Department for International Trade – Written Evidence (JTN0002)

I would like to thank you for sharing your questions in support of the UK-Japan trade negotiations inquiry. You have requested written answers to questions 6, 15, 16, 17, 21 and 23. I have treated them by theme in this letter, and have also provided an overview to give context to these answers and our ambitions.

Overview

1. The UK and Japan are among the most vocal advocates for free trade in the world. More trade is essential if the UK is to overcome the unprecedented economic challenge posed by coronavirus and succeed in the longer-term.  A comprehensive and enhanced free trade agreement between our two countries, not a limited one, is a priority for the UK as we use our voice as an independent trading nation to champion free trade.

2. A deal with Japan represents significant opportunities throughout the economy, from agriculture to digital. Japan is a developed economy with high standards and we are major investors in each other’s economies. UK exports to Japan have been on an upward trend, with an average yearly growth of 7.6% over the 5 years to 2019[1].

Our ambitions

3. A UK-Japan FTA will use the existing EPA as a basis, ensuring the Agreement is as ambitious, high standard and mutually beneficial as the EPA and enhanced in areas of mutual interest.  Both sides are committed to an ambitious timeline to secure a deal that will enter into force by the end of 2020 if at all possible and aim to sign the agreement around September. Throughout these negotiations, we have been clear that we will not accept rollbacks on key UK market access, agriculture included.

4. Potential benefits from a deal include better jobs, higher wages, more choice and lower prices benefitting all parts of the UK. Evidence from DIT’s scoping assessment shows that a UK-Japan FTA could increase trade between both countries by £15.2 billion in the long run and increase UK workers’ wages by £800 million.[2]

5. Removing trade barriers with Japan could deliver gains for the 8,000 UK Small and Medium-Sized Enterprises (SMEs) across the UK already exporting goods with Japan and those making plans to enter the Japanese market[3]. For example, total annual tariff reductions on UK goods exports to Japan could be worth around £33 million per year in the long run.

6. The UK’s negotiating strategy is designed to get a deal that delivers for UK businesses, consumers and our national interest. To that end, we have carried out a Call for Input on Japan asking the public what they would want to see in a future UK-Japan FTA. We also engage with businesses, civil society, academics and consumer groups through the Strategic Advisory Group (STAG) and Expert Trade Advisory Groups (ETAGs), and have regular conversations with businesses and other stakeholders on a range of issues.  Our work is supported by engagement with stakeholders by other UK Departments and the Devolved Administrations.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership

7. You asked about how a UK-Japan FTA might help the UK to join CPTPP and the benefits of doing so (Q.6). Bilateral negotiations with Japan complement the UK pursuing accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CPTPP is one of the world’s largest free trade areas, representing 13% of global GDP in 2018; increasing to more than 16% if the UK were to join.[4] Moreover, Japan is the largest trading partner out of all the CPTPP member nations, representing around 28% of total CPTPP trade in 2019[5]. As a key member of CPTPP, strengthening our relationship with Japan will therefore support our potential accession into this partnership.

8. Since July 2018, we have engaged with all 11 member countries at both ministerial and official level to explore UK accession to CPTPP. All CPTPP members, including Japan, have welcomed the UK’s interest in accession. This approach aligns with the accession process as outlined by the CPTPP Commission in early 2019, which encourages countries to engage informally with every CPTPP member, addressing any concerns and questions before formally applying.

9. Any final application decision we make will consider both the progress of bilateral negotiations with CPTPP members and our confidence that we will be able to negotiate accession on terms compatible with the UK’s broader interests and domestic priorities.

10.                     CPTPP offers opportunities to deepen our trading links with the Asia Pacific and Americas regions and other like-minded countries. Accession will secure increased trade and investment opportunities that help the UK economy overcome the unprecedented challenge posed by coronavirus. Joining CPTPP would open new opportunities for our exporters in strategically important sectors, helping to support an industrial revival in the UK. It will also help us diversify our trading links and supply chains, and in doing increase our economic security at a time of heightened uncertainty and disruption in the world. Finally, acceding to CPTPP will help us secure our future place in the world and advance our longer-term interests. CPTPP membership is an important part of our strategy to place the UK at the centre of a modern, progressive network of free trade agreements with dynamic economies. In doing so we aim to turn the UK into a global hub for businesses and investors wanting to trade with the rest of the world. 

Auto

11.                     You asked about what a UK-Japan FTA means for the automotive sector (Qs. 15, 16, 17). The automotive sector is one of our top traded goods with Japan, with UK exports worth around £1.2 billion and imports worth around £2.2bn in 2019.[6] Our automotive sector could benefit from reduced non-tariff barriers in an FTA. UK businesses importing intermediate products could benefit from cheaper inputs due to tariff liberalisation on intermediate goods imports which could be worth around £177 million through an FTA in the long run. Consumers could also benefit from lower prices on final goods due to tariff liberalisation on imports into the UK which could be passed onto consumers which could be worth around £98 million through an FTA in the long run.[7]

12.                     As part of the EU-Japan EPA, the majority of tariffs on Japanese automotive exports (in final and intermediate goods) to the EU will be eliminated by 2026. Furthermore, the EU-Japan EPA aligns EU and Japanese standards in automotive and automotive parts which simplifies processes for EU and Japanese exporters.

13.                     We are aware that Japan is interested in faster removal of tariffs on cars. The UK wants to secure broad liberalisation of tariffs on a balanced and mutually beneficial basis, taking into account UK product sensitivities. A balanced deal means that any ambition or benefits given to one side, need to be balanced against benefits for the other. As negotiations are ongoing we cannot say what the outcome would be.

14.                     A UK-Japan FTA will aim to develop simple and modern Rules of Origin that reflect UK industry requirements and consider existing as well as future supply chains, supported by predictable and low-cost administrative arrangements.

US-Japan Digital Trade Deal

15.                     You asked about the US-Japan ‘mini-deal’ signed last year (Q.21). We are aware of this deal, which has helped provide an indication as to what Japan may seek in digital provisions for a UK-Japan FTA. Digital is an area that we expect to benefit from a Japan FTA through cutting-edge provisions which maximise opportunities for digital trade across all parts of the economy and achieve greater accessibility and connectivity for UK consumers and businesses in the Japanese market.  Building on the most recent precedents, the UK will seek provisions with Japan that remove barriers to the free flow of data, while not lowering the standard of protection afforded to the personal data of UK individuals.  

16.                     Our negotiations with Japan form a part of the UK’s wider FTA programme. Negotiating teams are working collaboratively to ensure positive outcomes across all these negotiations, working with the full range of experts across Government to ensure comprehensive and expert support is provided.

Agriculture

17.                     You asked about the impacts of a ‘limited’ UK-Japan FTA on UK agriculture and food industries (Q. 23). I have already stated that we are seeking a comprehensive deal. Moreover, we will not accept rollbacks on key UK market access. A UK-Japan FTA will aim to preserve and improve UK agri-food access into Japan, ensuring UK agri-food producers can continue to take advantage of tariff rate quotas and lower tariffs into Japan. We aim to both preserve and build on gains from the EU-Japan EPA for the sector.
18.                     We remain firmly committed to upholding our high environmental, food safety and animal welfare standards now that we have left the European Union. The Government will stand firm in trade negotiations to ensure any future trade deals, including the free trade agreement with Japan, live up to the values of farmers and consumers across the UK.

July 2020