Chapter 4: Trade in services, investment liberalisation and electronic commerce (CEPA Chapter 8)
41.This chapter of CEPA provides the greatest improvements on JEEPA, including improvements to provisions on financial services and digital trade, and may be where the most gains can be made by UK businesses. Those changes may, however, have implications for data protection.
Financial services
42.One of the key advances for the financial services sector is on regulatory cooperation, given that, as TheCityUK and the City of London Corporation told us, “most barriers to trade in services are regulatory in nature”.55 CEPA replicates the Financial Regulatory Forum established under JEEPA in Annex 8-A, but as a bilateral agreement will be more tailored to UK interests. While the JEEPA Forum was between the European Commission and the Financial Services Agency of Japan, meaning that the UK was one step removed, the CEPA Forum will directly include HM Treasury, the Bank of England and Financial Conduct Authority. The language used in the mandate for the Forum has also been modified, referring to “regulatory deference” rather than mutual “reliance”,56 which TheCityUK and the City of London Corporation have welcomed.57
43.DIT’s press release stated that the UK had achieved “improved market access for UK financial services”, including “greater transparency and streamlined application processes for UK firms seeking licences to operate in Japan”.58 While the section on market access is largely the same as that in JEEPA, there is an expansion of the terms under which UK financial services suppliers can offer new financial services on the same basis as Japanese companies (Article 8.60).
44.Stakeholders welcome the fact that CEPA replicates and expands financial services provisions in the EU-Japan deal. CEPA’s forum on regulatory cooperation is similar to the forum under the EU-Japan deal, but allows UK financial regulators to be directly involved. The change in language from “reliance” to “deference” indicates a potential shift in approach to regulatory cooperation and has been welcomed by representatives of the financial services industry. Provisions on greater transparency and streamlined application processes for UK firms seeking licenses in Japan are also an improvement.
Investment liberalisation
45.TheCityUK and the City of London Corporation welcomed the fact that investment liberalisation provisions in CEPA cover similar ground to JEEPA, though they had hoped they would have gone further.59 Dr Minako Morita-Jaeger, Fellow at the UK Trade Policy Observatory at the University of Sussex, has described the lack of a comprehensive investment chapter as potentially a missed opportunity, and a “major shortcoming”, as it would have sent a signal to Japanese investors regarding the UK Government’s strong commitment to future Japanese investment.60 We note that, in the future, the UK will no longer be a gateway to the EU, and so a dedicated investment chapter would have helped to signal the UK Government’s continued commitment to future Japanese investment.
Movement of natural persons for business purposes (Mode 4)
46.The Government’s Parliamentary Report indicates that improvements have been made on the temporary movement of highly skilled professionals (Annexes 8-B-III, 8-B-IV and 8-C of CEPA). Investor definitions have been amended to focus on investment in UK industry and jobs, instead of the amount of capital.61 DIT’s press release states that “requirements for visas will be clear, transparent, and with an aim that they be processed in 90 days”, and “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”.62
47.TheCityUK and City of London Corporation welcomed these additions, in particular the expansion of the scope of Japan’s intra-corporate transferee category to allow more UK service suppliers to be eligible, as well as the adjustment in the investor definition.63
48.The CBI had recommended an additional provision to allow the temporary presence of businesspeople for longer than the three-month period allowed under JEEPA, but this was not agreed under CEPA. The CBI argued that this could have benefited businesses in the digital sector, such as fintech companies needing to send staff to Japan for longer periods.64
49.While CEPA does not extend the three-month period allowed for the temporary presence of businesspeople in the EU-Japan deal, there are some welcome if minor improvements to mobility provisions. These include the amendment to investor definitions and the provisions allowing intra-corporate transferees to bring their spouse and children and stay for up to five years.
Mutual recognition of professional qualifications
50.The Law Society of England and Wales welcomed the replication of existing provisions in JEEPA relevant to the legal sector and new commitments to greater transparency, such as publicising details regarding fees and timeframes for licensing applications. During the negotiations, it had argued that Japan should provide reciprocal recognition of legal qualifications and a more streamlined registration process for foreign lawyers. It recognised the challenge, given the lack of time to complete negotiations, in addressing these issues directly within the text of the agreement, but hoped that there could be further discussions on regulatory cooperation.65
51.TheCityUK and the City of London Corporation also noted that regulatory dialogue on the mutual recognition of professional qualifications should be an ongoing discussion and should not end with the conclusion of the agreement.66
52.The mutual recognition of professional qualifications in the legal and the financial and related professional services sectors was not achieved in CEPA, which is unfortunate. The Government should pursue future opportunities for continuing regulatory dialogue.
Digital and data
53.DIT’s objectives stated that the UK would aim to “secure cutting-edge provisions which maximise opportunities” and “promote a world leading eco-system for digital trade that supports businesses of all sizes across the UK”.67 One challenge in presenting the merits of digital trade is quantifying the economic benefits that it can bring for both businesses and consumers. This is one area that DIT’s review of economic modelling may help clarify and improve.68
54.New provisions on data have been agreed, with the most significant departure from JEEPA being the provision facilitating cross-border data flows (Article 8.84). Other prominent new provisions include a ban on data localisation requirements (Article 8.85) and a provision on open government data to encourage the publishing of anonymised datasets and cooperation on expanding publicly available government datasets (Article 8.82).
55.Stakeholders across a range of sectors had advocated such provisions. techUK stated that enabling data flows was “key” and avoiding data localisation requirements “an opportunity for UK and Japan to go further than the EU was able to go”.69 The Motion Picture Association also highlighted the importance of such provisions for their sector.70 With specific relevance to the financial services sector, CEPA includes additional provisions on the ability to use, store and process financial data on a cross-border basis (Article 8.63).71 TheCityUK and the City of London Corporation agreed that data localisation requirements should not be adopted by the UK and Japan, and therefore welcomed this provision.72
56.On the other hand, we also note that concerns have been raised that the cross-border data provisions (Article 8.84), might weaken the UK’s data protection regime.73 Consumer rights group Which? raised the questions of how UK consumers’ personal data might be shared with other countries that Japan has agreements with, and what might happen if the UK were to move away from EU data protection standards in the future.74
57.However, the Information Commissioner pointed to the fact that Japan has received an adequacy decision from the EU, which recognises that there is an effective data protection regime in Japan.75 CEPA does make commitments to adopt or maintain a legal framework that provides for the protection of personal information of e-commerce users (Article 8.80), but Dr Emily Jones and Dr Beatriz Kira, of the Blavatnik School of Government at the University of Oxford, noted that this was a general commitment, and the details were less clear. They argued for the need to analyse whether the UK’s existing standards met the requirements specified in CEPA.76 This call was echoed by the Trade Justice Movement, which stated that digital trade provisions “deserve[d] more thorough scrutiny and research particularly in terms of how digital trade provisions affect individuals’ data privacy, health services, [and] the ability of governments to regulate emergent technology”.77
58.Other changes have been made in CEPA to strengthen or clarify provisions in JEEPA, including concerning customs duties on electronic transactions (Article 8.72), online consumer protection (Article 8.79), e-authentication and e-signatures (Article 8.77), source code protections (Article 8.73) and mechanisms for future cooperation (Article 8.83). These have been welcomed by the legal, financial and related professional services sectors.78
59.We largely welcome CEPA’s new provisions related to digital and e-commerce. The provision banning data localisation requirements will have cross-cutting benefits for many sectors, including the financial services sector. However, we note that some questions remain regarding the protection of personal data.
60.Quantifying the economic benefits of these new and strengthened provisions remains a challenge, and may require time and new economic modelling methods. Moreover, as digital and data become more important in trade agreements, there needs to be greater scrutiny of the impact of digital trade provisions, particularly as the UK develops its own data protection standards, which may diverge from the EU’s.
56 The JEEPA forum has a mandate to provide “guidelines on reliance on each other’s regulatory and supervisory framework”. The CEPA forum has a mandate to provide “guidelines on deference to each other’s regulatory and supervisory framework”.
58 Department for International Trade, ‘UK and Japan agree historic free trade agreement’, (11 September 2020): https://www.gov.uk/government/news/uk-and-japan-agree-historic-free-trade-agreement [accessed 11 November 2020]
60 Dr Minako Morita-Jaeger, ‘Japan-UK Free Trade Agreement—What is missing?’, UK Trade Policy Observatory (22 October 2020): https://blogs.sussex.ac.uk/uktpo/2020/10/22/japan-uk-fta-what-is-missing/ [accessed 11 November 2020]
61 Parliamentary report, para 103
62 Department for International Trade, ‘UK and Japan agree historic free trade agreement’, (11 September 2020): https://www.gov.uk/government/news/uk-and-japan-agree-historic-free-trade-agreement [accessed 11 November 2020]
67 Strategic approach, p 10
68 This review was announced on 1 July with the news that Professor Tony Venables would lead an expert external advisory panel. The other members of that panel were announced on 24 September. (Department for International Trade, ‘New expert panel established to support UK trade negotiations’, (24 September 2020): https://www.gov.uk/government/news/new-expert-panel-established-to-support-uk-trade-negotiations [accessed 11 November 2020])
69 Oral evidence taken before the House of Commons International Trade Committee, 8 July 2020 (Session 2019–21), Q 148 (Antony Walker, techUK)
71 Parliamentary report, para 106