With the completion of the final post-Brexit transitional period around the corner, the UK is scrambling to secure multiple trade deals before the end of 2020. The Japan–UK free trade agreement (FTA) holds significance in boosting investments and diversified supply chain mechanism for both countries with market growth opportunities, says GlobalData, a leading data and analytics company.

The investor-state dispute settlement (ISDS) provision, which enables the countries to settle disputes with foreign investors, was mutually excluded from the negotiation with an aim to reach the desired deal at the earliest, through a digital platform, amid the COVID-19 pandemic.

Japan is focused on defending the interest of its automobile industries, by seeking favorable tariff terms or the rate agreed in the EU agreement last year; whereas the UK is envisaging the dream of becoming Global Britain by seeking high-powered trade deals with countries covering 80% of the UK market.

Prachi Gupta, Economic Research Analyst at GlobalData, states:

The UK has been the business hub of Japan for long and a gateway for the European market. The unfavourable future trade deals between the UK and EU could give rise to uncertainties for Japanese businesses, regarding the supply chain disruptions towards the manufacturing and exports of automobiles in the region. The FTA will help Japanese industries in curbing the trade disruptions arising after the end of transition period.

The FTA is to set forth the steppingstone for Japan in becoming a full member of the ‘Five Eyes plus’ framework to strengthen the intelligence alliance, that shares information on North Korea and China through its advanced technologies, as the sixth eye. Moreover, the UK’s membership of the Comprehensive and Progressive Agreement of Trans-Pacific Partnership (CP-TPP) will benefit Japan in counteracting China’s influence over the region and luring the US at the negotiations.

According to the UK Department for International Trade (DIT), the trade between Japan and the UK is expected to boost by US$18.1bn in the coming years, with the signing of the FTA. The Japanese automotive industries have expressed keen interest in the bilateral trade relations with the UK, through progressively liberalized tariff terms in the future, on the lines of the EU–Japan agreement.

The FTA is expected to benefit the various aspects of Japan and the UK’s economies such as the recognition of professional qualifications by the respective countries, with lowered tariff rates in the textile, leather, automobiles and agriculture sector. The trade deal is also expected to pave the way for free flow of data, leading to the development of technologies, artificial intelligence and advanced digital trade.

Ms Gupta concludes:

The reduction in tariff rates could lower the cost of domestic production, leading to the promotion of SMEs and improvement in the quality of trade between both the countries with the effective use of the global supply chain. The FTA will boost investments, trade and job creation besides strengthening UK–Pacific relations.