Japan and UK sign free trade agreement

Out-Law News | 27 Oct 2020 | 12:19 pm | 3 min. read

The UK and Japan have signed a post-Brexit trade agreement which aims to increase trade between the nations by £15 billion ($20bn).

The Comprehensive Economic Partnership Agreement with Japan is the first major trade pact that the UK has signed following its departure from the EU. It will take effect when the transition period ends at the end of 2020.

UK's international trade secretary Liz Truss and Japan’s foreign minister Motegi Toshimitsu signed the deal in Tokyo on 23 October. The two said the deal would promote free trade and strengthen ties between their countries.

This deal will make it easier for UK companies to operate in Japan. Manufacturers, food and drink producers and technology companies could benefit. Tariffs on Japanese cars will be removed in stages, reaching zero in 2026. Tariffs for railway cars and car parts will also be removed by the UK. On e-commerce and financial services, governments are prohibited from asking businesses to disclose algorithms used in artificial intelligence technology and encryption data.

Japan already exports about £11bn ($14bn) of goods to the UK, mostly autos, auto parts and other machinery. It imports nearly £7bn ($9.5bn) worth of goods from the UK including pharmaceuticals, medical products and cars, according to the Japanese Foreign

Ministry.

The deal is an important step towards joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that includes 11 Pacific nations. It will "give UK businesses a gateway to the Asia-Pacific region and help to increase the resilience and diversity of our supply chains", the UK government said

"This pact is based on the EU-Japan Economic Partnership Agreement (EPA) that entered into force in February 2019 and is the EU’s largest bilateral trade agreement,"  said Dr Totis Kotsonis, an international trade expert at Pinsent Masons, the law firm behind Out-Law.

"However, there are certain differences. For example, the agreement goes beyond the EU-Japan EPA in relation to e-commerce and financial services. On the other hand, the position in relation to trade in goods is a little more mixed, providing, as it does, for UK suppliers to benefit from lower tariffs in relation to the export of certain products only to the extent that EU producers have not used up the relevant quotas."

"It provides for continuity so that after the end of the year, when the UK will no longer be treated as a member of the EU for the purposes of the latter’s international free trade agreements, trade with Japan can continue substantially on the same terms," he said.

Kotsonis said that the deal was important not just because of the trade that it will enable directly, but because it will act as a "stepping stone" to the CPTPP.  He said that Japan has said it is willing to support the UK’s aspirations to join that bloc. 

"The agreement is likely to provide a launchpad for the further development of UK relations with Japan including as regards defence and security. Equally relevant is the fact that the Pacific region is likely to drive world economic growth in the years to come," he said. "A more active UK involvement in one of the world’s most economically dynamic regions, will help to increase the UK’s ability to influence developments in that region, including opening up further trade in services, the development of more robust regulation in areas such as data protection as well as the introduction of more robust commitments on fair competition as the cornerstone of multilateral trade."

"The anti-subsidy commitments in the UK-Japan FTA are more robust that those which the UK government has previously said it would accept in the context of a trade deal with the EU," said Kotsonis. "In truth, this is relative. Viewed from the more complex and detailed EU state aid legal framework, the anti-subsidy commitments in the UK-Japan FTA are unlikely to provide a significant hurdle on the ability of either party to subsidise domestic industries. For example, prohibited subsidies are only limited to those subsidies that could have a 'significant negative effect' on trade or investment between the two countries and which subsist of either indefinite state guarantees or subsidies for failing companies without a credible restructuring plan. Neither of these prohibitions is likely to prove controversial from the perspective of the traditional UK government approach to subsidies."