The UK has secured a free trade agreement with Japan, the country’s first major post-Brexit trade deal. The positive development comes as negotiations on a free trade deal between the UK and its biggest trading partner, the EU, appear to be struggling to make headway.

International Trade Secretary Liz Truss hailed the UK-Japan agreement as a historic moment. She said: “This is a historic moment for the UK and Japan as our first major post-Brexit trade deal. The agreement we have negotiated – in record time and in challenging circumstances – goes far beyond the existing EU deal, as it secures new wins for British businesses in our great manufacturing, food and drink, and tech industries.”

The UK government said the free trade deal will increase trade with Japan by an estimated GBP15.2 billion. Trade in vehicles between the two countries is not huge. The Japanese Big 3 of Toyota, Nissan and Honda have manufacturing plants in Europe (and indeed, the UK) to serve European demand, but the smaller players such as Mazda and Subaru will benefit from the removal of 10% import tariffs (the EU common external tariff applying to new cars, still in place for the UK this year). Some components sourced from Japan for UK manufacturing plants will also become cheaper when tariffs are removed. In the other direction, imports of passenger cars to Japan from the UK have historically been low, but Jaguar Land Rover will be a significant beneficiary.

The UK-Japan ‘Comprehensive Economic Partnership Agreement’ was agreed in principle by Liz Truss and Japan’s Foreign Minister Motegi Toshimitsu on a video call this morning (Friday 11 September).

The deal is described by the UK as tailored to the UK economy and secures additional benefits beyond the EU-Japan trade deal, giving UK companies exporting to Japan a competitive advantage in a number of areas. The UK government said it will help to create jobs and drive economic growth throughout the whole of the UK.

The deal was also described as an important step towards joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This, the government said, will give UK businesses a gateway to the Asia-Pacific region and help to increase the resilience and diversity of supply chains.

UK businesses will benefit from tariff-free trade on 99% of exports to Japan. Government analysis shows that a deal with Japan will deliver a GBP1.5 billion boost to the UK economy and increase UK workers’ wages by GBP800 million in the long run.

The government also said that UK manufacturers, food and drink producers and the tech sector are all set to benefit from the measures in the UK-Japan deal, which include:

  • Supporting UK car and rail manufacturing – supporting major investors in the UK like Nissan and Hitachi through reduced tariffs on parts coming from Japan, streamlined regulatory procedures and greater legal certainty for their operations.
  • ‘Cutting-edge digital & data provisions’ that go ‘far beyond the EU-Japan deal’. These will enable free flow of data whilst maintaining high standards of protection for personal data. The UK government also said they have committed to uphold the principles of net neutrality, as well as introducing a ban on data localisation, which will prevent British businesses from having the extra cost of setting up servers in Japan. This, it is claimed, will help UK fintech firms operating in Japanto innovate and grow.
  • Improved market access for UK financial services – including greater transparency and streamlined application processes for UK firms seeking licences to operate in Japan. The deal creates an annual dialogue between Her Majesty’s Treasury, UK financial regulators, and the Japanese FSA that will explore ways to further reduce regulatory friction – something that would be impossible were the UK still in the EU. Financial services are our biggest export to Japan, accounting for 28% of all UK exports.
  • Tariff free access for more UK goods – new and more liberal Rules of Origin will allow producers of coats, knitwear and biscuits to source inputs from around the world for their exports to Japan – making it easier and cheaper for them to sell to the Japanese market.
  • Improved mobility for business people – securing more flexibility for Japanese and British companies to move talent into each country, covering a range of UK skilled workers to enter Japan, from computer services to construction. This includes commitments that it is claimed go beyond the EU-Japan deal, for investors, spouses and dependents, and a wider range of intra-company transfers. Requirements for visas will be clear, transparent, and with an aim that they be processed in 90 days. A worker transferring from their UK HQ to the Tokyo office will be able to bring their spouse and dependents and stay for up to five years.

Strategically, the UK government said the deal is an important step towards joining the Trans-Pacific Partnership and ‘placing Britain at the centre of a network of modern free trade agreements with like-minded friends and allies’.

Director General of the Confederation of British Industry, Carolyn Fairbairn said: “The signing of the UK-Japan trade deal is a breakthrough moment. It will be welcomed by businesses across the country. The government and business now need to work together to make the most from the deal. It’s a huge opportunity to secure new Japanese investment across a wider range of sectors and UK regions.”

The SMMT also welcomed the announcement. Mike Hawes, SMMT Chief Executive, said: “SMMT welcomes today’s agreement in principle of a Japan-UK Free Trade Agreement. This agreement should help foster a mutually beneficial automotive trade and investment relationship between the two countries, building on a shared automotive history that stretches back more than 40 years. While we await the full terms of the agreement and, in particular, evidence that it will deliver in full on industry’s priorities for the progressive lifting of tariffs and reduction of regulatory barriers, the conclusion of such an FTA represents a significant milestone for our industries.”

Hawes also referred to the need for a tariff-free deal between the UK and EU. “We hope the deal can be ratified swiftly but, for both sides to benefit fully, we still need to urgently complete an ambitious and tariff-free UK-EU deal – and time is rapidly running out.”