By JAMES KANTER
July 6, 2017
BRUSSELS — The European Union and Japan announced a broad agreement on Thursday that would lower barriers on virtually all the goods traded between them, a pointed challenge to President Trump on the eve of a summit of world leaders in Germany.
The agreement still needs further negotiation and approval before it can take effect, but it is aimed at giving both economies some zip after years in the doldrums.
It represents an act of geopolitical theater, a day before a Group of 20 summit meeting begins in Hamburg. At a meeting of G-20 finance ministers in March, Steven Mnuchin, the United States treasury secretary, pointedly declined to endorse a statement in favor of free trade.
Japan and the European Union stepped up negotiations after President Trump abandoned the Trans-Pacific Partnership, a wide-ranging trade agreement with Pacific Rim countries that had Japan at its core. The new agreement was a clear sign that other parts of the world will continue pursuing a liberalizing trade agenda, even without the United States.
Together, the European Union and Japan would constitute a trading bloc of a size to rival that created by the North American Free Trade Agreement, presently the world’s biggest free trade zone (and one that Mr. Trump wants to renegotiate).
Here’s what you need to know about the deal:
What’s in the deal?
The core of the agreement aims to increase the flow of Japanese cars to Europe and of European food to Japan.
The Europeans are expected to scrap a 10 percent tariff on passenger cars made in Japan, probably over a period of seven years. (Duties would come down more rapidly for some car components.) That is a key concession: The Japanese automotive giants Toyota and Honda have claimed a smaller market share in Europe than in other major markets like the United States.
In return, the Japanese are expected to lower tariffs on high-value European cheeses like Camembert from France, while retaining their unusually complex regulations on dairy products.
Tokyo is also likely to make it easier for foreign companies to bid for major government contracts, a move that could benefit European train makers like Siemens of Germany and Alstom of France.
Accompanying the trade deal is a separate partnership agreement in which both sides pledge greater cooperation on issues like cybercrime and climate protection.
What’s been left out?
Negotiators have refused to include whaling and logging in the talks, which has angered environmental groups — Greenpeace has characterized the deal as “a huge transfer of power from people to big business.”
The European trade commissioner, Cecilia Malmstrom, responded this week by saying groups like Greenpeace would be opposed to “any trade agreement,” ostensibly a criticism of the group’s stance against trade liberalization.
On Wednesday, Ms. Malmstrom posed with the Japanese foreign minister, Fumio Kishida, holding daruma dolls, a symbol of perseverance.
Even without rules on whales and wood, the deal still is the biggest bilateral trade agreement ever struck by the European Union, covering about a quarter of the global economy.
So it’s all done?
Not quite. The biggest issue that has not yet been agreed is how to ensure investors have a way to resolve disputes that arise as a result of the deal.
The Europeans are keen to employ a court system rather than ad hoc arbitration, which has been used for decades but has been heavily criticized by European lawmakers and environmental groups as being too soft on industry interests.
The Japanese, however, are opposed to introducing courts, arguing existing institutions are enough.
European negotiators have also failed to convince the Japanese to accept guarantees on freer flows of data, an issue that may be discussed again after this trade deal goes into force.
What happens now?
Both sides expect the talks to be completed within months.
In June, the Japanese parliament passed a law that aims to address some of its dairy-industry protections, which may make it easier to wrap up negotiations.
The main concern, however, is the ratification process in Europe.
A landmark trade deal with Canada nearly came unstuck last year when Wallonia, a region of Belgium, withheld its approval until its concerns were dealt with by the country’s political leaders.
What would happen if the Walloons — or another region or country — were to balk this time? European officials didn’t have an answer to that this week.