Asia House Advisory takes a look at the UK’s trade agenda with Asia following the completion of the its first negotiated trade agreement since Brexit.
First trade deal as an independent trading nation – Japan
Since leaving the EU on 31 January 2020, the UK has confirmed the roll-over of 19 trade deals to which it was party under the EU, covering around 50 countries and representing about eight per cent of total UK trade.
Despite its similarity to the existing EU-Japan trade deal signed in 2018, the UK-Japan agreement should be recognised as a distinct deal and a landmark in the UK’s post-Brexit trade ambitions. Although the substance of the deal does differ from the EU agreement, the economic aspects are perhaps secondary to the deal’s political implications for ‘Global Britain.’
The agreement was completed in three months and mainly provides continuity in bilateral trade, but with a few key upgrades. New provisions on digital trade, such as a ban on data localisation, will benefit some UK service providers. There are also benefits for UK manufacturers and food and drink producers. Politico reported that UK-headquartered fintech firms such as TransferWise and Revolut are set to gain from the new provisions in the digital chapter of the deal.
Over the long-run, the deal is expected to increase trade with Japan by an estimated £15.2 billion – but given that Japan accounts for less than two per cent of UK imports and exports, the deal will likely only add 0.07 per cent to UK GDP. By contrast, government economists forecast a five per cent loss of GDP from the UK’s exit from the EU customs union and single market.
Key stepping-stone to the CPTPP
A deal with Japan is an important political step towards accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the deal currently in the Department of International Trade’s sights.
Australia, New Zealand, and Singapore have signalled their willingness for the UK to join the bloc; and the UK-Japan deal has been widely seen as favourable to the UK’s CPTPP prospects.
On 9 September, UK International Trade Secretary Liz Truss and UK trade officials met with Mexican Economy Minister Graciela Marquez, the current chair of the CPTPP Commission, and chief negotiators from all 11 signatory economies. This marks the first time that CPTPP members have had such a discussion with a country seeking membership since the partnership was created in 2018. A formal request will likely be tabled by the UK in 2021.
The UK is also entering second rounds of trade negotiations with CPTPP members Australia and New Zealand and is looking at rolling over existing EU agreements or negotiating new ones with Singapore, Vietnam, Brunei, and Malaysia. Existing discussions on the CPTPP are expected to soften the ground for bilateral negotiations and vice versa.
More coordination, less haste
However, while this flurry of activity has been useful in proving that the UK can forge new trade deals, it may have come at the cost of quality and coherence. Coordination between the EU deal being directed by Number 10 and other international agreements being negotiated by DIT was always going to be difficult. It has been noted that the UK-Japan trade deal commits the UK to tougher restrictions on state aid than the ones currently being offered to the EU in Brexit talks. This could undermine its negotiating position with Brussels. There is a risk that the UK may regret other giveaways to nail down early deals in later negotiations.
The future for Global Britain in Asia
With the ongoing shift of economic and geopolitical power towards the Indo-Pacific region, there is a clear refocusing of UK attention. In 2019, Foreign Secretary Dominic Raab made his first overseas trip in post to Bangkok for an ASEAN ministerial meeting, and the UK had its first formal economic engagement with ASEAN during the ASEAN Economic Ministers’ meetings in August this year. The UK has also put itself forward to become a dialogue partner of ASEAN, although, officially, new dialogue partners are on hold. A series of joint trade reviews by DIT and a review of strategic relations by the FCDO will further develop UK engagement strategy in the region.
The detailed digital chapter in the recent Japan deal may point towards the future focus areas for UK trade policy. There is huge opportunity for UK businesses in developing digital trade partnerships in Asia – with countries like Singapore and South Korea obvious candidates for deeper digital cooperation. The COVID-19 pandemic has only accelerated the focus on developing digital partnerships with the region.
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