UK-Japan FTA: How can businesses benefit practically?
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The UK has secured a free trade agreement with Japan, which is the UK’s first major trade deal as an independent trading nation and will increase trade with Japan by an estimated £15.2 billion.
The UK-Japan Comprehensive Economic Partnership Agreement has entered into force.
The deal is tailored to the UK economy and secures additional benefits beyond the EU-Japan trade deal, giving UK companies exporting to Japan a competitive advantage in a number of areas.
Stepping stone to CPTPP
The deal is also an important step towards joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This will give UK businesses a gateway to the Asia-Pacific region and help to increase the resilience and diversity of our supply chains.
99% Duty-Free Access
UK businesses will benefit from tariff-free trade on 99% of exports to Japan.
What's included
The agreement will form the basis of economic and trade relations between the UK and Japan. It replaces the EU-Japan trade agreement. This trade agreement covers:
trade in goods and services, including provisions on rules of origin, preferential tariffs and quotas
intellectual property, including geographical indications
technical barriers to trade *trade remedies
sanitary and phytosanitary measures
customs and trade facilitation
competition
transparency
dispute settlement
government procurement
Top 7 benefits for goods
Tariff free access for more UK and Japanese goods – new and more liberal Rules of Origin will allow producers of coats, knitwear and biscuits to source inputs from around the world for their exports to Japan – making it easier and cheaper for them to sell to the Japanese market.
New protection for more UK goods – increasing geographical indications (GIs) from just seven under the terms of the EU-Japan deal to potentially over 70 under our new agreement, covering goods including English sparkling wine, Yorkshire Wensleydale and Welsh lamb. This would lead to improved recognition of key UK brands in the Japanese market.
New protections for UK creative industries – British businesses can now be c
Improved mobility for business people – securing more flexibility for Japanese and British companies to move talent into each country, covering a range of UK skilled workers to enter Japan, from computer services to construction. This includes commitments that go beyond the EU-Japan deal, for investors, spouses and dependents, and a wider range of intra-company transfers. Requirements for visas will be clear, transparent, and with an aim that they be processed in 90 days. 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.
Supporting UK car and rail manufacturing – supporting major investors in the UK like Nissan and Hitachi through reduced tariffs on parts coming from Japan, streamlined regulatory procedures and greater legal certainty for their operations.
More generous market access for malt producers – Japan has guaranteed market access for UK malt exports under an existing quota which is more generous and easier to access than the EU quota. The UK is the second biggest exporter of malt to Japan, with UK producers exporting £37m there each year.
Strong tariff reductions for UK pork and beef exports – We have negotiated a deal that sees tariffs fall on pork, beef, salmon and a range of other agricultural exports. We will continue to benefit from access to the low tariffs for key food and drink products covered by quotas, such as Stilton cheese, tea extracts and bread mixes. This forms a pathway to further market access under CPTPP, which has been committed to by Japan as part of our agreement.
How will rules of origin affect UK-Japan trade?
There are two main ways:
UK goods seeking to enter Japan under this preference will have to prove that they are from the UK under particular rules agreed in an FTA. This prevents a country without a trade deal from accessing the Japanese market through the UK and vice versa.
How is the origin of goods determined?
The first need is to determine what good is being traded. The World Customs Organization has a list classifying every product traded under tariff headings. Each product has a unique code, that is grouped into broader categories.
Once the good is classified, the next step is to establish its “economic rationality” as opposed to simply the country it came from. This involves determining the good’s value and where the contributions were made in adding value to the final product (see “sufficient value-added” below).
If all materials were obtained and processed in one state, it would be “wholly obtained” in that country. That would apply, for example, to agricultural produce and natural resources.
What about for more complex manufactured goods?
A car has multiple components: bumpers, brakes, clutches, computer software, leather seats and rubber tyres, etc. These can be made in different countries and shipped as needed to be assembled into the final product. With multiple components adding value, it can be very difficult to determine the origin of some products. In this case, the final product is determined by the location of the “last substantial transformation.”
For preferential origin, substantial transformation is defined through one or a combination of three main criteria:
Change of tariff classification: When the work undertook within a country results in a change of classification. For example, the unique code for car parts, 8708, is different to the code for a finished car, 8703. If a country assembles car parts into a finished car, it would qualify as a change of tariff classification.
Sufficient value-added: The originating state must contribute a minimum percentage of the value of a product. Each component will add a certain amount of value, calculated as the percentage of the ex-works price of the final good (i.e. the total price of the inputs to the good exempting transportation and insurance costs). Typically, around 50%+ of value has to be added to claim origin.
Specific processing: Finished products can qualify when particular specific working or processing activities are carried out. For example, a rule may require clothing products to be manufactured from yarn.
After Brexit, will UK goods meet the origin threshold to qualify for preferences?
Typically, for preferential origin, around 50%+ of value has to be added to claim origin. Post-Brexit, what was once EU value-added will have to be separated into UK and EU value-added. That will make it harder to reach the threshold to export to Japan without tariffs.
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Links
Press release: https://www.gov.uk/government/news/uk-and-japan-sign-free-trade-agreement
Press Release: https://www.japantimes.co.jp/news/2020/10/23/business/japan-uk-sign-free-trade-deal/
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