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Japan, EU to narrow auto, farm area gaps, eye free trade deal in July

Japan and the European Union are in the final phase of
negotiations on sealing a broad agreement on a free trade pact early
next month, seeking to strike deals on sensitive issues such as
market access in agriculture and automobiles.

The two sides plan to scrap the 28-member bloc's 10 percent
tariff on Japanese automobiles some 10 years after the deal takes
effect, sources close to the matter said recently.

The bloc is also eyeing an immediate elimination of tariffs on
around 80 percent of auto parts exported from Japan, which are
currently at 3 to 4.5 percent, they said.

Progress in negotiations over automobiles would be a boost for
Japan, which in 2016 exported some 600,000 vehicles to the European
Union. In return, however, the bloc is likely to force Japan to make
concessions over market access in agriculture.

The European Union is urging Tokyo to cut tariffs on products
such as cheese, wine and lumber, while the Japanese side is reluctant
about opening its agriculture market, especially to a level higher
than it agreed to in the Trans-Pacific Partnership free trade pact,
signed in February last year.

The two sides are in the last stages of talks over cutting
tariffs on European wine, with the EU side expected to accept Japan's
idea of eliminating duties on the product in stages over several
years, other sources said. The European Union has been calling for
immediately scrapping duties on wine.

Japan currently imposes a tariff of 15 percent or 125 yen
($1.13) per liter on EU wine. Scrapping the tariffs means a
750-milliliter bottle of EU wine would be cheaper by nearly 100 yen.

After years of FTA negotiations launched in 2013, Japanese Prime
Minister Shinzo Abe, Donald Tusk, president of the European Council,
and Jean-Claude Juncker, president of the European Commission, plan
to meet on July 6 in Brussels, a day before the Group of 20 major
economies' meeting kicks off in Hamburg, to strike a broad agreement
on the FTA, diplomatic sources said.

At their previous meeting in May, the three confirmed their
desire to reach an agreement on fundamental elements of the FTA as
early as possible and said that the agreement is "within reach,"
according to the Japanese Foreign Ministry.

Abe is eager to accelerate talks on the Japan-EU FTA after U.S.
President Donald Trump announced his country's withdrawal from the
TPP deal soon after taking office in January.

"Amid moves promoting protectionism, as seen in Britain's exit
from the European Union and in the policies of President Trump, Japan
is looking to strike a broad agreement with the European Union as
soon as possible," a senior Japanese Foreign Ministry official told a
group of lawmakers from the ruling Liberal Democratic Party, headed
by Abe, on Friday.

In the agricultural field, Japan is making final arrangements to
slash a tariff on pork to the level agreed under the TPP pact, while
setting up low-tariff import quotas for powdered skim milk and
butter, the sources said.

The LDP has established an in-house headquarters to discuss ways
to protect Japanese farmers from possible negative effects stemming
from the Japan-EU FTA. It is set to compile a proposal addressed to
Abe by the end of this month.

Agriculture minister Yuji Yamamoto said at a recent press
conference that "careful consideration is needed, keeping in mind the
possible effects on our agriculture, fisheries and forestry
industries."

A Japanese government source said that striking a Japan-EU FTA
could pressure the United States into considering a return to the
Pacific Rim deal.

The European Union's chief negotiator Mauro Petriccione arrived
in Japan on June 13 for talks with the Japanese side ahead of the
envisioned Japan-EU summit next month.

Japan is the European Union's second biggest trading partner in
Asia after China. The bloc and Japan together account for more than a
third of the world's gross domestic product, according to the
European Union.

Another contentious issue in the Japan-EU negotiations concerns
a system to settle disputes between a company and the country it is
investing in.

But the two sides are set to put off an agreement on the system
and prioritize striking a broad agreement first, sources close to the
matter said.

Japan is urging the use of an investor-state dispute settlement
system, which allows a company the right to sue a state for
compensation if it believes its investment has been harmed by a
government decision.

The European Union opposes the approach, which it calls a
U.S.-led system, and proposes setting up a permanent international
investment court. Tokyo, however, is against the idea because of the
costs involved. (June 17)