UK-Japan Trade Agreement: does it go beyond securing continuity?

On Friday, Secretary of State Liz Truss officially signed the UK-Japan Comprehensive Economic Partnership Agreement (CEPA) with Japan, nearly a year after starting negotiations in Tokyo. This is a historic moment for the UK as it’s the first post-Brexit trade deal to go over the line.  

The government sees this agreement as a platform for UK’s accession to the Comprehensive and Progressive agreement for Trans-Pacific Partnership (CPTPP). The government’s hope is that by joining the CPTPP (whose signatories make up around 13.5% of global GDP), UK businesses will have improved access to the fast growth Asia-Pacific region and the ASEAN trading bloc whilst increasing the resilience and diversity of UK supply chains in the area.  The deal has economic significance, but it undoubtedly has more important from a political perspective. 

What additional economic benefits does the agreement offer to business? 

The CBI comparison table between EU-Japan EPA and the new deal, considers member asks.  It highlights where the agreement secured continuity and where it went further.  

In a previous article we outlined some of the broader benefits of the agreement in line with the government’s Agreement in Principle statement. This article will home in on the member asks put forward in CBI’s call for input submission.   

The agreement has broadly secured continuity of the existing EU-Japan EPA with some additional provisions that address business asks. The key areas where the agreement goes further than continuity include E-Commerce, Rules of Origin, Intellectual Property (IP) and sections of Financial Services.  

Detailed takeaways on where the deal has gone further in line with business interests include: 

• On E-Commerce & Financial Services, data protection standards, free flow of data and prohibition of data localisation are all areas where the agreement has gone further than before.
  
  • Data Protection standards: Members in banking/insurance were concerned about data protections and standards for personal data. This deal goes significantly further in ensuring each party adopts a legal framework which provides protection of personal information of e-commerce users. It also states that both parties should consider international standards on data protection with intent to adopt non-discriminatory practices. 
    
  • Free flow of data and prohibition of data localisation: Members were concerned about not securing free flow of data, without requirements for data localisation or disclosure of source codes. New provisions state parties shall not prohibit cross border transfer of information electronically, and there will be no requirement for access or transfer of source code as condition for trading and to locate computing facilities locally to conduct business in Japan. Also, there's stronger commitments for open data and net neutrality to support innovation across borders. 
    
    
• On IP, deal goes further in areas like technological measures protections and rights management information.
  
  • Members in creative sector were concerned that the level of IP theft and counterfeit was still to easily done on their designs especially online. This agreement strengthens commitments for stricter regulations on IP infringement with a provision for governments to provide adequate legal remedies against a person who infringes copyright and to those who conceal or facilitate the infringement. It also covers fair renumeration for the music industry on phonograms.
    

• On Rules of Origin, deal allows for continuity– securing a diagonal cumulation for certain products such as car parts. 
  
  • British exports to Japan that have a lot of EU parts (and parts from 3rd countries with existing trade agreements with UK) in them will count as goods originating from U.K. However, it doesn't resolve the issue of British goods containing lots of Japanese parts that the U.K. wants to sell into the EU, this full cumulation can only be achieved if agreed in the Brexit deal. But administrative hook is there to achieve further cumulation. The UK has also secured more liberal rules of origin for sugar biscuits and Textiles where there is better preferential tariff for UK textiles, allowing more support for increasing diversity of supply chains. 
     
• Softer commitments that secured continuity plus is in Services trade. 
  
  • This will be the first deal to cover commitments agreed by the WTO Joint Service Initiative. This will include increasing transparency on processing times, approvals, renewal procedures for licenses, qualification requirements. These are all aspirational but not clear tangible benefits for business.
    
  • Mobility was a concern for the Services sector, who wanted to secure less restrictions in the temporary movement of businesspersons across borders. The Mode 4 elements in the agreement have been expanded to now include a greater number of professionals who can travel to and from Japan for business purposes. Including greater freedom of travel for ICT Intra-transferees and more Junior level staff and their dependents.  

A deal which broadly reflects continuity

It’s commendable that both sides have agreed a deal which broadly reflects continuity. Leaving the EU provides UK with less economic, but perhaps more niche, negotiating power.  For this deal to provide continuity with the EU-Japan EPA is a success in itself. For example, the agreement has secured a transition of the Mutual Recognition Agreements in key sectors like Automotive and Pharmaceuticals, which £1 billion worth of UK trade is reliant on.  

The additional benefits that this deal provides are perhaps not as significant as business could expect if the deal was negotiated from scratch over a longer period. Given the pressure to secure a deal before the end of 2020 both sides had to limit their ambitions and be realistic about what a 2-3-month negotiation can achieve. The strategy has always been to secure continuity as a baseline and avoid defaulting to WTO terms and in that regard, it has achieved its aim.  

What is the CBI going to do next? 

CBI now looks to implementation, with the hope that these provisions will be able to grow UK-Japan trade and investment in real terms. While this deal could support UK exporters to expand afield outside the EU, key provisions will all depend on the UK being able to secure a deal with Brussels.  

Following the publication of the CBI’s new trade paper Partnership to Prosperity, and with the UK Presidency of the G7 and the CBI chaired B7 with Japan, the stage is set for CBI, business and government to build a partnership which delivers on the global free trade rhetoric to drive inclusive growth across all parts of the UK and across the world.