UK announces a new free trade agreement with Japan

The UK’s first major post-Brexit trade deal, a free trade agreement with Japan, has been welcomed; the resulting increase in UK/Japan trade is estimated at £15bn.

Some coverage of the deal emphasised the projected resultant increase in GDP as being only 0.07%, but this is a respectable number for trade with a single country and may bring other benefits that are harder to quantify.

UK businesses will now have a competitive edge over their EU rivals in Japan, and those already trading with Japan will benefit from continuity of trading and secure future trade relationships. It is also notable that the agreement contains special consideration for SMEs, supporting those looking to expand into new regions while also providing certainty for the 8,000 SMEs trading with Japan.

Expanding on the EU’s trade deal with Japan

The new trade deal has been finalised in just ten weeks during a global pandemic. (The EU’s trade deal with Japan took four years.) The new agreement retains the benefits that the UK enjoyed as an EU member state but goes further in prioritising UK industries. The UK was able to focus on its specific needs rather than being one of 28 EU member states; for example, when in the EU, the UK tried and failed to secure a digital deal with Japan. Full details are yet to be released, but the government reports that the deal expands on the EU’s trade deal with Japan by including sections on digital trade and financial services.

Focus on key British industries

• Digital trade and financial services

As financial services make up 28% of UK exports to Japan, the government was undoubtedly keen to secure the future of British fintech. The deal includes a ban on data localisation, which will allow key sectors including financial services and tech companies to operate from offshore servers. The deal ensures a high level of data protection, while encouraging cross-border exchange of data.

• Creative industries

The UK government reports that the deal goes further to protect intellectual property than the EU’s equivalent agreement. This will give British creative industries additional comfort that their brands and designs will be adequately protected.

• Manufacturing

The agreement provides that 99% of goods between UK and Japan will be tariff free. Further, the rules of origin for British goods have been relaxed, which will allow UK manufacturers who use EU components to sell their goods as British products. UK tariffs on car and railway parts will fall faster than under the equivalent EU deal and zero tariffs on electronic automotive car control units will be effective immediately.

• Food and drink

The food and drink sector has been catered for by reduced tariffs on British meat together with continued quotas and low tariffs for other key produce such as cheese, tea and bread.

A new global outlook

Only last month media reports described the proposed Japan deal as “difficult”. While negotiations with the US have reportedly stalled and the clock is ticking on an EU deal, the UK has looked to establish future trade partners further afield.

The future outlook of the UK may be global rather than EU-orientated. This deal encourages UK-Japanese alliances by increasing flexibility for companies to transfer skilled workers and their families between the two countries. The government has announced that visa requirements will be clear, transparent and processed within 90 days. For example, a British businessperson can transfer to their employer’s Japanese office with their spouse and dependents and stay for up to five years.

This new deal opens up opportunities in the wider Asia-Pacific region for UK companies and suggests that the UK is seeking to be placed at the centre of a new global free trade network. The UK government has committed to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP). The CPTTP includes Australia, Peru, Malaysia, Vietnam, New Zealand, Chile, Singapore, Canada, Mexico and Brunei, in addition to Japan. This is an indication that similar trade deals can be expected with the wider CPTTP nations.

Exciting prospects for trade with Japan

As negotiations for similar trade deals seem to have faltered, it remains to be seen whether such favourable terms will be possible with other nations. The Japan free trade deal presents exciting opportunities for companies of all sizes, whether to continue trading or expand their markets, not just with Japan, but also the wider Asia-Pacific region.

For advice on international trading or for more information, please get in touch with the international team.