By Yusuke Nakajima, Nikkei staff writer
LONDON – The Japanese and UK governments have reached an agreement in principle on a new trade pact. The UK has withdrawn from the European Union (EU), and the trade negotiations with the EU are now in crisis. In this context, the UK was clearly delighted about the agreement with Japan—the UK’s first with a nation outside the EU—calling it a “historic pact.” The process of the negotiations, however, suggests the UK will encounter many difficulties in its trade strategy in the future.
“The deal is an important step towards joining the Trans-Pacific Partnership (TPP),” said UK International Trade Secretary Elizabeth Truss on Sept. 11, the day the broad agreement was reached. A statement stressing the significance of the agreement was also issued.
Difficulties in negotiations with the EU
During the transition period through year-end, the UK is treated the same as EU members. Trade pact agreements concluded during this period will be indispensable for the UK in its negotiations with the EU. The ninth round of UK-EU talks among final-stage negotiator-level officials is scheduled to start from Sept. 29; however, the situation is at a critical state with no date in sight for reaching an agreement. To increase the number of non-EU countries with which the UK has free trade agreements (FTA) and play up to the people of the UK the [positive] outcomes of leaving the EU, “the UK-Japan agreement and the TPP are top priorities,” said UK trade sources.
The Japan-UK negotiations were not supposed to be difficult because most items were carryovers from the Japan-EU Economic Partnership Agreement (EPA). Foreign Minister Toshimitsu Motegi held a joint press conference with Truss on Aug. 7, during his trip to the UK. At that time, preparations were already being made behind the scenes to announce an “agreement in principle” that day. What prevented it was UK blue cheese.
The UK government insisted to the end on the expansion of Japan-bound exports of “Stilton,” a cheese which is known as one of the world’s three great blue cheeses and is a favorite of Queen Elizabeth II.
According to the UK Agriculture and Horticulture Development Board (AHDB), the UK exports 102,000 pounds (about 14 million yen) worth of blue cheese to Japan. Given that total UK exports to Japan are valued at 15.2 billion pounds (UK trade statistics), this amount falls within the range of error. Despite that, the UK side sought from Japan a special export quota at a low tariff. Japanese trade sources exclaimed, “The Japan-UK negotiations will be the foundation for Asia-Pacific strategy, and blue cheese is calling the shots!”
This, however, is exactly what hints at the complications the UK will encounter in future trade negotiations.
Chief constituency supporting the Johnson administration
About 4 million people work in the agriculture, forestry, and fisheries industries and the food industry in the UK. The government calls it the largest “manufacturing” sector. This is an important constituency for Prime Minister Boris Johnson’s Conservative Party, whose support base is rural areas. Moreover, livestock products, such as meat and raw milk (not wheat and vegetables), make up about 60% of the UK’s agricultural output. For Prime Minister Johnson, livestock products and related processed foods are exceptionally important items that affect the administration’s ability to gather support.
Britons are becoming increasingly wary about the inflow of beef and mutton into the UK through the FTA negotiations with the United States and Australia. At the end of July, the UK government launched the “Trade and Agriculture Commission,” which is composed of bureaucrats, agricultural groups, and others.
Outwardly, the aim of the commission is to put together policies to expand the export of agricultural products on the occasion of the nation’s withdrawal from the EU. With the creation of this board, UK Secretary of State for Environment, Food and Rural Affairs George Eustice hinted at blocking the expansion of imports, saying, “In all our trade negotiations, we will not compromise on our high environmental protection, animal welfare and food standards.”
In fact, the question of whether to permit the import of chlorine-washed chicken and hormone treated beef from the U.S. will be one of the tough issues in the U.S.-UK FTA negotiations, making an agreement by year-end difficult.
The services industry, including finance and IT, accounts for 80% of the UK’s gross domestic product (GDP). The UK aims to leverage this to create its growth strategy, but the difficulties in working out the handling of agricultural products cannot be sidestepped in the trade negotiations. Hosuk Lee-Makiyama of the European Centre for International Political Economy explains: “In the negotiations with the U.S. and Australia, the UK will have no choice but to open its livestock product market. To that degree, the UK needed to insist on a [positive] outcome in agricultural products in its negotiations with Japan.”
The UK recently left the EU and has little experience in conducting independent trade negotiations. It will be a challenge for the UK to balance domestic coordination and international negotiations. The UK Department for International Trade says, “We do not lack negotiating skills.” Some negotiation counterparts, however, tease the UK. As New Zealand Foreign Minister Winston Peters commented, “It’s like coming into an Ashes contest when you haven’t played [cricket] for 30 years.”
The Johnson administration’s stated aim is to have 80% of total U.K. trade covered by free trade agreements by the end of 2022. Without doubt, the road to achieving that goal will be rocky.