Vladimir Terehov – Japan and the UK Agree on the Implementation of a Free Trade Agreement

On October 23 in Tokyo, Toshimitsu Motegi, Minister for Foreign Affairs of Japan, and Elizabeth Mary Truss known as Liz Truss, the UK Secretary of State for International Trade,  signed a bilateral document (“road map”) for the implementation of the Free Trade Agreement, which was already agreed on September 11 this year, during a video conference by the same parties, Motegi and Liz Truss.

NEO has previously briefly addressed issues relating to the conclusion of the Japanese-British Free Trade Agreement in the context of the UK’s attempts to return to the “East of Suez” region. However, the factual information that has appeared since then allows one to consider these issues in more detail.

The first issue that needs to be addressed again is the key (“actually British”) problem against which this Free Trade Agreement appears. It revealed itself on June 23, 2016, with the national referendum’s announcement on the UK’s exit from the European Union. This problem is multi-faceted, not only “economic” in nature, including the entire complexity of the UK’s statehood.

First of all, the question of “divorce” with the EU after Brexit, which de facto, took place in late January 2020 was extremely challenging. December 31, 2020 concludes the period allocated for the achievement of any agreement on London’s future relationship with Brussels, which more or less would satisfy both sides. Since the draft agreement is subject to both party’s approval, October is the deadline.

But on October 16, British Prime Minister Boris Johnson demanded that the EU leadership “fundamentally review” the European positions, which some media assessed as London’s actual withdrawal from the negotiation process. The next few days were spent in mutual bickering. However, on October 23, the parties resumed negotiations to hold them for the rest of the week in a “daily-intensive” mode.

The general uncertainty of the current situation increases the level of risks for foreign participants in the British economy. In early October, two leading Japanese automakers, Toyota and Nissan, having subsidiaries in the UK, appealed to the British government with a request to cover costs in the event of tariff increases in UK trade with the EU. The products of both branches of Japanese Auto giants are also exported across the European continent.

In London, they are apparently afraid to even ask the counter-question, “and if not, then what?” For it has already been answered by another Japanese giant (especially in electronics),  Hitachi Ltd. In mid-September, Hitachi Ltd announced that it was withdrawing from the project to build two nuclear power plants on the Anglesey island off the northwest coast of Wales.  The project’s total cost was initially estimated at 28.5 billion dollars, of which Japan (not just Hitachi) accounted for  8.5 billion dollars. However, stricter safety and environmental requirements have increased the project’s cost, making it impossible for Japan to participate.

For the UK, this is not a good signal from Tokyo: “You guys only cause us problems” (which, however, may well be answered by the question: “Haven’t you already had them in Fukushima?” It is worth noting, that according to estimates, the Japanese capital generally provides jobs for about 150 thousand Britons.

But the negative state of uncertainty caused by the format and the UK’s exit from the EU provokes a serious political component. First of all, internally, due to Scotland’s long-standing desire for independence, which was greatly strengthened by the (still) “United” Kingdom’s decision to leave the EU. Recent surveys showed that today 58% of Scots are in favor of state independence. In the 2014 referendum on this topic, there were only 44% of them.

Almost immediately after the announcement of the 2016 referendum results on leaving the EU, the UK government, at the time led by Theresa May, began to search for new partners to conduct duty-free trade. For this purpose, a special Ministry was formed, which is now headed by Liz Truss. In conclusion, the Free Trade Agreement with Japan mentioned at the beginning represents the first real result in the Ministry’s activities towards this goal.

The question arises: what does this document mean for each of the signatories? It should be immediately noted that there is very little in bilateral trade and economics. This conclusion follows from the data provided by the Internet resource the Conversation, according to which the current share of Japan in UK imports and exports is 1.9% and 1.65%, respectively. This share is lower compared to leading traders with the UK, Germany and the USA. (Germany’s share in imports is 11.3%, the US’s share in exports is 14.5%).

These figures show that for the UK and Japan, the value of the newly signed Free Trade Agreement has little to do with expected positive results within a few years in bilateral trade. According to the most optimistic estimates, its volume may increase by 50%. Japan’s share in the UK’s foreign trade will not be 2%, but 3%.

Following recent statements of London and Tokyo, for both countries the significance of signing this bilateral document will be an intermediate link to the UK’s entry into the regional Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes 11 countries with Japan’s informal leadership in it. Once again, the reader must be reminded that this Association owes the very fact of its appearance to Japan.

If the UK joins, the share of CPTPP in global GDP will increase by 3% to reach 16%, close to the European Union’s percentage, which London was in until recently. CPTPP must operate in the Indo-Pacific region, where the focus of global political processes is shifting towards. This might explain the UK’s attempts to return to this region, once designated by the term “East of Suez.”

The UK’s prospect of joining the CPTPP was bolstered by Liz Truss and Toshimitsu Motegi signing the “road map” of implementing bilateral Free Trade Agreements.

Naturally, this remarkable event attracted interest from China, one of the major players of regional political games, which is implied as provocative factor behind both the formation of the CPTPP and the UK’s prospect of joining this Association. The Chinese Global Times newspaper devoted several articles to the signing of the mentioned “road map” and issues in the sphere of relations between Beijing and London and Tokyo. Comments of this publication contain a wish for a positive development of connections with both participants of the discussed Free Trade Agreement hindered by their dependence from Washington’s anti-Chinese policy.

Finally, it bears mentioning that with the signing of the Japanese-British Free Trade Agreement, its practical implementation, and the likely entry of the UK into the CPTPP, the regional political game will become more complex and difficult to predict.

Vladimir Terekhov, an expert on the issues of the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook”.

Source: https://journal-neo.org/2020/11/01/japan-and-the-uk-agree-on-the-implementation-of-a-free-trade-agreement/

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