But the Japan–EU Economic Partnership Agreement (JEEPA) needs to be more than just a trade deal. Expanding digital markets and increasingly difficult investor relations in Asia need new frameworks, and JEEPA should lead this charge.

Negotiations had to address contentious issues such as trading ‘cars for cheese’ between the world’s most competitive automobile producer and the EU’s heavily regulated dairy markets, a remarkable achievement in itself. But the economic impact of the agreement will be limited to about 0.1 per cent of additional GDP for the EU and 0.2 per cent for Japan. The most direct impact will be felt in some heavily regulated sectors like pharmaceuticals and food as well as between competitors in machinery and electronics.

Before JEEPA, Japan was a staunch supporter of multilateral trade agreements, but was slow to adopt bilateral negotiations. Japan faces a ‘noodle bowl’ of bilateral and regional agreements in Asia, which are hard to negotiate comprehensively, in conjunction with an increasingly assertive United States and rising China that want to extract concessions when negotiating bilaterally.

In Japan, exports make up just 16 per cent of GDP, so often local industries and services dominate the political agenda rather than exporters’ interests, which makes it difficult to strike deals on deregulation even if the long-term gains seem obvious.

The overture of an economic partnership agreement with the EU only gained traction in 2012, when Shinzo Abe became prime minister on the back of his ‘Abenomics’ program, which promised to kick-start the economy by printing money while implementing a broad range of structural reforms.

In 2016, Japan underperformed in almost all policy performance indicators when compared to Germany. International trade agreements have been identified as one of the best drivers of competition, deregulation and productivity in Japan’s otherwise anemic, fast-ageing economy.

But instead of focusing on negotiations with the EU, where higher tariffs would have delivered greater gains from an industry perspective, Japan entered Trans-Pacific Partnership (TPP) negotiations with the United States and 10 other countries, which promised much greater political clout and reform potential. The TPP offered access to major Asian markets, and was attractive because of the United States’ emphasis on promoting ‘high-level’ liberalisation of trade and services across Asia, while pushing for copyright, investor and environmental protection.

JEEPA only came back to the fore after President Trump signed an executive order formally withdrawing the United States from the TPP. Ironically, the Japan–EU pact, which focuses mostly on bilateral trade, now has the chance to play an important role in broader Asian trade and investment negotiations.

The EU sets de-facto international standards because of the size of its market and the EU Commission’s strength in finding common solutions. But in other important fields, such as securing data protection and cyber security, it lacks the United States’ clout in pushing and enforcing such standards. To fill this gap, initiatives to ‘build a data driven economy’ in the EU digital single market now need to find their way into agreements on cross border e-commerce, reform of copyright and communication regulation. In terms of investor protection, which is now under negotiation as the final part of JEEPA, the results will become particularly important as the EU and Japan increase their investment across Asia.

For investor–state dispute settlement procedures, the EU is trying to address growing reservations against far-reaching investor protection, which has gained a reputation as an opaque tool used by multinational companies to circumvent local public policies. By proposing a multilateral investment court that would be transparent, standardised, more accessible to smaller investors and focused on protecting public interests before investor interests, the EU hopes to set a new standard in this field too.

But in a much less integrated Asia, such institution building is usually received with great scepticism, because a standing court might limit national sovereignty even more than the single investor demands for compensation do. In Asia, dispute settlement needs to be flexible, simple and compensation-oriented. It would be a major achievement if JEEPA can contribute to a workable solution between the competing poles.

Creating a future oriented investment framework will be particularly important for two reasons. First, the Chinese authorities are tightening their regulatory framework with little regard for foreign investor interests, while also actively supporting investment in Asia-wide infrastructure, e-commerce and digitalisation. Second, similar initiatives within the TPP framework, JEEPA or the ASEAN group have so far stalled.

Since these are some of the most important issues for Japanese and EU investors in Asia, a well-negotiated framework on investment and dispute settlement could become an important basis for future agreements in Asia. JEEPA has the potential to break the deadlock and further improve investment regulations throughout Asia.

Martin Schulz is Senior Research Fellow at Fujitsu Research Institute in Japan.