qualify for preferential tariff treatment, as long as the finished product is sold to another CTPPP member. This greatly simplifies supply chain management and reduces production costs for Japan’s robust ICT manufacturing industry.
Regional Comprehensive Economic Partnership (RCEP)
Entered into force on 1 January 2022, the Regional Comprehensive Economic Partnership (RCEP) is a significant regional free trade agreement aimed at strengthening economic ties and reducing trade barriers across the Asia-Pacific region.
Countries involved: Japan, China, South Korea, Australia, New Zealand, and the 10 ASEAN countries.
Notable product categories/sectors affected: Automotive, electronics, machinery, chemicals, textiles, and agriculture.
Key benefits for Japanese businesses:
- Access to developed and developing markets: The RCEP provides Japanese businesses with easy access to some of the world’s fastest-growing markets in South-East Asia, as well as mature and well-established markets in China and South Korea.
- Tariff reductions: The agreement facilitates the gradual elimination of tariffs on a wide range of goods. This includes additional preferential market access for specific products such as mineral fuels, plastics, and other chemical products, significantly lowering costs for these key export items and improving profit margins for Japanese businesses.
More detailed information about these agreements can typically be found in resources provided by the Japan External Trade Organisation (JETRO).
Make the most out of FTAs with DHL Express
Free Trade Agreements are essential tools for enhancing global competitiveness, offering numerous benefits such as reduced tariffs, expanded market access, and better investment conditions. For Japanese exporters, understanding and leveraging these agreements can lead to substantial growth and success in international markets. To efficiently manage export logistics and fully capitalize on FTAs, consider opening a business account with DHL Express. Our expertise in FTA shipping and comprehensive logistics solutions can help streamline your export processes, ensuring you maximise the opportunities presented by Japan’s free trade agreements.
