Cornwall Council – Written Evidence (JTN0021)

Who is submitting this evidence?

1. Cornwall and the Isles of Scilly (CIoS) see opportunities and concerns in expanding UK trade with Japan. CIoS as a region has below average exports and improving our trade performance has been identified as a key element of increasing our productivity, which stands at £17,634 GVA per capita in 2017, equal to 64.6% of the UK average. CIoS is a rural region with agri-food producing 6% of its GVA, double than the UK average[1]. With 5.2% of Cornish people employed in the agri-food industry, any trade initiatives which strengthen the trade of added value food and drink products and fish/shellfish will be welcomed. CIoS produce high-quality products including meats, fish products and dairy products, some of which are geographically protected such as Fal Oysters and Cornish Clotted Cream.

2. CIoS has made an ambitious commitment to become carbon neutral by 2030, and as such, the effect of trade initiatives on carbon emissions need to be considered alongside any economic impact of new trade agreements[2]. CIoS is committed to reducing our impact on Climate Change and therefore is interested in this inquiry due to the potential impact on global carbon emissions through increased shipping and domestic production.

3. CIoS, as a region with low exports, has significant potential to grow. CIoS is interested in trade initiatives as an opportunity to increase its economic output, productivity and establish and strengthen trading relationships outside of the EU. However, as the EU is CIoS main trading partners and given our commitment to minimising our impact on climate change, we would not want a future trade initiative towards Japan to be at the expense of continued access to the EU market.

4. Most of Japanese food imports currently come from China and the USA. With Chinese-Japanese relations struggling due to the Covid-19 pandemic, human rights abuses in Hong Kong, and the developing situation in the South China Sea, CIoS see an opportunity to increase our agriculture exports to Japan, in order to decrease their dependency on China.

Does the Department for International Trade (DIT) have the right objectives in mind for UK-Japan negotiations?

5. The objectives outlined in the DITs assessment does little to address national government strategy and aims. The objectives do little to address the levelling up agenda that the government has committed to address, and this policy objective needs to be included as an objective to this trade policy. The objectives seem to favour urban areas with a focus on sectors such as finance and business services and exports in manufacturing and the automotive industry. Rural regions such as CIoS will see little benefit from these industries and will be at risk of falling even further behind the rest of the country if a levelling up effort is not included.

6. The objectives also do little to address climate concerns. The UK plans to become carbon neutral by 2050, yet there is not one mention of green technology, investment in renewable energy, or any cooperation on fighting climate change. If the UK want to be taken seriously when it comes to our climate ambitions, then this must be added into the objectives. For example, the service objectives focus on finance, business and telecommunications, but this could also include services in renewable energy and sustainable practices. The promotion of more sustainable shipping methods to reduce the carbon impact of trade could also be included as a cross cutting objective.

7. CIoS does welcome the section on SME engagement and support to increase investment and exports to the Japanese market. CIoS business is made up of 99.7% of SMEs, and therefore an objective focused on supporting SMEs both in Japan and the UK, is welcomed. The objective to provide information and help for SMEs to increase exports and investment is welcomed and could help Cornwall increase its exports, an aim outlined in Vision2030[3]. However, it should be expanded to include micro businesses. Much of our micro businesses in CIoS produce very high-quality agriculture and drink products such as Gin, Rum and Cheese. Micro businesses should have the same support as SMEs and be encouraged to create a trading relationship with Japan. 

8. The assessment does well to address agricultural concerns such as Sanitary and Phytosanitary measures, helping to upkeep high standards of our products. CIoS also welcomes the governments concern on agricultural subsidies and the objective to work with Japan to align. Japanese subsidies for agricultural are very high and we do not want our domestic businesses unable to compete with Japanese products because of this. CIoS want to ensure that this is a priority when going forward, as discrepancies in national subsidies between the UK and Japan could damage domestic producers in the UK, further increasing divides between rural and urban regions.

How reliable do you find the DIT’s assessment of the potential impacts of the proposed agreement with the Japan?

9. The impact assessment outlines that regions like London will benefit the most from an FTA with Japan, with modest increases in GVA in the South West. For the Government to fully support the levelling up agenda, it must start focusing agreements to benefit regions outside of the South East, and concentrate in areas with low productivity and GVA, such as CIoS. To benefit London over other regions will increase the regional differences in GVA and will further support the UK being the most unequal country in Europe. Large regional inequities are bad for national growth, and other regions need to be supported in order to catch up to the South East and London. Although the South West look to benefit slightly from a FTA with Japan this does not mean that CIoS will benefit to the same level as the rest of the South West. The South West is a dynamic region, and what benefits Bristol may not have the same positive impact on CIoS as our local economies are very different. Conducting impact assessments at a LEP level will give a more detailed localised picture. It is possible that the South West region will benefit slightly from the trade deal but could cause CIoS to fall further behind.

10.         The GVA increases does not consider the potential economic loss caused by a lack of a free trade agreement with the EU. Increasing trade with Japan will be good for UK GVA, but not if it is in place of current EU trade. Or in other words there will be no “additionality”.

11.         Environmental impact of the deal is well rounded, taking into account many aspects such as shipping to increased production. The promise of trading low intensive CO2 products is welcome; however, it does not seem to align with the CO2 intensive automotive industry. We hope that low carbon industries and green technologies will be encouraged over this, in order to promote green trade and support the UK’s ambitions to become carbon neutral by 2050.

How might Japanese investment in the UK be impacted by a UK-Japan trade deal?

12.         CIoS worry that increasing Japanese investment will increase regional differences in the UK. This is because the financial industry in the UK is a high target for Japanese investment, which is predominantly located in London. The UK need to encourage other sectors for investment, away from financial services in order to spread the benefits of Japanese investment throughout the country. With Japan having similar geographies with the UK, we have the opportunity to collaborate with renewable energy and this paves the way to potential Japanese investment in our renewable energy industry. Japan and CIoS share vital characteristics such as access to the oceans and windy climates. As such, there is an opportunity for cooperation over offshore wind energy. Japan is attempting to move away from Nuclear energy and as such offshore wind is attractive and they have been early movers in demonstrating Floating Offshore Wind. Although they have not yet taken a significant market share of the floating foundation element. Rather, they are tending to take a partnership approach with existing European players. Japan has made significant developments in the sector, with technological advancements in the industry such as the wind Lens, which increases energy production by up to 300%. This deal should look at investment in renewable technology such as wind energy, to firstly increase our share of renewable energy of 37% in our energy mix through creating more sustainable technology. Secondly, the increased investment can help foster green growth and green jobs in CIoS. The UK should encourage areas of investment outside of the financial industry in order to help regions outside of London benefit, helping with the Governments levelling up campaign. There is a small risk is that Japanese businesses could compete with our local businesses, however Japan does not have the same level of flexible, innovative SME’s capable of delivering the sector that the UK does. Therefore, there would be a net benefit of a trade deal with Japan at least over the next 5 years.

Might the UK and Japan pursue a mini deal instead of a comprehensive FTA?

13.         . CIoS are supportive of an FTA with Japan that mirrors and improves the current trading relationship between the UK and Japan (via the current Trade agreement between the EU and Japan) providing that an FTA with Japan does not lead to a reduction in EU trade. CIoS businesses rely on EU trade, and we currently have a trade surplus with the EU, exporting a value of £387million and importing £265 million in 2018. If a Japanese trade deal undermines trade with the EU, then CIoS will lose out. It is vital that a Japanese trade deal is not in place of an FTA with the EU. 

14.         CIoS are worried that this deal could create an increase in shipping between our two nations. CIoS want to balance the benefits with Japanese trade with our climate ambitions. The distance between London and Tokyo is over 11,000 nautical miles, and CIoS worry that this does not support the UK’s carbon neutrality ambitions by 2050. Shipping consists of 3% of transport emissions worldwide and increasing trade with a partner on the other side of Asia, will increase our CO2 emissions and make it harder for the UK to become Carbon neutral by 2050. CIoS would therefore prefer a smaller trade deal with Japan, in order to save unnecessary shipping miles, especially when the EU is on our doorstop

How might a trade deal with Japan help the UK to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and what benefits would there be in joining?

15.         CIoS believe that we need to carefully consider the value of the UK becoming part of the CPTPP, and that any membership needs to be considered in the context of the potential impact this will have on trade with established partners, notably the EU market. It is unrealistic that the joining of the CPTPP will in anyway make up for EU trade, and as such it is important that we do all we can to maintain an FTA with the EU, and this may mean we are unable to make extremal deals outside of the EU. CIoS and much of the UK have very close ties with the EU, especially in regards of trade and supply chains and this should be maintained if at all possible.

16.         CIoS worry that if the UK managed to join the CPTPP that it could lead to closer trading relationships with countries with bad human rights records, in which increased trade could further support their regimes. Brunei is a member of CPTTP and has been questioned for its human rights abuses recently. China is also in a position where it has considered joining, especially with the rising tensions over the US causing high tariffs for them. There is a worry that increasing trade with China will weaken the UKs strong stance against human rights abuses. CIoS complies with the 1998 European Convention on Human Rights to which the UK is a signatory[4]. Therefore, Human Rights and unfair employment is a cause of concern with increased trade with the CPTPP. Further cooperation in trade should lead to an increasing effort from the UK government to uphold Human Rights in members and potential members of the CPTPP.

17.         CIoS does see the opportunities in expanding UK trade with members in the pacific. CIoS as a region has below average exports and improving our trade performance has been identified as a key element of increasing our productivity, which stands at £17,634 GVA per capita in 2017, equal to 64.6% of the UK average[5]. It is therefore a priority to increase this and becoming closer to the CPTTP would help CIoS expand its exports.

What are the costs and benefits of a UK-Japan trade deal to the various regions of the UK?

18.         The benefits that this deal contain for London through the Financial interest from Japan poses significant concerns over increasing inequalities throughout the UK. Regions such as CIoS are already falling behind the rest of the UK, which limits our opportunities and growth. CIoS are worried that London will continue to be the focus of investment, and that CIoS will struggle to be competitive over London firms.

19.         Japan rely on food imports to feed the nation. These food imports predominantly come from China and the USA, yet with China-Japanese relationship struggling with the Covid-19 pandemic, human rights abuses in Hong Kong and the developing situation with China in the South China sea, Japan could welcome more stable and reliable trading partners such as the UK. CIoS as a highly rural economy that produces high quality agricultural, fisheries, food and drink products, sees the opportunities to increase our exports to Japan. CIoS have low exports currently, and with Japan’s reliance on food imports, CIoS see the opportunity to increase our food exports to this market.

What consequences might there be for the UK agriculture and food industries if a deal is agreed? In particular, if a mini-deal or a limited version of a trade deal is agreed?

20.         In leaving the EU and developing an entirely new approach to domestic agricultural support, there are challenges and opportunities ahead for British farming. Our priority remains to secure a close and comprehensive relationship with our principle trading partner, the EU. We therefore support the NFU’s position that discussions about the EU and UK future relationship should be concluded first, before completing trade negotiations with other trade partners. Once the terms of that relationship are agreed and clearly understood, we do believe that there will be scope to navigate a successful deal with the US, respecting the priorities of UK farmers.  

21.         The UK and Japan have different agricultural mixes. Japan is predominantly rice based and the UK does not have the climate for crops like rice and as such cheaper tariffs on agricultural products like rice will have limited impact to UK farmers, and could decrease consumer price. It also is true the other way around, that Japan cannot grow the same crops as the UK and there is a gap in their production for the UK to fill. CIoS are big producers of dairy products like cheese and also vegetables, which could find a market in the Japanese market.

22.         Japan has a small agricultural sector; this is due to the low levels of arable land at 11.48%[6]. The UK has over 4 times the amount of agricultural land than Japan at 17.6 million Hectares compared to 4.18 million hectares in Japan. The geography of Japan makes It hard to produce large quantities of food, which means that domestic producers only produce 44% of Japan’s own food. Japan therefore relies on food imports to feed their nation. There is an opportunity here to increase exports to Japan.

23.         One thing which is a cause for concern for Japanese agriculture is that Japanese agriculture is highly subsidised. For example, each year the government subsidises the industry around ¥2.2 Trillion (£16.5 billion). Although the highest recipient of this funding is the rice industry, the UK needs to ensure that any agricultural products involved in a deal will not be highly subsidised, in order to maintain the competitiveness of our products in the Japanese market, and to ensure that the subsidised Japanese products do not outcompete British producers in the UK market.

Japan is an important market for the UK agriculture and food export industry. The Japanese agriculture industry has expressed concerns regarding granting additional access to its market if the provisions in the EU-Japan EPA on agriculture and food are rolled over in an FTA with the UK. If such provisions are not included in a UK-Japan trade deal, what consequences might there be for the UK agriculture and food industries?

24.        CIoS recognise the importance of Japanese trade to our agri-food sector. Japan is are 4th largest non-EU export market, valuing £14 million in 2016[7]. With agriculture being a large part of our exports, businesses in CIoS will struggle if provisions are changed. It is therefore important for the UK to try and maintain current provisions which the EU has agreed with Japan in order to maintain continuity, but with a focus to increase exports to Japan.

If the UK and Japan agreed a limited version of a trade deal, which either eliminated or reduced provisions related to agriculture and food, what might be some of the impacts on UK agriculture and food industries?

25.        CIoS are worried that the original impact assessment which was conducted by the DIT looking at GVA increases throughout regions would be highly inaccurate if agricultural was not included in an FTA. The agricultural element of this deal is the most important to CIoS and to not include it, or reduce it, would lead to much lower growth in CIoS than other areas. It is unlikely that CIoS will benefit from an FTA deal with Japan if agriculture was not of focus and the deal will favour towns and cities, further increasing the inequalities between urban and rural areas. Japan is an important trading partner with the UK.

28 August 2020