Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex and a fellow of the UK Trade Policy Observatory. 

On Thursday last week (May 30) President Donald Trump threatened to levy tariffs on all US imports from Mexico. The UK should take note, as this has implications not only for Mexico, but for the UK as well. (more…)

June 7th, 2019

Posted In: UK - Non EU

Tags: , , , ,

One Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Photo of Emily Lydgate15 May 2019

Chloe Anthony, Ffion Thomas and Emily Lydgate

In this blog, we take a closer look at the legislation that is being used to bring existing EU pesticide regulations into UK law in preparation for leaving the EU. We find that departures from EU pesticides legislation are significant. The new legislation consolidates powers to UK ministers to amend, revoke and make pesticide legislation and weakens both enforcement arrangements and the requirement to obtain scientific advice. (more…)

May 15th, 2019

Posted In: Uncategorised

8 Comments

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

30 April 2019

Dr Minako Morita-Jaeger is an international trade policy consultant and an Associate Fellow of the UK Trade Policy Observatory.

The UK managed to avoid crashing out of the EU on 12th April for the second time. But this delay extends uncertainty since the possibility of a No-deal Brexit on 31st October remains. The UK’s trade partners have been looking at Brexit uncertainty with great dismay. Japan is not an exception. Here, I highlight how this uncertainty is affecting Japanese businesses in Europe and analyse possible future UK-Japan trade relations based on the three scenarios currently in the UK political debate. This provides an update to the UKTPO blog on UK-Japan relations.

UK’s relative market attractiveness declining in Europe

On-going Brexit uncertainty has been diminishing confidence in the UK. According to the JETRO’s (Japan External Trade Organization) annual business survey, Japanese businesses’ evaluation of UK’s political and social stability has been declining since the 2016 Referendum. In the latest survey, conducted in September-October 2018, although political anxiety over Brexit was not as intense as it is now, Japanese companies doing business in Europe regarded the UK as the most politically and socially unstable country in Europe together with Romania. The survey also shows that the UK’s relative market attractiveness in Europe is declining. For example, the UK’s expected change in business profits in comparison with the previous year ranked the 2nd lowest among European countries both in 2018 and in 2019.[1]  About 70% of Japanese businesses were concerned about economic stagnation in the UK, and 60% were worried about the UK’s post-Brexit policy and regulatory changes, namely tariff rates and regulatory consistency with the EU.

Since the 1980s, the UK has been enjoying its role as a gateway to the EU for Japanese businesses. The UK has established its position as Japan’s second to top FDI destination ($153.6 billion of FDI stock, 2017), after the US ($491.3 billion of FDI stock, 2017).[2] Unfortunately, the continuing uncertainty over Brexit is already driving Japanese business to reconsider or restructure their business model in Europe although the degree of impact differs across business sectors and individual companies.[3] To date, some Japanese financial services companies have already moved their EU headquarters from the UK to Germany, Netherland and Luxemburg in order to acquire financial services passport. According to the JETRO business survey, some Japanese manufacturing companies have decided, or are considering, to move their headquarters from the UK or to redesign sales and production functions.

It is generally understood that the role of an FDI host country is to provide political and institutional certainty and predictability. The Brexit saga is doing the opposite, magnifying risks and imposing unreasonable costs on its foreign investors.

Three scenarios for a future UK-Japan trade deal

In August 2017, Japan and the UK agreed to quickly create a new bilateral economic partnership based on the EU-Japan Economic Partnership Agreement (not a roll-over) when the UK leaves the EU. Since then, Japan has been preparing for the process on the assumption that a withdrawal agreement would provide a legally-binding plan of the future EU-UK trade relationship. Thus, it was a big surprise for Japan when the UK Government suddenly asked Japan to switch to a ‘No deal’ basis for the UK-Japan agreement (a ‘roll-over’) towards the end of March 2019.

Currently, two problems hinder the enactment of a future UK-Japan trade partnership. First, the Political Declaration on the future relationship between the UK and the EU is ambiguous and not legally binding. Second, the UK itself has not yet formed domestic consensus on what it wants in terms of its future relationship with the EU.

The future UK-Japan trade deal entirely depends on the result of the EU-UK future trade relationship. For example, the three likely scenarios in the UK political debate: (1) the Government’s facilitated customs arrangements in the Political Declaration; (2) a permanent customs union with the EU; and (3) Common Market 2.0 would result in a completely different type of UK-Japan trade deal. (Gasiorek and Winters explained the economics of the three options in the UKTPO blog of 3rd April).

In assessing the options, the Japanese Government would start from its request in September 2016 to maintain the status quo between the EU and the UK. These include: (i) maintaining the current tariff rates and customs clearance procedures; (ii) free movement of capital and unrestricted investment; (iii) continuous access to labour with the necessary skills from across the EU; and (iv) harmonised regulations and standards.

Scenario 1: Facilitated customs arrangements

The facilitated customs arrangements option excludes the single market. In this case, Japanese businesses’ requests on the free movement of services, capital and people are completely neglected. Because the UK Government retains its red line of independent trade policy, this gives way for the future UK-Japan trade deal. However, the inclusion of terms such as ‘ambitious free trade agreement between the EU and the UK’ and ‘ambitious customs arrangements’ in the Political Declaration are far too ambiguous to form the basis of a Free Trade Agreement (FTA) with a third country. For example, it is not clear at all to what extent ‘free movement of goods’ with the EU would be maintained in terms of customs duties and procedures, or what kind of rules of origin would govern EU-UK trade. As for non-tariff barriers, Japan has no clue as to what extent the UK will disentangle itself from the EU regulatory framework.

Scenario 2: A permanent customs union with the EU

From a manufacturer’s perspective, a permanent customs union with the EU would be a slightly better option than the ‘facilitated customs arrangements’. It enables the status quo of current tariff rates against non-EU countries and duty-free trade between the UK and the EU. However, Japanese businesses’ concerns on non-tariff issues, such as unified regulations and standards on goods, are completely neglected. Also, neither a single market for services nor labour mobility within the EU are included in this scenario. While the new agreement may require rolling over the tariff schedule and rules of origin part of the EU-Japan Economic Partnership Agreement, other parts of the Agreement, such as services, intellectual property rights, TBT/SPS related regulations, and data transfer, would all have to be negotiated between the UK and Japan. Like scenario 1, a degree of the UK’s regulatory alignment with the EU will determine the extent of non-tariff barriers.

Scenario 3: Common Market 2.0.

This option would mean that the UK would re-join the European Free Trade Association, being a part of the EU Single Market. The two major advantages for Japanese businesses are (i) free movement of labour and (ii) unified regulations and standards between the EU and the UK. A downside is that the UK would have independent tariffs and rules of origin, which would surely affect Japanese manufactures’ regional supply chains in Europe. In contrast to scenario 2, under this option, there would be a need for a UK-Japan trade deal on goods. Among Japan’s 18 bilateral and plurilateral FTAs, there is no goods-only FTA. The Japan-US Trade Agreement on Goods (TAG), the negotiation of which starts this month, may become the first case, but this would be a special case to avoid a trade war with the US. It cannot serve as a precedent for the UK-Japan future trade deal.

Last but at least, it should be noted that while Brexit uncertainty is diminishing the UK’s relative market attractiveness in Europe and is preventing the negotiation of future UK-Japan trade relations, the EU-Japan EPA, which entered into force this February, is providing new business opportunities in the EU 27. For the UK Government, rebuilding the confidence of Japanese investors and increasing its market attractiveness relative to Europe would be the key economic issues when it comes to the trade deal with Japan.

Footnotes

[1] UK’s expected business profits in 2019 in comparison with the previous year: While 33.7% answered ‘better’, 66.3% answered ‘the same’ or ‘worse’. For comparison, Italy ranked the top 2nd, 70% answered ‘better’ and 30% answered ‘the same’. JETRO business surveys, December 2018 (above).

[2] JETRO Japan’s outward FDI statistics.

[3] Japanese business analysts debate about Brexit and the Japanese business model. For example, see ”Nihonkigyou ga eikokutettai wo kentousubeki riyuu”, in Japanese (“The reasons why Japanese companies have to consider disinvesting from the UK”), January 2019.

Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

April 30th, 2019

Posted In: UK - Non EU

Tags: , , , , ,

Leave a Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Erika Szyszczak11 April 2019

Erika Szyszczak is Professor of Law at the University of Sussex and a fellow of UKTPO.

Tempting as it is to work through the lyrics of the Paul Simon song,* the latest round of Brexit talks between the UK and the EU are already translating into the movie: The Long Goodbye.

By a Decision adopted on 11 April 2019, the European Council – under the patient and saintly leadership of Donald Tusk – agreed to grant the UK a second extension to Article 50 TEU either until 31 October 2019, or, an earlier date (if the Withdrawal Agreement is ratified) or until 31 May 2019 if the UK fails to hold elections to the European Parliament. The UK has in fact put in place an Order to facilitate the organisation of the elections to the European Parliament. (more…)

April 12th, 2019

Posted In: UK- EU

Tags: , , , , ,

One Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Image of Alan Winters3 April 2019

Dr Michael Gasiorek is a Senior Lecturer in Economics at the University of Sussex and a fellow of the UK Trade Policy Observatory. L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Understandably the politics surrounding the UK’s exit from the EU are dominating current discussions. But the economics of the options still matter, and it is not always evident how well the core economic issues are understood.

In the light of the Government’s ‘approach’ to Labour to find a consensus and in the light of the indicative votes, the aim of this blog is to clearly outline the economic issues and summarise the likely consequences associated with two of the current (indicative) options. (more…)

April 3rd, 2019

Posted In: UK - Non EU, UK- EU

Tags: , , , , , , , , , , ,

One Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

1 April 2019

Dr Ingo Borchert is Senior Lecturer in Economics and Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex. Both are fellows of the UK Trade Policy Observatory. 

During the first round of the indicative voting process at Parliament, the motion that proposes a permanent customs union attracted the second highest number of Ayes and was rejected by the slimmest margin of all eight motions.  This result shows the prevailing preoccupation with trade in merchandise goods.  Amongst other things, a customs union alone does nothing for services trade.  In this blog, we set out why the continued neglect of services trade is a major concern for the UK economy.[1] A twin-jet aircraft with just one engine on would ordinarily be bound for an emergency landing rather than for a smooth journey ahead. (more…)

April 1st, 2019

Posted In: UK - Non EU, UK- EU

Tags: , , ,

Leave a Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Image of Alan Winters29 March 2019

Nicolo Tamberi is Research Assistant in Economics for the UK Trade Policy Observatory and L. Alan Winters CB is Professor of Economics and Director of the Observatory.

The eight EU Trade Agreements that the UK has rolled-over replicate current trading conditions with their respective partners to a substantial extent. However, conditions could still deteriorate for at least two reasons:

  • A bilateral negotiation that excludes the EU can only partially overcome possible problems with rules of origin;
  • UK regulation and/or certification can be recognised only where partners have not tied themselves to EU regulations. Where they have, recognition of UK regulation and certification must wait until the UK also aligns with the EU.

(more…)

March 29th, 2019

Posted In: UK - Non EU, UK- EU

Tags: , , , , ,

3 Comments

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Image of Alan Winters14 March 2019

Dr Michael Gasiorek is a Senior Lecturer in Economics at the University of Sussex and Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex. Both are fellows of the UK Trade Policy Observatory. L. Alan Winters CB is Professor of Economics and Director of the UK Trade Policy Observatory.

Key points:

  • Around 72% of UK’s MFN tariff lines will see reduced protection.
  • The UK’s average MFN tariff is reduced significantly, from around 7.7% to 0.7%; however this does little to increase the share of duty-free imports.
  • The UK’s MFN tariff proposal will reduce tariffs on many products imported from countries currently trading on WTO terms, but increase them on imports from the EU.

Following the first defeat of the Withdrawal Bill in Parliament, and prior to yesterday’s vote on a ‘No Deal’ alternative, the Government published the temporary tariff schedule it proposes to apply in the event of a no deal. As with most things Brexit, this is complicated to unpick, especially as some of the listed items are simply asterisked, and the details on these need to be found in another (1400 page) document! (more…)

March 14th, 2019

Posted In: UK - Non EU, UK- EU

Tags: , , , , , ,

6 Comments

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Image of Alan Winters13 March 2019

L. Alan Winters CB is Professor of Economics and Director of the UK Trade Policy Observatory.

With Mrs May’s deal again defeated in the House of Commons yesterday evening, Professor L. Alan Winters asks how the UK got to be within 16 days of leaving the EU with no agreed plan for its departure or future relationship with the EU.

In the video ‘Mrs May’s Impasse’ Professor Winters explains how incompatible economic and political agendas and ill-considered red-lines led to the current impasse on Brexit and argues that one or the other has to give if the UK is to avoid ‘No Deal’.

March 13th, 2019

Posted In: Uncategorised

Leave a Comment

Share this article: Facebooktwittergoogle_plusredditpinterestlinkedinmail

Image of Alan Winters12 March 2019

Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex and a fellow of the UK Trade Policy Observatory and L. Alan Winters CB is Professor of Economics and Director of the UK Trade Policy Observatory.

Tariffs are the simplest and most direct of the tools of trade policy: they are taxes on imports. Broadly speaking, high tariffs help to shelter domestic industries from international competition, whereas lower tariffs increase competition and benefit consumers through both lower prices and permitting a wider variety of products to choose from. Despite saying that taking back control of its trade policy is imperative and that the UK may have its own trade policy in under three weeks (30th March), the Government has yet to reveal its policy for UK tariffs. The Financial Times recently reported that the plan was to eliminate the majority of industrial tariffs and, in the same vein, Sky News reported on the Government’s intention to cut 80-90% of all tariffs to zero. Many business owners are anxiously awaiting further information, as they may have only a matter of weeks to adjust to changes that could seriously affect their business. (more…)

March 12th, 2019

Posted In: UK- EU

Tags: , ,

One Comment

Next Page »