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August 10, 2020

Asia

JAPAN/UK: Trade talks first step in building closer post-Brexit partnership

BY Tobias Harris

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  • Ministerial talks in London failed to yield an agreement, but Japan and the UK appear to be close to a draft free trade agreement (FTA) to govern their trading relationship after Brexit.
  • The terms of the FTA, which are unlikely to differ much from Japan’s agreement with the EU, are less important than the political significance, as both governments want a closer strategic partnership.

Japanese Foreign Minister Toshimitsu Motegi took the first foreign trip by a Japanese cabinet minister since February, visiting London from 6-7 August for talks with Foreign Secretary Dominic Raab and International Trade Secretary Liz Truss. Both governments confirmed that the ministers were more than halfway finished with a framework free trade agreement (FTA) that would govern their trade relationship after the transition period for Britain’s exit from the EU ends on 31 December. While the race to have a trade deal in force by the start of 2021 was the primary focus of Motegi’s trip, the visit also served both London’s and Tokyo’s strategic goals, as both look to forge a stronger partnership as Britain moves past Brexit.

Although trade negotiations only began formally in June, the Japan-EU FTA – which has governed the Japan-UK trading relationship since it entered into force in 2019 – has provided an effective framework for talks to proceed. While a no-deal Brexit could still be disruptive for Japanese companies that have used Britain as a platform for trade and investment in the EU, a bilateral FTA would reduce some of the friction that businesses in both countries would face without a replacement for the Japan-EU agreement. Accordingly, there is strong interest in concluding an agreement on an ambitious timeline so that it could enter into force by 1 January.

However, there are some outstanding issues that prevented the two governments from announcing an agreement last week. While Tokyo and London are in broad agreement on higher-standard areas – digital trade, competition, and services and investment – they are still hammering out terms in the areas that have usually been the most significant sticking points in Japan’s trade negotiations, agriculture and automobiles. Japan is seeking a shorter timeframe for phasing out automobile tariffs than in the Japan-EU FTA; the UK is seeking greater market access for certain agricultural commodities, including malt, some dairy products, and pork. Japan, which has resisted demands for steep concessions for agricultural market access in negotiations with the US and the EU over the past decade, is unlikely to offer the UK more than nominal concessions and will likely seek to avoid concessions that would give the EU the right to seek similar concessions in accordance with the provisions of the Japan-EU agreement. The small volume of trade between the two countries – roughly USD 20bn in 2018 – suggests that neither government wants these outstanding issues to prevent a swift conclusion to negotiations. Both suggested that a framework agreement could be completed by the end of August, preparing it for being signed and ratified later this year.

The political and strategic value of an FTA may be greater than the economic value for both countries. For Britain, it shows that the Johnson government is capable of pursuing a “Global Britain” strategy, reorienting the UK towards new opportunities in Asia. For Japan, it is part of a broader strategy of using trade agreements to strengthen ties with politically important countries as it seeks to counter China’s influence in Asia and advance its vision of a rules-based trading system. The UK, as a military power looking to expand its presence in Asia and increasingly willing to confront China on issues like Huawei and Hong Kong, is an attractive strategic partner for Japan. The two countries’ militaries have expanded their joint exercises in recent years, and the Japanese government has signaled its interest in joining the Five Eyes intelligence alliance, comprising the UK, the US, Australia, New Zealand, and Canada, a proposal viewed positively by Conservative MPs. The FTA itself, therefore, signals that both governments intend to prioritize their relationship, but economically it may function more as a placeholder, bridging the Japan-EU FTA and Britain’s membership in the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), which both Tokyo and London hope will come within the next several years.

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