The United Kingdom is facing an early test of its policy of ‘pivoting’ towards trade with the Asia-Pacific region after Japan demanded an early conclusion to its free trade agreement negotiations with London. UK demands on Japan in the area of agriculture could suffer and are expected to be tied to Britain’s accession to the eleven-country Asia Pacific trade pact CPTPP.
Britain is keen to strike a deal with Japan to preserve the trade benefits which were opened up when the EU-Japan Economic Partnership Agreement entered into force last year.
But the Japanese government has signalled that it wants to wrap up the negotiations by the end of July, to allow time for the agreement to be ratified by the Japanese parliament before the end of the year. This would allow little more than two months for the substance of the agreement to be negotiated, following the launch of UK-Japan talks on 13 May.
By contrast, Japan’s mini-deal with the US, which was concluded last September, took six months to negotiate – and US-Japanese talks were conducted face-to-face rather than remotely, as UK and Japanese negotiators have been compelled to do thus far.
UK and Japan must ‘limit their ambitions’
Hiroshi Matsuura, chief negotiator for Japan in the UK FTA – free trade agreement – talks, said on Monday that both sides would have to “limit their ambitions” as a result.
In an interview with the Financial Times, Matsuura said: “To avoid a gap in January, we must pass this in the autumn session of the Diet [the Japanese parliament]. That means we must complete negotiations by the end of July.”
This however flies in the face of claims made in May by Liz Truss, Britain’s International Trade Secretary. Truss said the UK aimed to “strike a comprehensive free trade agreement [with Japan] that goes further than the deal previously agreed with the EU, setting ambitious standards in areas such as digital trade and services.”
Avoiding loss of benefits
An immediate ambition of both sides is to safeguard bilateral trade by avoiding tariff hikes on products such as cars and other machinery. Both sides are aware that UK-Japanese trade will revert to WTO schedules once the UK leaves the EU customs union on 31 December this year, if there were to be no bilateral agreement in the meantime.
As in other areas of its fledgling trade policy, therefore, the UK faces a choice in its approach to the Japan negotiations – to do a quick deal which safeguards the status quo, or to push for something more comprehensive and run the risk of disruption if no deal has been reached by the self-imposed end-2020 Brexit deadline.
In a reflection of the very tight timelines involved, the UK and Japan have moved straight into a pattern of open-ended negotiations, rather than holding ‘rounds’ according to the traditional trade negotiating format.
The UK-Japan FTA talks have been necessitated by Japan’s refusal to simply roll over the terms of its existing EU FTA to apply to the UK after Brexit, as a number of other countries have done.
Agriculture may be sacrificial pawn for UK
Japan has signalled that it has very limited headroom for concessions on agricultural market access, in view of the political capital already expended in recent years on opening up its historically heavily-protected agri-food markets to the EU, to the US, and to its CPTPP partners.
This may mean that recent gains for UK cheese and beef exporters on Japanese markets under the EU-Japan FTA deal may evaporate as from next year.
However, Japan ranks only 15th on the list of the UK’s agri-food export partners, and – although this has been denied by the British government – the loss of agricultural concessions may be a pawn that the UK is willing to concede if it can secure terms of trade on cars and get new openings on digital trade in return.
Britain exported £355 million worth of agri-food products to Japan in 2019, of which nearly half was made up of Scotch whisky – a product which enjoys duty-free access to the Japanese market in any case.
UK’s CPTPP accession bid creates leverage for member countries
But it is also clear that the UK’s putative FTA partners have wised up to the UK’s desire to accede to the CPTPP – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – as part of its much-vaunted Asia-Pacific ‘pivot’, and have understood that this gives them some leverage in negotiations with London.
Japan is a CPTPP member, as are Australia and New Zealand, with whom the UK formally launched FTA negotiations last week.
Any CPTPP accession agreement would almost certainly include agricultural market concessions both by and towards the UK – and Japan is indicating that politically complicated agricultural market access talks might have to wait until plurilateral negotiations commence.
Moreover, there is growing speculation that Japan, Australia and New Zealand will all tell the UK that they are prepared to veto Britain’s accession to CPTPP if they do not get a satisfactory outcome from their bilateral negotiations.
Speaking at a conference in New Zealand last week, Stephen Jacobi, Executive Director of the New Zealand International Business Forum, said the UK would be welcome to join CPTPP, but added: “Much will depend however on the economic policies and regulatory settings the UK adopts on leaving the EU,” he said. “We urge our British friends to embrace openness and global connectivity which has proved so successful for economies like New Zealand, Australia, Singapore and Chile.”
The chair of the Dairy Companies Association of NZ, Malcolm Bailey, used similarly-modulated language.
“A high-quality FTA between the UK and New Zealand will be an important pathway for the UK, should it wish to join the wider CPTPP,” Bailey said at the same event.