The trade agreement sealed in October between the U.K. and Japan gives the former breathing space when it exits the European Union (EU) on December 31, the day that will mark the end of the transition period.
For the U.K. government, politically, the biggest selling point of the trade pact, which is modelled on the EU-Japan Economic Partnership Agreement, is continuity of access to Japan’s agricultural market. The largely symbolic nature of those terms have allowed Japan to proclaim to the domestic agricultural lobbies that no new quotas have been offered to the U.K.’s farm producers under the latest deal. The catch lies in the compromise wherein, the U.K. would be allowed to avail of unused tariff rate quotas on a large number of products covered in the EU-Japan trade agreement. While the availability of quotas is bound to fluctuate each year, the proposal seems more attractive in relation to exports of cheese. It provides for a progressive annual increase in quotas, potentially creating an opening for U.K. producers. On the flip side, there is provision for a corresponding decrease in duties, which would equally be an incentive for more exports from the continent.
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While the U.K. has not won major concessions compared to the EU on farm quotas from Japan, Tokyo has likewise not managed to secure the elimination of British tariffs on cars sooner than (in 2026) under the deal with the EU. The agreement has some flexibility on rules of origin and data sharing, besides recognition for additional number of geographical indications. But 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.
The absence of preferential trading terms in agriculture is just one aspect of the difficulties in the first major post-Brexit deal that London, understandably, wants to make an example of, to strike accords with other countries. The U.K.’s international trade and Brexit departments are sparring over whether too much was conceded to Japan in relation to state aid rules on ailing companies and subsidies. If indeed any onerous terms have been agreed on with the latter, the U.K. would face pressure from the EU to extend similar conditions in a future relationship, especially as these are part of the EU-Japan accord. Britain’s Conservative government, however, has laid great emphasis on wresting control of state aid rules from Brussels, as it equates Brexit with the restoration of national sovereignty.
Conversely, the EU insists on maintaining a regulatory level-playing field as a basic condition for any trade agreement in order to safeguard the integrity of its lucrative single market. It has resisted comparisons with the bloc’s agreement with Canada pertaining to state aid as inappropriate, given the geographical proximity between the EU and the U.K. unlike Canada. The opposition Labour Party has moreover pointed to an increase in the gap in projected benefits to the U.K. between the initial scoping study and the government’s impact assessment of the final deal with Japan. As per the latter, 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.
A new reality
Britain views the trade pact with Japan as a gateway for London’s entry into the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11). It reflects the 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.
But London’s recent law to override crucial provisions in the 2019 EU withdrawal agreement is clearly out of step with such an endeavour.