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Scrutiny of international agreements: UK-Japan Comprehensive Economic Partnership Agreement Contents

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Chapter 9: Explanatory documents and Government presentation of CEPA

102.CEPA was published with an array of explanatory documents, and we comment briefly here on some of them, especially the Impact Assessment (IA) and the Government’s promotional materials. In the next chapter we consider how DIT has worked with us to facilitate scrutiny of CEPA during and at the end of negotiations.

The Government’s Impact Assessment

Economic impact

103.We are grateful to DIT’s Chief Economist, Mr Richard Price, for making time to speak to us in private about the Government’s IA and its modelling.

104.The bulk of the Government’s initial strategic approach was taken up by a scoping assessment, in which the Government set out its preliminary assessment of the potential long-run effects of a deal with Japan. The final IA builds on that scoping assessment, covering much of the same ground and reflecting the agreed provisions of CEPA.

105.The Government estimates that CEPA will drive an increase in UK exports to Japan by just over 17% (£2.6bn per annum) and UK imports from Japan by almost 80% (£13bn per annum). The Government modelling suggests that there will be increased trade in both goods and services, increased certainty for investors, and increases both to GDP (at 0.07% or £1.5bn per annum) and real wages (at 0.09% or £800mn per annum).125 Although the IA states that “all occupation types are estimated to benefit from higher wages” as a result of CEPA,126 there will also be contractions as the UK market adjusts to trade under CEPA, and the IA notes that these may affect in particular the chemical sector in the North of England and automotive manufacturing in the West Midlands.127 Overall, the Government estimates that London and the South East, the East Midlands, and Scotland will benefit most from CEPA.

106.While the IA helps to answer the policy question before Ministers—whether CEPA should be signed—it sheds less light on what benefits CEPA brings over and above those already enjoyed by the UK as a party to JEEPA. The IA’s assumptions are set out in section 5.2.1, which notes that the chosen baseline is no-deal with Japan, not trade under JEEPA. That comparison has been the subject of exchanges on social media between DIT officials and commentators, who have also questioned whether the comparison provides a full sense of CEPA’s results.128 Dr Morita-Jaeger also noted that the UK has enjoyed the benefits of JEEPA since 2019, so the Government’s “estimates do not represent the net benefit of the CEPA relative to [JEEPA]”.129

107.In May 2018, the Government published an IA of JEEPA, which suggested that JEEPA would increase GDP by £2.1–3bn per annum in the long run (compared to the estimated increase under CEPA of £1.5bn per annum in the long run) , with UK bilateral exports to Japan increasing in the range of £3.3–5.6bn and imports increasing in the range of £5.5–8.5bn.130 We acknowledge that the global economy has changed significantly since early 2018, and that there are differences in how this modelling was conducted by the EU Commission, and then calculated for the UK on an apportionment basis, compared with DIT’s bilateral modelling for CEPA. Nevertheless, Parliament and the public could benefit from analysis of the variations between these figures and those calculated for CEPA, in particular the headline figure of a long-run increase to GDP of £1.5bn under CEPA. We also note that some commentators have sought to compare how the new provisions of CEPA serve the UK and Japan respectively.131

108.Modelling of trade deals is complex, and we commend the Department’s efforts to get it right, including through its ongoing review with the support of an expert panel led by Professor Tony Venables.

109.The Government’s impact assessment (IA) fails to provide the information that Parliament and the public need if they are to evaluate how well the Government has done in its negotiations with Japan, as it does not identify what extra benefit, if any, CEPA might generate over JEEPA. Instead the IA considers only one alternative scenario: trading on WTO terms with Japan (in effect, a ‘no deal’ option). We note that the Government’s IA of CEPA projects lower increases in GDP, imports and exports than its previous assessment of JEEPA’s benefits for the UK, and would have welcomed more information to help explain this change.

110.The IA also assumes a UK-EU deal that includes zero tariffs and average costs arising from non-tariff barriers. We understand why such an assumption has been necessary, though the North East England Chamber of Commerce warned that “it seems a risk to base economic estimates on the assumption that there will be no tariffs between these markets”, given that the EU is the destination for 60% of the North East’s exports.132

111.We also note that, at some specific points, the data deployed in the IA do not answer key questions. For example, in evaluating how many jobs export trade with Japan supports—167,000—the IA refers to data from an OECD database last updated in March 2019, only a month after JEEPA was implemented.133 The IA also takes some steps to provide clear statistics about how CEPA will affect various segments of the workforce, including women, but this approach is not mainstreamed and seems to provide only a partial picture of CEPA’s effects on women’s economic empowerment.134

112.While we appreciate that the Government is constrained by the availability of data, and the fact that JEEPA only recently came into force, its IA leaves many questions unanswered. In particular, in the context of CEPA’s new chapter on women’s economic empowerment, we welcome the inclusion of statistics about the impacts of CEPA on women in the workforce, but note that the IA fails to answer fully the question of whether CEPA will actively promote women’s economic empowerment in the UK or in Japan.

Environmental impact

113.IAs are not only about economics, and Chapter 8 considers the environmental impact of CEPA. It includes assessments of CEPA’s implications for greenhouse gas emissions, energy usage, trade-related transport emissions, and wider environmental impacts. The UK Government has, domestically, set itself ambitious targets for decarbonising the economy.

114.The IA indicates that CEPA will result in a small increase in domestic greenhouse gas emissions (by 0.028%) and that it could increase energy consumption of fossil fuels (by the same percentage), although the IA notes that domestic policy decisions, such as phasing out coal power stations, might affect these estimates. It also notes uncertainty about whether trade-related maritime emissions will increase due to CEPA. Globally, shipping of freight accounts for at least 3% of greenhouse gas emissions.135

115.The IA also notes uncertainty about CEPA’s potential to increase investment and the export potential of low-carbon goods and services.136 The North East England Chamber of Commerce wanted to see more attention paid to such sectors, including renewable energy, and Cornwall Council told us: “The UK plans to become carbon neutral by 2050, yet there is not one mention of green technology.”137 We asked Mr Zebedee, the Chief Negotiator, how CEPA would support environmental goods, and he told us that there were “benefits” via the investment chapter and mutual recognition, although there was no specific chapter on the issue.138

116.We note that while the full environmental impacts of CEPA are hard to assess, and there is uncertainty about some of the potential benefits and disbenefits, overall it may result in a small increase in greenhouse gas emissions.139 We urge the Government to set out more detail, in future Impact Assessments or other explanatory documents, on how trade deals will support environmental goods.

Government’s presentation of CEPA

117.Throughout this report we have touched on specific areas where the Government’s presentation of CEPA has oversold some of its benefits.

118.DIT’s use of social media to promote CEPA has been criticised by trade experts and commentators. For example, the Department promoted CEPA as having “made [soy sauce] cheaper” for UK consumers—when in fact it rolls over the existing tariffs under JEEPA. We put this to the Minister on 4 November, who told us: “It was an error … Sometimes, in a display of exuberance these things happen.”140 The misleading statement appears to have been rooted in the Government’s insistence on comparing CEPA with a baseline scenario in which the UK and Japan traded on WTO terms, rather than the existing terms of UK-Japan trade under JEEPA.

119.Some of the Government’s promotional statements and materials do not reflect the substance of the deal that has been reached. We urge the Government to be careful not to oversell its achievements, especially in contexts where nuance is hard to convey, such as on social media.

120.Underlying some of these issues is the Government’s presentation of CEPA as a new deal, which contrasts with the approach of the Japanese government, which has emphasised the deal as providing continuity and retaining JEEPA provisions. Japanese Foreign Minister Toshimitsu Motegi said in a press conference: “In terms of the significance, the end of the transition period following Brexit is the end of this year, and concluding the EPA by then is important in the sense of enabling continuance of the benefits Japan has acquired under the Japan-EU EPA”.141 While the UK Government highlighted “strong tariff reductions”, the Japanese government’s press release stated: “the tariff reduction rates and timeframes are largely the same as those agreed under JEEPA”.142 As Dr Morita-Jaeger has commented: “the Japanese Government’s evaluation is more downbeat” in comparison to the UK Government’s presentation.143

121.In his most recent letter to us, Lord Grimstone noted that after the Prime Ministers of the UK and Japan agreed in January 2019 that there should be bilateral negotiations for a new agreement to replace JEEPA, a detailed UK consultation process was launched, running from September to November 2019, which led to the outline approach and scoping assessment published in May 2020.144 As we have noted previously, this meant that the UK-Japan talks were initiated in the UK in the same way as talks for entirely new bilateral agreements. Nonetheless, the fact that the UK would cease to benefit from the provisions of JEEPA on 31 December 2020 meant that it was always clear that CEPA would largely be a rollover agreement. Indeed, the fact that the CEPA talks were launched as though they were entirely new itself generated delay, removing any possibility of primary legislation in either country,145 and thereby further limiting the ambitions on both sides.

122.The Government’s approach also generated uncertainty about the process by which CEPA would be scrutinised by Parliament, as rollover agreements have been subject to a distinct process, involving the preparation of Parliamentary Reports, separate from other international agreements. This was compounded by the Government’s reluctance to reiterate the commitments made by the previous Government in its February 2019 Command Paper, Processes for making free trade agreements.146

123.This is particularly notable because, as part of promoting CEPA, the Secretary of State and her Department heavily promoted the UK’s system of parliamentary scrutiny of trade deals on social media and elsewhere. This has included somewhat partial summaries of the UK and other national systems.147 We have reported on treaty scrutiny more broadly, including but not exclusively scrutiny of trade deals, and note that the effectiveness of treaty scrutiny is often more a matter of practice than of formal procedures.148

124.Despite the detailed consultation and scoping exercise conducted by the Government, it was clearly always the case that CEPA would replicate most of the existing EU-Japan deal. Framing talks for CEPA as entirely new, by further compressing the timetable, only reduced ambition on both sides.

125.We welcome the Government’s enthusiasm for engaging with stakeholders on the UK-Japan talks, but by presenting the negotiation as one for a wholly new FTA it risked misleading both stakeholders and the public. We also note that it contributed to confusion, apparently within the Department as well as in Parliament, about the process by which scrutiny would be conducted.

126.The UK Government and we in Parliament are still developing our own processes for treaty scrutiny, and we will need to keep these under review to ensure that Parliament is able to provide effective scrutiny in practice.

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