UK-Japan: A deal for the post-Brexit era?

INTERNATIONAL/ ECONOMY

Topic: General Studies 2:

• International Politics

UK-Japan: A deal for the post-Brexit era?

Context: The trade agreement was sealed between the U.K. and Japan, marking the UK’s first big post-Brexit deal on trade.

Key features of the trade deal

• Britain has said the deal meant 99% of its exports to Japan would be tariff-free, and that it could increase trade by 15.2 billion pounds ($19.9 billion) in the long run, compared with 2018.
• The deal removes Britain’s tariffs on Japanese cars in stages to zero in 2026, which is the same as in the Japan-EU trade agreement.
• Britain’s has expressed its interest in joining the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade deal. Japan has welcomed Britain’s eagerness to join this trade deal.
• Japan is already a member of the CPTPP, which also links Canada, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Significance of the deal

• UK will now be able to access Japan’s agricultural market, which was earlier done under the ambit of European Union.
• The trade deal is modelled on the EU-Japan Economic Partnership Agreement, that provides for smooth trade between the nations with reduced duties & procedures
• Japan’s auto industry will get benefitted in the wake of intense competition unleashed by electric automotive industry of USA. 
• The agreement has some flexibility on rules of origin and data sharing, besides recognition for additional number of geographical indications
• The deal gives UK the breathing space when it exits the European Union (EU) on December 31, 2020.
• UK wants to make an example of this trade deal with Japanese so to strike accords with other countries.
• Britain views the trade pact with Japan as a gateway for London’s entry into the 11-member CPTPP

Challenges in the deal

• Absence of preferential trading terms in agriculture: U.K. has not won major concessions compared to the EU on farm quotas from Japan.
• Slow Opening of UK auto sector: Tokyo has not been able to secure the elimination of British tariffs on cars sooner than (in 2026) under the deal with the EU. 
• Stakes on UK-EU deal: The Japanese have emphasised the considerable stakes in an EU-U.K. deal, as the country’s businesses based in the U.K. rely on European supply chains.
• Similar demands from EU: In relation to rules on government aid for ailing companies and subsidies, the U.K. would face pressure from the EU to extend similar conditions in a future relationship
• Modest Benefit for UK: As per the assessment of the trade deal between UK & Japan, of the £15.66 billion increase in bilateral trade, 83% of the projected benefits would accrue to Japan. In any case, the overall gain from the pact is a modest 0.07% boost to the U.K.’s GDP, compared to loss of trade after leaving the EU.

Conclusion

The Trade deal reflects UK government’s recognition of the new and complex reality, wherein Britain must strike out on its own as it engages with countries around the world.