The Sake-Scotch Pact: New EU-Japan alliance forming
“A Surprising New Alliance: Europe and Japan”
Courtesy of CEPS
Almost surreptitiously, Europe and Japan are discovering they have a great deal in common, joining up to defend free trade, democracy and the rule of law.
For decades, low-grade commercial friction and political indifference marked the relationship. Japan’s powerful car industry frightened European industrialists while its closed agricultural market angered European farmers. Geopolitically, Europe discounted pacifist Tokyo.
Then populist, protectionist Donald Trump became US President and authoritarian, mercantilist China emerged on the global stage. Tokyo and Brussels realised their potential affinity extended beyond an ageing population. Suddenly, Europeans seemed no longer frightened about imports of Japanese cars while the Japanese stopped worrying about eating European cheese: a bold Europe-Japan free-trade deal was signed in 2019, creating a new marketplace of 635 million people and almost a third of world GDP. Annual trade between the EU and Japan could increase by nearly €36 billion once the agreement is implemented in full.
Japan and Europe are close in other areas, too. A lesser known aspect of the Japanese-European FTA is a like-minded approach to regulating the digital world. Brussels tackled platform regulation last year, outlining rules on how online marketplaces and app stores must treat their business users. Tokyo is now working on it. Europe adopted world-leading GDPR privacy rules. Japan has toughened up its privacy protections – and the EU has responded by declaring them worthy of ‘adequacy’ – equivalent to European rules.
This bold statement is true and underlines the political priority of the Japan-EU alliance. While Japan’s data protection agency and rules mimic European ones on paper, they display far less teeth in practice. Europe’s privacy laws threaten companies with gigantic fines – with which Google and Facebook have already been hit. Japanese and European data protection rules and enforcement look the same on paper. However, they differ in practice. The Japanese practice is more lenient than the European one, with fewer fines and less public discussion and concern. Both sides decided to overlook this difference in order to declare adequacy and allow free data flows between the EU and Japan. They did so for political reasons – to separate themselves from the US (weak rules, even on paper) and China (too strong, government-directed rules).
European trade relations with the United States are fraught, currently on account of a French digital tax, which would fall mainly on US companies, and President Trump’s plan to respond with duties on French wine and cheese. But the European Commission has previously imposed billions of fines on US companies (for unpaid taxes by Apple and anti-trust offences by Google, while the European Court of Justice is reviewing transatlantic data flows, protected today by the Privacy Shield agreement – and could declare that deal illegal.
Although Japan reached a trade deal with the United States in December 2019, Tokyo has been troubled by President Trump’s protectionism, fearing its impact on the country’s all-important car industry. As in Europe, concern inside Japan focuses on whether US tech companies wield too much power and pay their fair share in tax.
On China, Europe and Japan share concerns about Beijing’s new cybersecurity law, which gives the government almost total access to private sector data. They both worry about Chinese dumping and also struggle to respond to US demands to boycott Chinese technology for 5G mobile networks. Tokyo and Brussels are pushing back against China’s Belt and Road Initiative – and particularly its digital component, which aims to build new fast-speed network connections to allow Alibaba and Tencent and other Chinese tech companies to advance e-commerce and e-payment. Japan and the EU have signed a partnership on Sustainable Connectivity and Quality Infrastructure to offer alternative digital connectivity – with strong privacy protections.
To be sure, this strategic cooperation has limits. It is questionable whether Japan and Europe together carry enough weight to achieve their goals. Yet the new alliance should not be underestimated. Europeans are mistaken to see Japan as a declining power. It may be ageing even faster than Europe, but Japan remains the world’s third largest economy. It is no longer a consumer electronics superpower, but has shifted to B2B precision manufacturing – Panasonic no longer specialises in televisions, but focuses instead on batteries that power Tesla cars.
More change is required, and not just at home. If the European and Japanese rapprochement is to go further than creating a giant new free trade zone, it must find wider support and embrace more than a mere economic agenda. Potential allies are on the horizon, starting with free trade minded liberal democracies such as Canada and Chile. An interlocking web of free trade could be used to push back together against the United States and China to revive the World Trade Organization. The EU-Japan free trade deal itself includes clauses committing the two to the Paris Climate Agreements.
In a world torn asunder by populism and nationalism, do not overlook this surprising new alliance.