Summary of conclusions and recommendations
Introduction
1.We draw special attention to the UK-Japan Comprehensive Economic Partnership Agreement on the grounds that:
- It is politically important and gives rise to issues of public policy that the House may wish to debate prior to ratification. (Paragraph 13)
Trade in goods (CEPA Chapter 2)
2.We welcome CEPA’s tariff reductions keeping pace with EU-Japan reductions, protecting UK competitiveness in the Japanese market. However, the Government’s presentation of tariff liberalisation on products like UK pork and beef exports as though they were new to CEPA is just the first instance of what will be a theme of this report: the Government presenting as a new gain the retention of EU-negotiated provisions. Except for a faster tariff reduction for leather and hide goods in the Japanese tariff schedule, the UK does not seem to have secured significant improvements in this area. (Paragraph 18)
3.The arrangements in CEPA for the UK’s continued access to some tariff rate quotas are sub-optimal. It is better to have access to these TRQs than not, but uncertainty around how much of the TRQ will be left for UK exporters is likely to disincentivise their use. EU exporters are likely to use the TRQs more as they become more familiar with them, potentially limiting UK exporters’ opportunities. Further, as it will not be clear at the time of ordering goods whether they will in fact benefit from the lower tariff, we have been told that this will make British goods less attractive vis-à-vis EU goods. The streamlining of the process that the UK and Japan have agreed, with less paperwork required for UK exporters to use the TRQ, is welcome in principle but unlikely to mitigate this uncertainty. (Paragraph 24)
4.As Japan’s autonomous TRQ for malt has always been available to UK exporters, we fail to see how CEPA has secured “more generous market access”, as the Government claims. Nonetheless, we welcome the assurance provided to UK exporters by the side-letter on malt. (Paragraph 27)
Rules of origin and origin procedures (CEPA Chapter 3)
5.The rules of origin for some products, such as baked goods and textiles, are more liberal in CEPA than in the EU-Japan agreement, and this could be beneficial for some manufacturers seeking more flexibility in sourcing inputs. Continuity in the rules of origin for automotive vehicles and parts has been welcomed by the sector. We also welcome the increased flexibility of origin procedures in CEPA. (Paragraph 34)
6.CEPA alone cannot secure diagonal cumulation between the UK, Japan and the EU, which many industries have recommended, but it does take an important first step in extending cumulation to the EU for most products listed in the UK Global Tariff, with some exceptions, like some cereals and spices. This is particularly valuable for food and drink manufacturers and will help to ensure business continuity for UK exporters to Japan and Japanese exporters to the UK if they incorporate EU content to meet value-added thresholds. (Paragraph 39)
7.To secure existing trilateral trade flows between the EU, UK and Japan, the UK and EU would need to extend cumulation to Japan through their own trade agreement. It appears that the EU does not intend to so. Such uncertainty affects certain sectors, such as automotive manufacturing, particularly acutely. (Paragraph 40)
Trade in services, investment liberalisation and electronic commerce (CEPA Chapter 8)
8.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. (Paragraph 44)
9.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. (Paragraph 49)
10.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. (Paragraph 52)
11.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. (Paragraph 59)
12.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. (Paragraph 60)
Intellectual property (CEPA Chapter 14)
13.We welcome CEPA’s additional language, compared with the EU-Japan deal, on ensuring adequate rights protections and, including additional provision on enforcing criminal remedies for certain intellectual property rights infringement and on enforcement in the digital environment. We note, though, that many of the additions focus on future discussions and awareness raising about existing enforcement procedures in both countries, rather than securing new, concrete protections. (Paragraph 66)
14.It is welcome that CEPA maintains the Geographical Indications (GIs) under the EU-Japan deal, and that the UK has taken steps to make it easier to obtain further GIs in the future. But given the uncertainty regarding whether UK producers will gain the additional sixty or so GIs that the Government has advertised, it is not yet possible to state that the UK has won new protection for more UK goods. This is another area in which the Government’s promotion of CEPA has oversold the actual provisions of the deal. The Government should swiftly provide clarity for stakeholders by setting out in detail the process and timeframe for obtaining approval of new GIs from Japan. (Paragraph 71)
Trade and women’s economic empowerment (CEPA Chapter 21)
15.We agree with the Commons International Trade Committee that the UK should use trade deals proactively to promote gender equality. CEPA does not reflect a significant step towards that goal. We would welcome further clarity from the Government about how central this issue will be for the UK in future trade negotiations. (Paragraph 75)
16.We welcome the introduction of a chapter on women’s economic empowerment in CEPA, but we note the non-binding nature of the text. While this is common for such chapters in trade deals, we were disappointed at the absence of any reference to this issue in the Government’s outline objectives and the Secretary of State’s recent speech about “values-driven” trade. (Paragraph 76)
Chapters with no or few changes
17.It appears that the Government felt that JEEPA adequately achieved its goals in areas such as competition policy, technical barriers to trade, and trade remedies, where it has rolled over JEEPA’s provisions almost entirely. We do not underestimate the value of this continuity, but we note that it does not represent any material advance to what has been agreed in JEEPA. (Paragraph 80)
18.We have concerns about the exclusion of the entire chapter on sanitary and phytosanitary measures (Chapter 6) from CEPA’s dispute mechanism. We urge the Government to explain the possible consequences of this change. (Paragraph 85)
19.CEPA has largely replicated the EU-Japan provisions for subsidies, or state aid. Insofar as CEPA might serve as a model for other UK bilateral agreements, the absence of any practical enforcement mechanism and of an ability for companies to launch a complaint in the other party’s jurisdiction means that the agreement adds only modestly to the WTO subsidy control provisions. (Paragraph 88)
20.We welcome the rolling over of the EU-Japan chapter on trade and sustainable development, maintaining bilaterally commitments to international agreements on labour, the environment and biodiversity, and the importance of sustainable management of natural resources. The small changes introduced in CEPA, however, seem to require less swift action to work on these issues. We urge the Government to maintain its focus in this area, through this and other agreements. (Paragraph 91)
21.The SMEs chapter of CEPA, while welcome, does not in and of itself offer significant benefits to UK SMEs. Like SMEs chapters in many trade deals, including the EU-Japan agreement, it simply offers facilitation. Advantages for SMEs are more likely to emerge from work done by the two parties, and others, to encourage the utilisation of the agreement by such businesses. This should be the subject of regular review by the Government. (Paragraph 94)
Application of the deal (CEPA Chapter 1)
22.We welcome the fact that CEPA includes provisions to extend its territorial application to cover the Crown Dependencies and Overseas Territories. Should they wish to be included and CEPA prove of benefit to them, the agreement should be extended to these areas as soon as practicable. (Paragraph 97)
23.We have concerns about how CEPA’s new provision relating to the Protocol on Ireland/Northern Ireland will work in practice, as well as how modified rollover trade agreements, such as CEPA, will interact with that Protocol, and might affect access to goods in Northern Ireland. Without clarity on the UK-EU relationship, it is impossible to comment further, but we note the uncertainty this has caused for Northern Ireland citizens and businesses. (Paragraph 101)
Explanatory documents and Government presentation of CEPA
24.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. (Paragraph 108)
25.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. (Paragraph 109)
26.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. (Paragraph 112)
27.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. 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. (Paragraph 116)
28.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. (Paragraph 119)
29.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. (Paragraph 124)
30.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. (Paragraph 125)
31.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. (Paragraph 126)
Looking ahead
32.We recommend that in future the Government should provide a detailed table of planned implementing legislation, including the powers being used for secondary legislation and the expected timetable for that legislation to be introduced and to come into force. This should also indicate where the devolved legislatures will need to legislate in areas of devolved competence. (Paragraph 129)
33.The governance procedures established under CEPA are largely as expected, following those already established in the EU-Japan deal. While the operation of CEPA is a matter for the parties’ respective governments, we would urge the UK Government to be transparent about the deal’s operation and impacts on the UK. In particular, we encourage the Government to produce and publish detailed monitoring and evaluation reviews, to assess the economic and other impacts of CEPA post-implementation. These should include details of the steps it has taken domestically to support UK businesses and stakeholders to realise fully the benefits of CEPA’s provisions, as well as steps that have been taken in cooperation with Japan. (Paragraph 136)
34.Both the UK and Japan have committed to working together to review and enhance CEPA wherever possible through its governance structure. We welcome this commitment to achieving enhancements post-implementation. (Paragraph 137)
35.As we recommended in our report on Treaty scrutiny: working practices earlier this year, the Government should ensure that amendments to CEPA are notified to Parliament even when they fall below the threshold for activating the scrutiny process of the Constitutional Reform and Governance Act 2010. We are grateful to officials for confirming that this is the Government’s intention and look forward to hearing soon how this will be delivered in practice. (Paragraph 138)
36.We will follow closely the Government’s bid to accede to the CPTPP, which we expect to be launched in the new year. We note the Government’s focus on some bilateral talks—including with Japan, and the ongoing talks with Australia and New Zealand for new FTAs—as stepping-stones to CPTPP membership. In preparing for, and then conducting, accession negotiations, we hope the Government will engage constructively with all other members of the CPTPP. (Paragraph 141)
37.We welcome the Secretary of State’s commitment to ensuring that we and other scrutiny committees can review final deals in confidence. We recommend the following process for the Government sharing confidential documents with Parliament before laying them formally in accordance with the provisions of the Constitutional Reform and Governance Act 2010:
(a)That staff of the relevant scrutiny committees be provided with documents by the Department to disseminate to members, in numbered hard-copy or electronic form, as appropriate;
(b)That password-protection be used to secure electronic documents; and
(c)That numbered hard copies be collected and destroyed after the final deal has been published, in line with Parliament’s existing process for handling confidential waste. (Paragraph 145)
38. None of this should detract from the constructive work relationship we have experienced with the Department so far. We look forward to working constructively on scrutinising future deals. (Paragraph 146)