UK Strikes Trade Deal with Japan
The UK has finally signed a trade deal with Japan. But will this bring as many benefits to the country as the UK is hoping? Read our blog to find out.
In September 2020, the UK and Japan finally agreed on a historic trade deal, which is forecasted to increase bilateral trade by GBP 15 billion annually. Prime Minister Boris Johnson urgently needed a success since negotiations in Europe have gotten stuck, and trade talks with the US have not received any significant outcome either.
“This is a historic moment for the UK and Japan as our first major post-Brexit trade deal,” says UK trade secretary Liz Truss. “The agreement we have negotiated — in record time and in challenging circumstances — goes far beyond the existing EU deal.”
Insignificant Compared to Brexit
In essence, the deal is similar to the trade agreement between Japan and the EU but adds digital provisions such as a ban on data localization. It includes a compromise on agricultural trade, which allows the US to access export quotas for cheese and other products that have not been used by the European Union (EU). It is also being viewed as a bridge to the UK joining the Trans-Pacific-Partnership (TPP), which includes countries like Singapore, Vietnam, Australia, New Zealand, and Mexico.
Although the deal was celebrated as a massive win in the UK, observers are still unsure about the actual outcome. The UK government estimates it would add another GBP 15 billion annually but couldn't give a timeline. Moreover, officials also confirmed the deal adds 0.07% to the UK gross domestic product, while the loss from leaving the EU customs union will result in a loss of 5%.
Japan to Benefit From Lower Automobile Tariffs
On the other hand, Japan is enjoying more benefits than losses. Japan believes UK tariffs on railway and automobile materials will now drop faster than under the previous EU deal, benefiting many Japanese exporters. For instance, tariffs on electronic control units for automobiles will fall to zero immediately once the deal comes into effect.
“This maintains the benefits to Japan under the existing EU-Japan agreement and ensures continuity for Japanese business,” says Toshimitsu Motegi, the Japanese foreign minister.
As the UK’s relationship with both the EU and the US has cooled down, the country is looking for new allies. Whether a trading partner on the other side of the world can replace the fallouts from leaving the EU remains unknown. The trade deal with Japan, however, is a good step for both the UK and Japan. It should give UK exporters at least some support in an increasingly difficult trade environment.
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