Last reviewed 20 February 2019
A new free trade agreement, the EU-Japan Economic Partnership Agreement (EPA), entered into force on 1 February 2019 creating the world’s largest free trade area and, once fully implemented, eliminating customs duties on 97% of goods imported from the EU. It removes significant non-tariff barriers, for example, in the automotive sector it commits Japan to international car standards which will make exporting vehicles to Japan much easier.
The agreement will also reduce tariffs on processed foods, agricultural products, beer, wine and whisky exports. Alongside the EPA, a Strategic Partnership Agreement between the EU and Japan will enter into force once ratified. It aims to provide a framework for enhanced political and sectoral co-operation and joint actions on issues of common interest.
The UK International Trade Secretary Dr Liam Fox said he would work with the Japanese Government to use the EPA as the basis for a new, even stronger partnership after the UK leaves the EU.
Key parts of the EPA
Agricultural exports: Japanese duties on many cheeses such as Cheddar and on wine will be scrapped; the EU’s beef exports will be allowed to increase significantly and on pork there will be duty-free trade in processed meat and almost duty-free trade for fresh meat; more than 200 European agricultural products, so-called Geographical Indications (GIs), will be protected in Japan and a selection of Japanese GIs will be protected in the EU.
Services markets including financial services, e-commerce, telecommunications and transport: EU companies will have easier access to the procurement markets of 54 large Japanese cities; obstacles to procurement in the railway sector will be removed; there will be transition periods of up to seven years before customs duties are eliminated in the automotive sector.
The current state of UK-Japan trade
According to UK Government figures, goods and services trade between the UK and Japan totalled £28 billion in the year ending 2018, an increase of just over 40% over the past five years. Most of this increase has been in vehicles, pharmaceuticals, machinery and financial services.
The impact of Brexit
Until 29 March 2019 the UK will continue to participate in the EU-Japan EPA. Then, if the Withdrawal Agreement is agreed, the UK will continue to be treated as an EU Member State for the purposes of this trade agreement during the implementation period to the end of 2020. In the event of a “no deal”, there will be no implementation period and the UK Government has said that it will seek to bring into force a bilateral UK-Japan agreement from exit day or as soon as possible thereafter. The aim is to replicate the existing EU agreement with the same preferential effects as far as possible while making the technical changes needed to ensure the agreement operates in a bilateral context. If a bilateral agreement is not reached by exit day, trade would then take place on World Trade Organization terms until a new agreement is in place.
Informal talks between the UK and Japan on this bilateral trade deal are continuing but time is running out to ratify an agreement before 29 March if the UK leaves the EU without a deal. There is a fear that Japan is not willing to simply duplicate the existing EU deal but wants to secure better terms from the UK than it did when negotiating with the whole EU.
At the same time, the Japanese Prime Minister Shinzo Abe has said that he would welcome the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership signed by 11 nations in March 2018 (Australia, New Zealand, Japan, Vietnam, Brunei, Malaysia, Singapore, Canada, Mexico, Peru and Chile).