Summary
On 23 October 2020, the UK and Japan signed a new Comprehensive Economic Partnership Agreement (CEPA), which will replace the existing EU-Japan Economic Partnership Agreement (JEEPA) at the end of the Brexit transition period, when otherwise there would have been a reversion to trading on WTO terms. This is therefore an important agreement for UK and Japanese businesses and consumers.
This report considers CEPA against the Government’s stated objectives and reviews it in the context of the Government’s advertisement of it. Overall, CEPA provides valuable continuity for businesses, consumers and other stakeholders. Most of its chapters are rolled over from JEEPA, but it does secure some useful additional provisions. We do, however, have concerns about how the Government has presented the deal publicly, in some respects overselling the extent of CEPA’s achievements in going beyond JEEPA. By exaggerating the gains made, including by comparing the outcome not with the status quo but with WTO terms, the Government courts unjustified scepticism about what is a respectable continuity-plus agreement.
Regarding trade in goods, CEPA’s negotiated tariff reductions largely keep pace with those in JEEPA. This means that UK exporters will not be at a competitive disadvantage versus EU exporters because of differential tariffs. However, the UK’s negotiated access to tariff rate quotas (TRQs), although affecting only a small proportion of agri-food exports, does leave UK exporters at a disadvantage compared to EU exporters, with only second-order access to the preferential rate via access to unused EU quota. CEPA offers a potential extension of Geographical Indications (GIs) for unique British products. The value of these provisions will only become clear in the light of the success or otherwise of applications for additional GIs, and Japanese approval may take longer than anticipated, but this seems to be at least a potential victory for the Government.
CEPA contains welcome provisions on rules of origin and cumulation, which will help protect existing supply chains and manufacturing. But for these and tariff reductions to be most valuable to key sectors, such as car and railway parts manufacturing in the UK, including by Nissan, Toyota and Hitachi, the UK and EU must agree similar provisions. While JEEPA clearly enabled the Government to produce a bilateral rollover agreement more easily, the lack of any UK-EU agreement in time for CEPA on, for example, rules of origin has proved to be an obstacle to a conclusive settlement.
CEPA offers improvements over JEEPA’s services and investment chapter, including provisions supporting digital trade that move closer to the provisions of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which the UK seeks to join in due course. The new provisions in CEPA will have cross-cutting benefits for a range of sectors, including financial services, environmental goods, and manufacturing, although we note that concerns have been raised about how these new provisions might affect data protection. CEPA also enhances the ability of companies to send and maintain employees between the UK and Japan, which will be a benefit for businesses. However, CEPA does not offer a comprehensive, stand-alone investment chapter, which we think would have been of benefit to the UK once it is no longer a gateway to the EU.
We note that, because of the required pace of negotiations for a deal to be in place by the end of the transition period, it has not been possible to achieve some of the objectives of key industries, such as the creative industries, which might have required primary legislation on both sides. The Government should aim to achieve more in this area in future trade negotiations.
Other areas where outcomes have been relatively modest are women’s economic empowerment and sustainable development. While CEPA includes a new chapter on the former, this is framed in non-binding language, and it remains to be seen how effectively the Government will use cooperative mechanisms to further the aim of women’s economic empowerment. The published Impact Assessment does not clearly answer the question of whether CEPA will benefit women particularly, economically or otherwise. CEPA retains JEEPA’s chapter on sustainable development, with some marginal changes that seem to slow the pace of cooperative work. These chapters have not demonstrated international leadership in these areas in the way they might have done.
The Impact Assessment also does not help us judge the full benefit of CEPA, or whether the Government has successfully negotiated a more bespoke deal better suited to UK interests, as it takes as its baseline the UK and Japan trading on WTO terms and does not consider how the UK would have fared under JEEPA. We recognise that the policy choice facing the Government is between trade with Japan on WTO terms or trade under CEPA, as the UK cannot remain a party to JEEPA after the end of the transition period. Nevertheless, the relative merits of CEPA and JEEPA are important context. The Government previously published an Impact Assessment of JEEPA that predicted larger GDP, export and import growth than those predicted in its Impact Assessment of CEPA, for example a £2.1–3bn per annum GDP increase in the long term, versus the £1.5bn per annum GDP increase in the long term estimated for CEPA. It would have been useful if the Government’s explanatory materials had addressed this fact to better explain CEPA’s consequences. We also would have welcomed analysis of respective gains that the UK and Japan have won through renegotiating. We note, for example, that the Government’s Impact Assessment estimates that UK exports to Japan will increase by 17.2% long term under CEPA, while Japanese exports to the UK will increase by 79.9%.
Finally, we welcome the Department for International Trade’s constructive attitude to working with us to try to facilitate scrutiny, including private briefings and confidential access to documents. The process for CEPA was not perfect, but clear lessons have been learned. We look forward to improving the process for scrutinising trade deals in the future.