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2017-07-05 02:55:02
E.U. to Unveil Outline of Trade Deal with Japan on Eve of Trump Visit

The European Union and Japan have signaled that they plan to announce a broad agreement on trade on Thursday, a pointed challenge to President Trump, who is scheduled to attend a meeting of world leaders in Germany the next day.

The timing of the announcement — on the eve of the Group of 20 summit meeting in Hamburg, Germany — was a clear reaction to the United States’ protectionist stance the last time the G-20 met. During a meeting in March of cabinet-level officials in Baden-Baden, Germany, Steven Mnuchin, the American Treasury secretary, refused to endorse a statement in favor of free trade.

By forging ahead with their own accord before the meeting with Mr. Trump and other heads of state, Europe and Japan threatened to isolate the United States in important industries like automobiles.

“Ambitious free and fair trade deal in the making,” Donald Tusk, the president of the European Union, tweeted on Monday.

The European Union followed up with a statement saying that the bloc would announce at a summit meeting with Japan in Brussels on Thursday that they had reached a political agreement on a deal. That means that the sides have agreed on the broad outlines of a pact but still have to work out the details — often the most difficult part of trade agreements.

Among other things, the pact would eliminate a 10 percent duty that the E.U. imposes on Japanese car imports, while removing obstacles that European automakers face in Japan. That would be particularly significant for luxury carmakers like BMW, Mercedes and Toyota’s Lexus brand, said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who focuses on the auto industry.

Those vehicles suffer the most from high import duties. “It could be a chance for the high-value, premium vehicles,” Mr. Dudenhöffer said. American brands like Cadillac or Lincoln “won’t have the same advantage and will be in a worse position,” he said.

The trade deal has been under negotiation for years, but talks were effectively delayed while Japan focused on a separate deal with the United States and other Pacific Rim countries, the Trans-Pacific Partnership.

But Mr. Trump dealt that agreement a possibly fatal blow shortly after taking office this year, when he formally abandoned it. At the same time, trade talks between the United States and Europe have stalled.

The pact to be announced on Thursday offers both Japan and the European Union an attractive alternative.

For the European Union, “the political imperative around this agreement is intense,” said Hosuk Lee-Makiyama, the director of the European Centre for International Political Economy, a research organization in Brussels. With Britain preparing to exit the bloc, he continued, European Union leaders were under pressure to show the 27 other states in the bloc that membership still has benefits, including gains from liberalizing trade.

“With Brexit, a huge chunk of European trade is under uncertainty,” Mr. Lee-Makiyama said. “The commission is struggling for a win,” he added, referring to the European Commission, the executive arm of the bloc.

For Shinzo Abe, the Japanese prime minister, the deal also looks like a much-needed win.

Mr. Abe won office five years ago with promises of liberalizing the Japanese economy and making the country’s industries more competitive, but critics say his efforts have fallen short. He had hoped to make the Trans-Pacific Partnership a centerpiece of his economic legacy, but that may now be out of reach.

Accusations of influence-peddling and gaffes by members of Mr. Abe’s cabinet have added to his problems. Voters in Tokyo delivered a rebuke to his party in municipal elections on Sunday.

Though key issues must still be ironed out, the two sides have reached agreement on several contentious issues, including cars and cheese.

European negotiators had insisted that Japan lower import duties on a range of agricultural goods, in particular dairy products, an area that Tokyo has staunchly protected.

In return, the Europeans offered to lower duties on vehicles from Japan, a change that could benefit Toyota and Honda, which have claimed a smaller market share than in other markets, including the United States.

Together, Europe and Japan would create a trading bloc of a size to rival the North American Free Trade Agreement, now the world’s largest free trade zone.

Still, history shows that political opposition can derail trade pacts even after the parties reach a broad agreement. The Obama administration was unable to conclude a trade deal with the European Union, even though both sides wanted one. The talks stalled largely because of opposition from the food industry and environmental activists.

The proposed deal between Europe and Japan could founder for the same reasons. Environmental groups have expressed worry that drafts of the pact fall short on several issues, including curbing the illegal timber trade and tackling overfishing.

European automakers said on Tuesday that they wanted assurances that the pact would truly give them access to Japan, which is notorious for tax policies and other measures that effectively exclude foreign manufacturers.

“Japan should resolve the remaining nontariff measures facing E.U. vehicle exports,” Erik Jonnaert, secretary general of the European Automobile Manufacturers Association, said in a statement.