Japan–European Union Economic Partnership Agreement (JEEPA)

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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]

Pakistan and the International Monetary Fund

1. Pakistan is a low-income country with a rapidly growing population and widespread poverty. As of 2019, it has a large budget deficit due to high levels of military spending and high costs of debt servicing (35 % of the deficit is interest payments). It is also experiencing a widening current account deficit and is heavily dependent on foreign aid.

2. Pakistan’s government is negotiating a loan from the International Monetary Fund (IMF). Amongst its conditions, the IMF has said that the government must decrease private-sector regulation such as regulations on financial institutions. The government must also sell state-owned enterprises and government revenue must be raised by increasing indirect taxes and improving tax collection systems. Furthermore, the IMF insists that the government cuts its spending further.

3. The government has stated that the IMF loan is essential to restore confidence in Pakistan’s economy. This would help to attract foreign direct investment (FDI) to encourage economic growth and help break out of the poverty cycle. High debt levels and slowing economic growth in 2018 discouraged FDI. The IMF loan is also needed to help persuade other multilateral lenders such as the World Bank and the Asian Development Bank to provide and extend loans.

4. In the past, Pakistan has had 21 agreements with the IMF with limited success—any balance of payments or external debt improvement has been temporary. The IMF states that this is because Pakistan has not always met the conditions of the loans, while other stakeholders argue it was the lack of support given to Pakistan to implement the conditions and to allocate the loan funds appropriately.

5. Economists say that there needs to be a focus on improving human capital to provide the large number of young people entering the labour force with the skills to grow businesses. The quality of education needs to improve and to be combined with an effort to provide girls with greater access to education—female participation in the labour force is the lowest in the region.

6. The World Bank has financed education and infrastructure, such as renewable energy projects, in poor regions of Pakistan. However, critics of the World Bank argue that the projects are not making a significant difference and the construction of hydroelectric dams leads to environmental damage.

7. The government believes that the macroeconomic concerns of the IMF should be addressed first, and poverty issues in Pakistan can be dealt with later.

[Source: © International Baccalaureate Organization 2020.]

The following diagram illustrates the market for bananas in Country A. D and S represent the domestic demand and supply for bananas, while bananas can be imported at the current world price of $3 per kg.

The government of Country A decides to impose a quota on banana imports of 150 000kg per month.

The demand and supply functions for the currency of Country A (the dollar ($)) are given by:

Qd = 1900 - 18P

Qs = 580 + 12P

where Qd is the quantity of dollars demanded per month, Qs is the quantity of dollars supplied per month and P is the price of the dollar, measured in yen (¥).

The following table provides selected items of the balance of payments for Country A in 2015.

Table 1

Indonesia’s economy

1. Indonesians hope that their new president will be able to speed up reforms to stimulate economic growth and economic development. These reforms include upgrading infrastructure, reducing red tape (excessive regulations) and reducing corruption. It is also hoped that he will increase Indonesia’s global competitiveness, create new jobs and educate one of the world’s youngest workforces.

2. Some government policies are already being implemented. These include a large power plant construction programme, tax incentives to infant industries and tax cuts for industries like transport, telecommunications, metal production and agricultural processing. In addition, there has been a decision to reduce fuel subsidies in order to contribute funds towards the government’s record US$22 billion investment in infrastructure projects. The subsidies had kept fuel prices low in a country where millions of people live in poverty.

3. Despite the policies, Indonesia is struggling. Economic growth is slow and consumer confidence has deteriorated. Indonesia’s main export commodities are coal, gold and palm oil, for which prices have fallen. The inflation rate is 7.26%, which is above the central bank’s target range of 3 to 5%. Slower growth in the world economy makes the situation even worse for Indonesia’s struggling economy.

4. Economists have said that the president must put his efforts into improving export competitiveness by making investments in education and training.

5. The costs of doing business in Indonesia are high due to paperwork and confusing regulations. The government has adopted policies to improve this. These policies aim to create certainty and transparency for foreign investors and to empower small businesses, which play a critical part in Indonesia’s economy. Other policies, such as obtaining loans and encouraging micro-credit institutions, make it easier to gain access to credit.

6. Trade protection and intervention are increasing as policymakers look to reduce imports, manage markets and promote domestic industries.

Figure 1 – Indonesian development statistics

[Sources: adapted from World Bank and Statistics Indonesia; www.legalbusinessonline.com, accessed 18 September 2015; www.indonesia-investments.com, accessed 23 August 2015; www.hdr.undp.org, accessed 23 August 2015; www.bloombergview.com, accessed 9 August 2015; www.reuters.com, accessed 9 August 2015; www.lowyinterpreter.org, accessed 23 August 2015 and www.data.worldbank.org, accessed 23 August 2015]

* signifies no data available