Tokyo 2020: An Olympic Challenge for the UK?

Ciaran Gill explores the main issues being discussed between the UK and Japanese negotiating teams

For the UK to truly fulfil the Government’s ‘Global Britain’ agenda in carving out the UK’s new role in the world, a lot has been said about looking East. The government has made its intentions in the region clear, announcing its objective of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) [more on this below] and kickstarting negotiations for a UK-Japan Free Trade Agreement (FTA) early doors.

Japan, the third largest economy in the world, is an obvious source of attention for a UK seeking to demonstrate that it can strike trade deals and thrive in a post-Brexit world. Negotiations with Japan began in June, accompanied by a declaration of Hiroshi Matsuura, Tokyo’s chief negotiator, that any trade deal must be agreed by the end of July if it is to be approved by Japan’s National Diet, its parliament, in the autumn.

As we edge into August, negotiations are still rumbling on with an expectation that a deal will be finalised by September and implemented at the start of 2021. So what’s the hold up and what is being discussed at the negotiating table?

The strict timetable underpinning the negotiations for the UK’s first trade deal in more than 40 years has meant that the UK and Japan have had to curtail some of their ambitions. For both sets of negotiators, the blueprint is the EU-Japan Economic Partnership Agreement, which came into force in 2019. This round of negotiations has therefore seen both countries seek to improve on positions that were set into place when the UK’s interests were represented by Brussels.

High steaks

One of the casualties of time pressures within these negotiations for the UK has been its food and agriculture sector. With five months to go before the Brexit transition period comes to an end, International Trade Secretary Liz Truss has had to concede that there is no time to negotiate lower tariffs for British agricultural exports to Japan, particularly with regards to British beef. The complexity of agriculture coupled with the emotive connection that national governments have towards food renders these areas difficult topics of discussion in trade negotiations – as they were during the talks for the EU-Japan Economic Partnership Agreement.

Securing lower tariffs on British agricultural goods heading to Japan, however, will remain a long-term priority for the UK. Before the EU’s deal with Japan came into force, tariffs on beef, for instance, were at 38.5%. Years of negotiation between the two, however, resulted in a deal which will see tariffs for EU beef exports eventually falling to 9%. If the UK Government fails to secure a better deal for its food and agricultural sector in the next few years, farmers in Norfolk may end up looking enviously across the North Sea towards their Dutch competitors.

Tokyo Drift

These fast and furious trade negotiations however, have yielded one concrete agreement already. Once a deal between the UK and Japan comes into force, it is expected that tariffs on Japanese car imports will be at 0%. This is a considerable boost for Japan, given that under its agreement with the EU, tariffs on its car exports will only fall to zero after a grand period of seven years.

Government data shows that UK imports of Japanese cars and trucks amount to £1.4 billion whilst UK exports of cars and trucks are worth £0.9 billion. Striking a zero-tariff deal for its car industry therefore looks like considerably good business for Tokyo.

The UK Government will also have been driven by the fact that 2020 has seen a historic slowdown in British car manufacturing on account of the global economic slowdown brought on by the coronavirus pandemic. With Japanese companies operating three large car manufacturing plants in the UK, striking a tariff-free deal with Tokyo may be the saving grace that the industry needs.

Nevertheless, the strength of the industry even after a UK-Japan deal has been struck cannot be guaranteed. As per Sam Lowe of the Centre for European Reform, there is the “inherent risk that Japanese car manufacturers then decide to shift their operations out of Britain, back to Japan, so as to export the final cars, tariff-free, to the UK directly”.

Digitalism

Time constraints may have prevented the UK and Japan from realising their ambitions for their agricultural sectors but the same cannot be said for digital services. It is understood that the eventual UK-Japan FTA will contain provisions for digital trade which go beyond the provisions contained in the EU-Japan Economic Partnership Agreement. Indeed, Liz Truss said this week that “the first round of talks were positive and productive, with a shared aim to be particularly ambitious in areas including digital trade and sustainability”.

In May, the UK Government set out its aims for the negotiations by declaring that it wanted to secure an agreement with Japan that would ensure the “free flow of data” between the countries, enabling the UK to “take the lead on innovation, supporting the development of important emerging technologies such as blockchain, driverless cars and quantum computing”. As the UK seeks to forge a role for itself in the 21st century, will such agreements help London compete, technologically, with Silicon Valley and Shenzhen?

It is possible that a slight convergence in digital standards will pave the way for an even greater convergence if the UK is to join the CPTPP (see my colleague Tiffany’s blog here). Any accession to the CPTPP, however, is likely to occur in 2024 by the earliest, leaving the UK, at present, with enough space and time to construct a detailed long-term strategy.

As the UK looks ahead to an uncertain future in 2021, trade negotiations with Japan over the past few months have illustrated just how powerful time is when it comes to determining both a country’s negotiating power and its priorities. After negotiations with the Land of the Rising Sun, a new digital dawn may await, but there are no signs of daybreak yet for the car manufacturers and farmers of the UK.