Japan is gearing up to begin negotiations for an Economic Partnership Agreement (EPA) with the five member countries of the South American trade bloc Mercosur. The initiative aims to diversify supply chains for energy and critical minerals, reducing reliance on the Middle East and China, while also protecting Japanese companies from tariff disadvantages as the European Union (EU) has already activated its own free trade agreement with Mercosur.
According to the Nikkei newspaper, the Japanese government is exploring options to enter EPA negotiations with Mercosur by this summer. Mercosur consists of Brazil, Argentina, Uruguay, Paraguay, and Bolivia.
Japan has already begun strengthening its ties with Mercosur since late last year. In December, the Japanese Ministry of Foreign Affairs launched a "Strategic Partnership Framework" with Mercosur, discussing cooperation in trade, investment, supply chains, digital economy, and energy. Both sides described each other as "one of the most important economic partners" in a joint statement.
The Nikkei reported that the Japanese government plans to hold additional strategic talks with Mercosur as early as the end of May, and is coordinating a visit from Brazil's Foreign Minister Mauro Vieira in mid-May. Prime Minister Sanae Takaichi also received relevant reports from ministry officials at the Prime Minister's Office on April 28. If negotiations commence, it will mark the first large-scale free trade talks since Takaichi's administration began.
Japan's urgency is driven by economic security and trade competition. The combined GDP of the five South American countries is approximately $3.16 trillion, roughly three-quarters the size of the Association of Southeast Asian Nations (ASEAN). However, trade between Japan and these countries was only about 2.4 trillion yen (approximately $22.4 billion) last year, less than one-tenth of the trade between the U.S. and ASEAN, indicating significant potential for growth.
Japan is particularly focused on South America as a source of resources. Brazil ranks as the ninth-largest oil producer globally, with crude oil production reaching a record high of 4.3 million barrels per day in March. The country also has the second-largest reserves of rare earth minerals. Argentina is a key producer of lithium, a critical material for electric vehicle (EV) batteries. The Nikkei noted that Japan's assessment was influenced by the increased risks of reliance on the Middle East following attacks on Iran by the U.S. and Israel, as over 90% of Japan's oil imports were from the Middle East before tensions escalated.
Additionally, the EU's early entry into the market is putting pressure on Japan. The Nikkei reported that the EU-Mercosur free trade agreement has begun provisional application, even though ratification by some member countries is still pending. As a result, tariff reductions on agricultural and industrial products are gradually starting in a market that totals around 700 million people between the EU and Mercosur.
The Japanese business community has been advocating for an expedited EPA due to these circumstances. If European companies receive tariff reductions first, Japanese automotive and machinery manufacturers could face disadvantages in price competition within the Mercosur market. Both the Japanese government and businesses view Mercosur as a crucial element for diversifying supply chains, and South American countries are also interested in expanding cooperation with Japan to reduce dependence on China.
However, the biggest hurdle remains the issue of Brazilian beef imports. According to the Nikkei, members of the ruling Liberal Democratic Party's agricultural faction expressed during discussions with relevant ministries in late April that "beef imports must be strictly limited." Japan has effectively restricted Brazilian beef imports due to concerns over livestock diseases such as foot-and-mouth disease. According to the U.S. Department of Agriculture, Brazil's beef production reached 12.61 million tons last year, surpassing the U.S. as the world's largest producer. Japan's production for 2024 is projected to be only 350,000 tons, making price competition challenging.
Despite this, there is a growing sentiment within the ruling party that outright opposition may not be feasible, considering the need for securing energy and critical minerals. A key party official indicated to the Nikkei that while they must consider the party's position, the final decision should be made from a national diplomatic perspective, hinting at a willingness to pursue negotiations. Balancing agricultural protection, economic security, and trade competitiveness will likely determine the direction of the EPA negotiations with Mercosur.
* This article has been translated by AI.
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