The UK-Japan CEPA Agreement - is it better than the EU one?

Written by Gully Foyle - originally published as a Twitter thread in August 2022. See the original thread here. Like this article? You can get Gully a beer here.

In October 2020, the UK and Japan signed the Comprehensive Economic Partnership Agreement (UK-Japan CEPA) - a deal based on the existing one that the EU had agreed with Japan in 2018 (EU-Japan EPA or JEEPA), but with some targeted changes that were able to be made, in the short time available to the negotiating teams (to ensure no trade disruption, the deal had to be in place by January 2021 when the UK left the Brexit transition period).

So were the negotiations successful? Was the deal that the UK and Japan arrived at, an improvement on the deal that the EU signed only two years earlier? If so, how was this able to be achieved?

What Do We Mean By "Better" in the Context of Free Trade Agreements?

It is important to put into context, before we go into the detail of the negotiations and what was achieved, exactly what "better" looks like when it comes to trade deal negotiations. Free Trade Agreements, in all their various forms, are ultimately about mutually beneficial agreements that both sides are happy with - there aren't really any winners or losers in trade deal negotiations, as if one or both parties were not happy with the terms, the agreement would not end up being ratified and brought into place, or it wouldn't last the next election cycle. Benefits from trade deals can take many years to bear fruit, so deals that don't exist past an election cycle are not worth the effort - so it is in the best interests of both sides that both parties are happy with the terms, and that they are happy enough that they will stay in place.

So what then can we use as a fair measure of what constitutes "better" then?

Well when it comes to the UK operating bilaterally from outside the EU, we can compare the terms of the agreement reached, and how beneficial and aligned it is with the industries and consumers actually within the UK - as one of the long-standing concerns of EU trade deals, were that they were optimised for meeting the needs of the many within the EU (goods exporters like Germany) over those of the few (Services exporters like the UK).

So with the UK operating bilaterally from outside the EU, we can ask ourselves four questions:

The Negotiated Agreement and its Terms

So lets look at the deal itself, and the changes that were able to be made in the limited time available, from the original EU-Japan JEEPA text.

One of the sources I will be quoting from here, is an interview and presentation given by the UK lead negotiator of the deal, Graham Zebedee - you'll find the link to the video in the references at the bottom of the page.

At a high level, some of the improvements that were able to be made:

To quote the lead negotiator - "We took the EU-Japan deal as a starting point, and both sides considered whether the provisions of that deal were the right ones for us - and where we both agreed we could go further than that, we did"

The negotiations started on 9th June, with the Agreement in Principle on the terms on 11th September.

Do The Japanese Agree That the Deal is Better?

Yes. The deal was welcomed unashamedly within both the Japanese government as well as the press, with multiple Japanese press outlets focusing on the improvements that the two sides had been able to achieve bilaterally, over and above the original EU agreement it has been based upon.

Some examples of the perceived additional benefits from the Japanese perspective:

That the deal was able to be improved upon, should not be a surprise to anyone really, and it would seem to only be a bias towards the perceived superiority of the EU, that convinces people that more comprehensive deals could not be agreed outside of the EU.

Ultimately the size and structure of the EU is both a blessing and a curse when it comes to free trade negotiations. It has the size of 27 countries which gives it heft at the negotiating table, but it also has the vested interests of 27 countries to have to take into account - and 27 heads of government who will ultimately have to sign off on the terms of the agreement for it to come into effect.

You could look at the EU as a group of 27 friends who are all wanting to order a single massive pizza for all of them - in theory they could get a better price from the pizza shop as they are putting in a massive order, but first they have to agree on toppings. One friend doesn't like pepperoni. One friend doesn't like olives. One friend is vegan. One friend is allergic to mushrooms.

By the time the 27 friends have agreed between themselves on what a pizza they would all be able to eat would actually look like, the 28th friend who ordered on their own instead has already had theirs delivered, and has eaten it. Meanwhile the pizza the 27 friends were able to agree on arrived two days later, and was a flavourless vegan margherita.

The Japanese Ambassador said as much in an interview in 2019 on the BBC Radio 4 programme "World at One" - where he outlined that they were confident that they would be able to make the deal better with just the UK.

Unfair and Inaccurate Criticisms / Rumours

The comments that are most commonly made about the UK-Japan deal and why it must be worse, are all based on misunderstandings of headlines for articles people didn't bother to read, or from intentionally misused data points for political convenience.

The first of these, the forecasted increase to GDP, has been thoroughly debunked by FullFact which I will link to in the references at the bottom of the page - but in summary the £2.6bn forecast relates to what a potential future EU-Japan trade deal could've been worth, before they actually started negotiating it, based on 2009 data. So was never a fair comparison, as the actual deal (as already mentioned) did not live up to the potential that it could have had. The £1.6bn figure is from the impact assessment of the actual agreement the UK reached, on up to date financials and trade patterns.

Second, the state aid provisions. This rumour is all based on a misleading Financial Times headline that, presumably due to the fact that FT articles are behind a paywall, no one bothered to actually read the detail of. The actual story was that the UK-Japan agreement contained stricter state aid provisions than that which had been offered to the EU during the UK-EU trade negotiations, which were ongoing at the time. However some, having only read the headline of the article, took this as meaning that the state aid provisions in the UK-Japan agreement were stricter than those in the EU-Japan agreement. In fact, the provisions were identical, as they were not changed as part of the negotiations from the original EU agreement text.

Third, the shared quotas. There is actually a level of truth within this, but the scale has been massively blown out of proportion to suggest there is a problem, when there simply is not. Within the EU-Japan agreement, there are 25 tariff-rate quotas (TRQs) on agri-foods, which means that per year only a certain amount of exports from the EU to Japan would be eligible for the reduced tariff-rate within the trade agreement, after which the exports would receive the usual tariffs as agreed at the WTO level. Of those 25, the UK exported goods to Japan under 5 of them. In the UK agreement, the UK shares 10 of the EUs 25 quotas.

But how much of the UKs exports to Japan are affected by this sharing of quotas? Well of the £15bn of exports to Japan in 2019/20, around £1m was affected by these TRQs. So that equates to 0.007% of the UKs exports to Japan.

Finally, the topic of cheese and lactose-intolerance. Though it is a known fact that lactose-intolerance is more common within the Japanese, the product is actually quite popular within Japan - and as the cheese manufacturing industry is almost non-existent within Japan, they are one of the biggest importers of Cheese in the world. So actually this was an important focus of the negotiations for a very good reason.

In Summary

The terms of the UK-Japan CEPA are demonstrably more comprehensive than the EU-Japan JEEPA in multiple areas, that should be of benefit to the UK economy and UK consumers. As with any trade deal, it will only result in increased trade and as a consequence GDP if UK businesses actually make use of it - but the opportunities are there, and hopefully UK businesses will seize on those opportunities.

Gully Foyle is a prolific commentator on international trade and post-Brexit UK trade policy, and can be found on Twitter here.