Sample 2c
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Teacher notes
The following page provides you with a sample IA, graded under the new criteria and was part of the sample provided to workshop leaders, during the recent IB workshop training. Sample number 2c - global economics is designed to be graded alongside sample number 2a, 2b and F(II).
Commentary 3
Title of the article: E.U. and Japan Reach Deal to Keep ‘Flag of Free Trade Waving High’
Source of the article: The New York Times
https://www.nytimes.com/2017/12/08/business/economy/eu-japan-trade.html (Accessed 22 January 2018)
Date the article was published: 8 December 2017
Date the commentary was written: 5 March 2018
Word count of the commentary: 800
Unit of the syllabus to which the article relates: The Global Economy
Key concept being used: Interdependence
E.U. and Japan Reach Deal to Keep ‘Flag of Free Trade Waving High’
By Prashant S. Rao and Jack Ewing Dec. 8, 2017
The European Union and Japan said on Friday that they had finalized a sweeping deal that would create a free trade area covering more than a quarter of the world’s economy, pushing against rising calls for protectionism in much of the West.
Leaders of both parties to the agreement trumpeted its strategic, as well as economic, importance. That it was announced just hours after Britain and the European Union broke a deadlock to start a new round of talks over that country’s withdrawal from the bloc only heightened its symbolic impact.
The so-called economic partnership agreement, which would be one of the largest free trade deals ever, “demonstrates the powerful political will of Japan and the E.U. to continue to keep the flag of free trade waving high,” the Japanese prime minister, Shinzo Abe, and the president of the European Union’s executive arm, Jean-Claude Juncker, said in a joint statement.
The deal is subject to ratification by lawmakers in Europe as well as Japan, but Mr. Abe and Mr. Juncker said that they were confident that once in place, it would “deliver sustainable and inclusive economic growth, and spur job creation.”
“It sends a clear signal to the world that the E.U. and Japan are committed to keeping the world economy working on the basis of free, open and fair markets with clear and transparent rules fully respecting and enhancing our values, fighting the temptation of protectionism,” the leaders added.
The agreement also reaffirms its parties’ commitment to the Paris climate accord, from which the Trump administration has said it will withdraw.
Tokyo and Brussels began trade talks in 2013, and said in June that they were nearing a deal. Japan trades less with the European Union than it does with the United States or China. But completing a deal with the European Union became a more urgent priority for Tokyo after President Trump’s decision in January to withdraw the United States from another agreement, the Trans-Pacific Partnership. Japan has also pushed to revive that deal, even without the United States.
Japan had effectively paused its talks with the European Union while it focused on the larger Pacific Rim deal, which included 10 other nations along with the United States and Japan. Mr. Abe has made liberalizing trade a centerpiece of his economic agenda — a notable shift in a country that, despite its success exporting cars, electronics and other merchandise, had long shied away from trade deals.
The change of direction on trade owes partly to the waning power of Japan’s farm lobby, which has fought to keep tariffs on imported agricultural products high, impeding the country’s ability to strike agreements. Japanese negotiators still focus much of their efforts on protecting farmers, but with Japan’s rural population rapidly aging and shrinking, governments no longer see making concessions on agriculture as politically fatal.
The European Union and Japan have a combined annual economic output of around $20 trillion, and together would constitute a trading area roughly the size of the one created by the North American Free Trade Agreement. The future of Nafta, which comprises the United States, Canada and Mexico, has also been cast into doubt by tense renegotiations.
Still, while Japan and the European Union have expressed confidence over the agreement they announced on Friday, political interests are still at play. National and some regional legislatures in Europe will have a say, a process that nearly derailed a trade deal with Canada.
The main beneficiaries from the agreement are likely to be Japanese carmakers and European food and beverage producers.
The deal will make it easier for European producers of cheese, beef, wine and processed meat to sell in Japan, which imposes duties of as much as 40 percent on some products. European makers of pharmaceuticals, medical equipment and trains are also expected to come out ahead.
The pact also presents Japanese carmakers with an opportunity to increase sales in Europe, which has long been difficult for them. Toyota and other Japanese manufacturers have only a 13 percent share of the auto market in the European Union, in part because of import tariffs, compared to the United States where they account for about 40 percent.
But Japan’s carmakers already have major manufacturing operations in Europe which are not subject to import duties, suggesting that their meagre sales also stem from lack of products that appeal to European tastes.
While the pact will be important for some industries, said Angel Talavera, senior eurozone economist at Oxford Economics in Britain, its overall economic impact will be modest.
The deal “does not materially alter the outlook for the eurozone, as Japan represents only around 2 percent of total exports,” Mr. Talavera said in an email. “I don’t think this is a game changer.”
Commentary
Interdependence between different sectors within one economy and between global economies can cause clashes when trade is liberalized, especially if declining industries are involved. The Economic Partnership Agreement (EPA), a free trade agreement (FTA) between the European Union (EU) and Japan, symbolizes the advantages of free trade, while also raising issues about the protection of declining industries and about flows of trade between all economies.
An FTA reduces or eliminates trade barriers on goods from member countries, while allowing them to erect their own 
trade barriers against other countries. There will be tariff reductions on, for example, Japanese car imports into the EU and on European “cheese, beef, and wine”, among others imports, into Japan. Before the FTA, Japan had been imposing a tariff of up to 40%.
Before the EPA, the price of cheese was Pw+Tariff (40%) where the quantity of imports from the EU was Q2Q3. However, when the tariff is eliminated, with price falling to Pw, the quantity of domestically produced cheese will fall from Q2 to Q1 because some Japanese dairy farmers will lower output or even give up farming in response to lower prices and their revenue will decrease from Pw+Tariff x Q2 to Pw x Q1. Thus, the quantity of imports will increase to Q1Q4. Because more efficient EU firms are producing the cheese, there will no longer be welfare losses, represented by areas a and b. Simultaneously, there will be a decrease in tariff revenue, which the Japanese government had been collecting, shown in the area GOV.
A similar analysis can be made for the elimination of tariffs on Japanese car companies. Currently, “Toyota and other Japanese manufacturers have only a 13% share of the auto market”, suggesting that import tariffs placed on cars by the EU have been harming Japanese exports. However, this could be due to a mismatch between the Japanese products and the European tastes, a non-price determinant of demand. Moreover, the tariff reduction will have no impact on the Japanese cars which are manufactured in Europe.
On the other hand, the EPA may negatively affect the farmers of Japan, a declining industry which has been protected for 
many years. Due to “waning power of Japan’s farm lobby” attributed to the aging population in rural areas, “governments no longer see making concessions on agriculture as politically fatal”. Although political effects of the loss of tariffs on agricultural products may no longer be large, there may be economic losses.
The lowering/elimination of tariffs on European farm products in competition with Japanese products suggests a decrease in production of agricultural goods from QA1 to QA2, as inefficient domestic farmers are replaced by Europeans. However, it is likely that this will only result in a much smaller quantity increase of QM1 to QM2 in the production of manufactured goods. Farmers are likely to have had the job for their whole lives. Thus, relatively low mobility of the “aging population”, especially in “rural areas” can be expected.
Therefore, the EPA could cause a fall in Japan’s real GDP and as total output decreases, high frictional and, more problematically, structural unemployment. The growth in car exports may lead to a decline in the economic vitality of rural 
areas, even though car manufacturing and farming may not seem at first to be interdependent. Similarly, infant industries (for example, wine production in Japan) may also struggle as they do not yet have the economies of scale to compete against large established overseas companies.
The FTA between the EU and Japan will have various other consequences. On the one hand, trade liberalization will increase competition and incentives for firms. The consumers will be able to choose from a wider variety of goods at lower prices, as import prices will fall. There will be a rise in global allocative efficiency as specialization according to comparative advantage takes place leading to trade creation.
At the same time, governments inside and outside the EPA will have to closely monitor to ensure that imports from outside the FTA are not routed through the low-tariff economy into a high- tariff economy. The phenomenon of trade diversion shows how all economies in the world are interdependent, not just those within each FTA.
Internal assessment criteria—SL and HL
Use the official IB economics IA criteria when assessing this work, available at: IA criteria
Portfolio (SL/HL)
Criterion A: Diagrams
Level descriptor
Diagrams used effectively with appropriate titles and each is relevantly labelled. The second and third diagrams are rather innovative and the explanations provided are clear and focused. (3/3)
Criterion B: Terminology
Level descriptor
Terminology is used correctly and precise e.g. making the distinction between trade creation and trade diversion. An accurate definition of crucial terms, such as FTA, are provided. (2/2)
Criterion C: Application and analysis
Level descriptor
The commentary uses economic models and theories correctly to effectively explain the implications of statements made in the article. (3/3).
Criterion D: Key term
Level descriptor
The key concept of interdependence is used to discuss how different sectors (farming and car manufacturing) have an impact on each other and on how economies are interdependent globally. (2/3)
Criteria E: Evaluation
Level descriptor
Relevant evaluation is inclded throughout the article. The approach is balanced and considers the theoretical benefits of freer trade against the impact on Japanese farmers and rural areas. The commentary also questions whether the benefits e.g. to Japanese car sales are really as significant as economics theory suggests. (3/3)
General comments
I think that the candidate picked a suitable article, targeted it effectively and covered a great deal within the word limit. The overall score for this commentary was 14/14.
The criteria F scores for this portfolio can be accessed at: Criteria F(II)