| Date | November 2019 | Marks available | 4 | Reference code | 19N.2.SL.TZ0.1 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 1 | Adapted from | N/A |
Question
Japan–European Union Economic Partnership Agreement (JEEPA)
- In July 2017, the Japan–European Union Economic Partnership Agreement (JEEPA) was announced and it may come into force in 2019. Jointly, Japan and the European Union (EU) currently account for 28 % of global gross domestic product (GDP). The trade agreement could raise the EU’s exports to Japan by 34 % and Japan’s exports to the EU by 29 %. Economists say that this trade agreement marks a determined effort to combat rising protectionism and sends a powerful signal that cooperation, not trade protection, is the way to tackle global challenges.
- The largest benefit to Japan will be for Japanese car manufacturers, as Europe will gradually lower tariffs from 10 % on Japanese cars. Car tariffs are a big concern for Japanese car manufacturers, who struggle to compete with South Korean car manufacturers. South Korean cars are sold to the EU tariff-free thanks to a free trade agreement signed in 2011. Within Europe, car manufacturers are one of the largest sources of jobs. Car manufacturers in the EU are concerned that cutting tariffs on car imports from Japan may lead to a large increase of Japanese cars into the European market.
- The trade agreement will also resolve non-tariff barriers, such as technical requirements and regulations. More importantly, however, the EU and Japan will make their environmental and safety standards on cars the same, which will make trade easier.
- Japanese politicians have been defending their relatively inefficient farmers for a long time. Now, Japan will lower tariffs on European meat, dairy products and wine, cutting 85 % of the tariffs on food products coming into Japan. This includes removing the current 30 % tariff on some European cheeses, such as cheddar and gouda cheese. However, imported camembert cheese will face a quota. This may be because Japan produces some camembert cheese.
- JEEPA is particularly alarming for United States (US) beef and pork farmers because Japan has been the biggest export market for US beef and the second biggest export market for US pork. Any preferential tariff that EU farmers receive will make it much tougher for American farmers to sell meat in Japan.
- With this trade agreement, the EU and Japan are trying to promote the values of economic cooperation and environmental conservation, which are both important for long-term economic growth and sustainability. However, JEEPA faces significant challenges because it will have to be passed by the Japanese Parliament, the European Parliament and European national governments. There is no guarantee that all governments will agree to the economic partnership.
[Source: adapted from The Japan-EU Trade Agreement: Pushing Back Against Protectionism, http://globalriskinsights.com,
15 July 2017; Japan-EU trade agreement may hurt U.S. meat producers, by Katherine Hyunjung Lee, Jul 12, 2017, Medill
News Service, https://dc.medill.northwestern.edu; and A new trade deal between the EU and Japan, The Economist (London,
England), Jul 8th 2017, https://www.economist.com/finance-and-economics/2017/07/08/a-new-trade-deal-between-the-eu-andjapan.
© The Economist Newspaper Limited, London, July 8th 2017]
Define the term quota indicated in bold in the text (paragraph [4]).
Define the term sustainability indicated in bold in the text (paragraph [6]).
Using an AD/AS diagram, explain the impact of the trade agreement between Japan and the EU (JEEPA) on Japan’s economic growth (paragraph [1]).
Using an international trade diagram, explain the likely impact of Japan “removing the current 30 % tariff” on the level of cheddar cheese imports. (paragraph [4]).
Using information from the text/data and your knowledge of economics, evaluate the possible consequences of the trade agreement between Japan and the EU (JEEPA).
Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For AD/AS, the vertical axis may be “price level” or any similar terms such as “average (general) price level”. For the horizontal axis, “real (national) output/income” or “real GDP”. Any relevant abbreviations are acceptable.
A title is not necessary.
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The use of price and quantity for the axes is sufficient. The domestic supply curve may be labelled as Sdomestic or Sd or just S and the European supply curve may be labelled SEurope, SEU, or Sworld, or Sw.
A title is not necessary.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Do not award beyond level 2 if the answer does not contain reference to the information provided.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.
Responses may include:
A definition of:
- tariffs
- quota
- trade protection
- trade agreement.
Strengths of the trade agreement:
- The trade agreement could raise the EU’s exports to Japan by 34 % and Japan’s to the EU by 29 %, increasing AD and thus creating economic growth and jobs in all economies involved (paragraph [1]) (candidates may argue that the impact on growth is indeterminate since net exports may fall with downward pressure on growth in the short run).
- The trade agreement marks a determined effort to overcome problems associated with trade protection (paragraph [1] – combat rising trade protectionism) such as higher prices.
- Will make Japanese car producers more competitive with European and Korean producers, increasing employment in the Japanese car industry (paragraph [2]).
- Lower prices for Japanese consumers of meat, dairy products and wine (paragraph [4]).
- The loss of trade protection for producers, eg Japanese farmers, will force them to become more efficient (paragraph [4]) if they are to remain competitive.
- The deal will also resolve non-tariff barriers, such as technical requirements and regulations, which will increase trade (paragraph [3]).
- The proposed deal also addresses sustainability (paragraph [6]).
- It would be easier to sell to European/Japanese consumers, which creates a larger market, resulting in expansion of production.
- Consumers in both countries will have access to a wider variety of goods at lower prices as a result of freer trade.
Limitations of the trade agreement:
- Trade agreement still allows for some tariff barriers and some non-tariff barriers (paragraph [4]).
- JEEPA faces challenges, as it will have to be passed by the Japanese Parliament, the European Parliament and European national governments (paragraph [6]), so there is no guarantee that it will happen.
- The agreement will disadvantage some producers in all economies.
- Possible unemployment in industries where trade protection is reduced, eg the EU car industry (paragraph [2]) and farmers in Japan (paragraph [4]).
- Korean car manufacturers may lose market share in the EU market to the Japanese producers (paragraph [2]).
- US beef and pork producers might lose market share in Japan because EU producers would have better access to the Japanese market (paragraph [5]).
- Governments will have their tariff revenues reduced.
- Possible infant industries, such as the cheddar cheese industry in Japan, may not be able to compete (paragraph [4]).
Any reasonable evaluation.
