EU, Japan seal free trade in signal to Trump

By Alastair Macdonald and Robert-Jan Bartunek

BRUSSELS (Reuters) - Japan and the European Union agreed a free trade pact on Thursday to create the world's biggest open economic area and signal resistance to what they see as U.S. President Donald Trump's protectionist turn.

Concluded in Brussels on the eve of meetings with Trump at a summit in Hamburg, the "political agreement" between two economies accounting for a third of global GDP is heavy with symbolism.

It leaves some areas of negotiation still to be finished, although officials insist the key snags have been overcome.

"Ahead of the G20 summit tomorrow, I believe Japan and the EU are demonstrating our strong political will to fly the flag for free trade against a shift toward protectionism," Japanese Prime Minister Shinzo Abe told a joint news conference with EU institutional chiefs Donald Tusk and Jean-Claude Juncker.

The "win-win" deal was, Abe said, "a strong message to the world".

In the works for four years, it has been pushed over the line towards a final treaty signature in the coming months by the election of Trump and his moves to ditch a Pacific trade pact that included Japan and leave talks with the EU in limbo.

"Although some are saying that the time of isolationism and disintegration is coming again, we are demonstrating that this is not the case," European Council President Tusk said.

Juncker, president of the executive European Commission, played down prospects of any further negotiating problems and said he hoped the treaty could go into effect early in 2019.

ALARM OVER "AMERICA FIRST"

Fears of cheaper import competition for European carmakers and Japanese dairy producers were among the thorniest issues, but officials said the two sides were driven by a shared alarm at Trump's apparent shift away from multilateral open trading systems towards an aggressive "America First" policy.

Tariffs on much of their bilateral trade -- which Abe noted accounts for some 40 percent of total international commerce -- will be phased out over some years, and other economic areas, such as Japan's public tender system, will be opened up.

European farm lobby Copa-Cogeca called it "good news". Wine exporters alone should save 134 million euros a year in duty and no longer be a big disadvantage to U.S. and Australian wineries.

The Japan Business Council in Europe, representing Japanese firms in the EU, said it would create "mutual prosperity". The Japan Automobile Manufacturers Association also welcomed it.

Both the EU and Japan, which are also forging a parallel cooperation pact on broader political issues such as security, crisis aid and climate change, forecast that the trade deal will boost economic growth and employment in Japan and in Europe.

One detail to be ironed out is how complaints from business over how authorities apply the treaty will be dealt with. That is a touchy subject in Europe due to concerns that trade pacts give too much power to big multinationals. European parliaments nearly blocked a deal with Canada last year over such issues.

Juncker stressed the EU would not accept "private tribunals" ruling between business and states. But Greens in the European Parliament, which must ratify the treaty, were not impressed, complaining of a "rushed procedure" that was "not serious".

Much remained unclear or unresolved, their leader Ska Keller said, calling also for it to do more to stop Japanese whaling.

CARS, CHEESE AND BREXIT

EU tariffs of up to 10 percent on Japanese cars will be phased out over seven years. Most EU food exports, including chocolate and biscuits, will see tariffs end over time. Duty of up to 29 percent on hard cheeses like Parmesan will fall to zero over 15 years. Quotas on soft cheeses like feta and mozzarella will still protect Japan's culturally sensitive dairy sector.

Japan will respect over 200 EU geographic protections on product names, like Parma ham or Polish wodka. Scotch whisky might not benefit, however, as Britain leaves the EU in 2019.

Tusk took the opportunity to scoff at arguments in Britain for Brexit on the grounds that London could cut itself better trade deals without the EU's economic weight behind it.

In an ironic nod to Brexit supporters' rallying cry of "Global Britain", Tusk, a former Polish premier, signed off a tweet confirming the Japan deal with the words "Global Europe!"

(Additional reporting by Elizabeth Miles and Foo Yun Chee in Brussels and Kaori Kaneko in Tokyo; Editing by Gareth Jones)