Tokyo and Brussels are currently in final talks to implement a broad free trade agreement by the end of the year, according to Japanese government officials as quoted by Reuters.
Japan is the EU's second largest trading partner in Asia after China.
The deal has become more important after US President-elect Donald Trump promised to withdraw from the Trans-Pacific Partnership (TPP), which involves 12 nations, including the US and Japan. TPP is a key to Japan’s reforms and a pillar of Washington's pivot to the Asia-Pacific, according to Japanese Prime Minister Shinzo Abe.
“The Prime Minister has said he aims to reach an agreement (with the EU) this year,” one of the trade officials said on condition of anonymity.
Tokyo is pursuing EU tariff reductions on Japanese vehicles, auto parts, and electric devices, eliminating obstacles Japanese companies face doing business in the EU.
The bloc may scrap duties on nearly 80 percent of auto parts imported from Japan just after the deal comes into force, the Nikkei reports. Tokyo, in turn, could ease the process for foreign companies bidding on construction and materials procurement for public bodies.
The EU wants Japan to reduce tariffs on agricultural products including cheese, wine and lower duties on pork.
If the sides manage to implement the deal, annual trade may expand to more than €100 billion with transactions in the services sector growing to €40 billion.
The agreement is a way for both sides to show that open markets with good trade deals are still worth doing, according to EU Trade Commissioner Cecilia Malmstrom.
“The criticism by Trump of free trade deals, signal that planned Transatlantic Trade and Investment Partnership (TTIP) will be frozen, when he takes office. Since the Trans-Pacific Partnership (TPP) is facing the same fate, the Japanese government of Prime Minister Shinzo Abe shows greater political will to reach an agreement with Europe,” she said as quoted by Economics Wire.
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The disappointment caused by TPP's potential failure led to closer contact between the EU and Japan, the commissioner said.