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The EU-Japan Economic Partnership Agreement enters into force

Executive summary

On 20 December 2018, the Council of the European Union (EU) approved the Economic Partnership Agreement (EPA) between the EU and Japan. In January, both parties announced that the EPA was set to enter into force as of 1 February 2019. With the EPA now in place, more than 90% of Japanese customs duties will be removed for imports of goods with EU preferential origin. Likewise, more than 97% of EU customs duties will be removed upon imports of goods with Japanese preferential origin into the EU. The EPA will also enable EU access to some highly regulated Japanese markets.

This Alert summarizes the upcoming application of this new EU Free Trade Agreement (FTA) as well as the simplified procedures for proving preferential origin.

Detailed discussion

Key elements of the Economic Partnership Agreement

The EPA is not just a regular FTA as this agreement will not only lead to duty-free trade, but will also address multiple non-tariff matters such as reduced/removed regulatory barriers.1 For background on the implications of the EPA, see EY Global Tax Alert, The EU and Japan sign Economic Partnership Agreement, dated 25 July 2018.

Trade in goods

Under the EPA, tariffs on most goods traded between the EU and Japan will be gradually eliminated, whereas more than 90% of Japanese import duties will be removed as of 1 February 2019. Different business sectors will benefit from the agreement as customs duties for a wide range of products will gradually be removed, following product specific annual decreases in customs duties.

Products benefiting include wine, cheese, beef, processed meat and fishery products. Furthermore, tariffs on industrial products such as chemicals, plastics, cosmetics, textiles and apparel will be eliminated. Another sector for which this trade deal creates huge opportunities is the automotive industry, as the EU tariffs on imports of Japanese cars will be gradually removed as well. These EU tariffs (of which most tariffs for vehicles are currently set at 10% to 16%), will be removed in 8 or 12 equal annual installments, beginning on 1 February 2019.

Trade in services

The EU-Japan EPA also provides for the reciprocal liberalization of trade in services and investment and also for cooperation on electronic commerce. It is expected that in particular businesses trading in financial services, telecom services, postal and courier services, computer/information services, travel and air transportation services will benefit from the EU-Japan EPA.

Removal of regulatory barriers

Non-tariff barriers are addressed by the EU-Japan EPA as well, which facilitates the access of EU companies to the highly regulated Japanese market and vice versa. These non-tariff barriers concern, among others, motor vehicles, medical devices, textile labelling, cosmetics, and beer. The EU-Japan EPA will also protect over 200 European agricultural products from a specific geographical origin, also known as Geographical Indications (GIs). This will allow European products on the Japanese market to have the same level of protection as they have in the EU and vice versa.

Simplified procedures for proving preferential origin

The EU-Japan EPA provides, on a reciprocal and mutually advantageous basis, benefits for companies involved in supply chains between the EU and Japan. To make use of these benefits – e.g., elimination of tariffs on goods – the following three conditions must be fulfilled:

  1. Goods shipped between the EU and Japan should have obtained preferential origin ”Japan” or ”EU.”
  2. The goods should be directly shipped from the EU to Japan or vice versa.
  3. The importer should have a statement on origin or “knowledge” of the origin.

Compared to previous FTAs, the EPA provides new simplified procedures for proving preferential origin that creates an additional possibility for the importer to prove preferential origin. As such, the importer of the goods can prove preferential origin based on:

a. A statement on origin:

A statement on origin is prepared by the exporter and is based on information demonstrating that the product is originating or that the materials used in production are originating. The statement can be printed on the invoice or on other commercial documents and is valid for 12 months. The exporter is responsible for the correctness of the statement and the provided information. Statements of origin may apply to a single shipment or to multiple shipments of identical goods within a year after issuance of the statement.

b. The importer’s knowledge that a product is originating:

The EPA also provides for the possibility to claim a preferential duty rate when the importer has sufficient “knowledge” that a product is originating. This knowledge should be based on information (mostly provided by the exporter) demonstrating that the product satisfies the requirements to obtain the preferential origin.

For EU exporters who want to print origin statements on invoices or other commercial documents, a registration as registered exporter (REX) is required if the consignments have a value of more than €6,000. Below this threshold, a REX registration is not required.

The EPA allows the importer to prove preferential origin based on his own knowledge of the purchased products. In principle, this comes down to the information shared by the exporter. If the exporter is therefore not willing to share much (commercial) information about the products, it can be difficult for the importer to have sufficient information to prove the preferential origin of the goods. In that situation, an origin statement from the exporter would still be necessary. Therefore, in practice, this possibility will be mainly used by related companies.

Furthermore, Dutch Customs published a news alert on 25 January 2019 in which they provide details on how import declarations need to be completed for the application of preferential duty rates under the EPA.

Endnote

1. The EU and Japan have also concluded a Strategic Partnership Agreement (SPA) that provisionally entered into force on 1 February 2019. The SPA aims for more joint solutions to common global challenges and shared values as well as to increase cooperation in areas, such as security, energy, democracy, education, law, human rights and fundamental freedoms. As the SPA does not provide direct (trade) advantages for private individuals, it is not examined in detail in the Alert.

EYG no. 000457-19Gbl

Download this Tax Alert as a PDF file.

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