By Emma Regan
On 11th September, the UK-Japan trade deal was announced to come into effect at the beginning of 2021. It was called a ‘historic moment’ by the British government as it was the first major trade deal for the UK as an independent nation after the announcement of the UK leaving the EU. But what does the trade agreement between the two nations consist of and how will it build a bridge between them?
Overview of the UK-Japan Trade Deal
Japan currently has the third-largest economy in the world. It is the UK’s 13th most-important goods export market, accounting for 1.9% of all products sold overseas last year, exporting goods worth £7.3 billion and importing goods worth £9.7 billion. The trade agreement is tailored to the UK economy and helps to create jobs and drive economic growth throughout the whole of the UK, estimating a boost of £15 billion to the economy within the long run.
The deal is expected to bring strong tariff reductions for both the UK and Japan, with reductions on UK pork and beef exports, low tariffs on food and drink, as well as reduced tariffs for Japan’s Nissan and Hitachi exports. Japan has historically been not very active in international free trade talks, however, since its EU agreement last year, and with it leading the negotiations to salvage the Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP) thanks to the US pulling out, things have certainly started to change.
How the UK Benefits from the UK-Japan Trade Deal
Key benefits include:
- Huge gains for 9500 SMEs across the UK already exporting to Japan
- Tariff-free trade on 99% exports to Japan
- Ban on data localisation
- Potential accession for the UK to join the CPTPP
The UK-Japan trade deal is an important milestone for UK businesses who are eager to have certainty around future trade relationships between the two nations. It was reported in the UK’s strategic approach that the trade deal would deliver huge gains for the 9500 SMEs (small and medium-sized enterprises) across the UK already exporting to Japan, as well as those wanting to enter the Japanese market, offering tariff-free trade on 99% exports to Japan.
The sectors that are set to benefit are the textile, food and drink, automotive, and the services industry. While the UK wanted to convince Japan to further open up the agricultural sector, that was considered a bridge too far for Japan. The UK-Japan trade agreement also ensures additional benefits beyond the EU and Japan trade agreement, giving UK companies a competitive advantage in a number of areas. It also agrees to ban data localisation, allowing data to flow freely between the two countries and provides a better market to Japan for UK financial services and vice versa with Japanese tech services, a benefit to both nations.
Another benefit the trade deal offers the UK is potential accession to the CPTPP; a free trade agreement between Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The trade deal with Japan would be stepping stone for the UK to be considered as another nation for this agreement.
How Japan Benefits from the UK-Japan Trade Deal
For the most part, the UK-Japan trade deal is more symbolically important for the UK than Japan. It remains unclear whether the new deal will have a bigger impact than the one with the EU, yet there are some immediate benefits. Holding a trade agreement with both the EU and the UK will have a positive outcome for Japan by dealing with two large trading markets. The divide between the EU and the UK could deter the two population from consuming goods from one another and cause them to look elsewhere.
For example, the British public may want to buy more Japanese products, such as automobiles, and the European public may want to purchase Japanese products, such as whiskey. On the flip side, there is the prospect of creating a trilateral relationship if the UK and EU come to an agreement. Japan would ultimately gain a win and provide more business between the two economies.
Another benefit from the UK-Japan trade deal would be the realisation in British policy circles that the future is becoming increasingly Asian. This means it could increase collaboration with Japan in fields such as security, defence coordination, and intelligence sharing. The trade deal will also improve existing trade conditions and significant new growth opportunities for high-quality UK products such as clothing, biscuits, stilton cheese, tea extracts, and bread mixes, as well as the same tariff-free trade on Japan’s exports.
Differences between the UK-Japan Trade Deal and the EU-Japan EPA
Because the two countries were forced to prioritise the speed of the negotiations within a 3-month window, the UK and Japan trade deal resembles the EU-Japan trade deal that came into force at the beginning of 2019.
The Economic Partnership Agreement (EPA) marked the world’s biggest trade agreement and was agreed upon to simplify trade and investment procedures, reduce export and investment-related costs, thus enabling more small business firms to do business in both markets. It would do so by tariff-free trade on 90% of Japan’s imports from the EU, affecting sectors such as agriculture and food, industrial, forestry and fishery.
It was expected to increase transparency between the two members, as well as enhance protection of intellectual property rights and geographical indications. Since then, EU exports to Japan have gone up by 6.6% and Japanese exports to the EU grew by 6.3%.
Yet, the UK believes the trade agreement is better than the current EU and Japan trade deal.
“The agreement we have negotiated goes far beyond the existing EU deal, as it secures new wins for British businesses in our great manufacturing, food and drink, and tech industries.”Liz Truss, International Trade Secretary
The UK offers tariff-free trade on 99% of imports to Japan, as well as the ban of data localisation, both of which are bonuses to the EU agreement. Additionally, UK tariffs on automotive and railway materials will fall faster than they would have done under the existing EU deal, which will create new opportunities for Japan’s exporters.
Drawbacks of the UK-Japan Trade Deal
Despite the trade agreement being labelled ‘historic’, there are a few concerns amongst the two nations, specifically relating to the EU. The British press has shown their concerns that while the deal is a ‘welcome distraction’, the EU is the UK’s most important export market and therefore, a much more needed settlement.
Japanese business leaders have also voiced trepidation over the possibility of a no-deal Brexit and the outcome it will have on the Japanese companies that have a presence in the UK. It would also ruin the potential trilateral relationship which they are counting on. David Frost, the UK’s chief Brexit negotiator, also raised concerns the UK had given away too much to Japan regarding its tough restrictions on state aid, yet an ally of Liz Truss stated it was the standard procedure of any free trade agreement.
Opportunities Following the UK-Japan Trade Deal
Thanks to the UK-Japan trade deal, there is no better time than now for UK businesses to expand their business into Japan and enter a market that will provide huge marketing benefits, both immediate and gradual.
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