Japan, trade and the supreme irrelevance of Stilton

The Trade Secretary, LIz Truss, has been bouncing around the world seeking the ‘trade deals’ that will come to define the UK’s post-Brexit future as ‘global Britain’. An early success in this plan was to be a quickie deal with Japan. This would potentially lead on to the UK becoming a member or a party to something called the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTTP). Yes, Pacific - you read that right.

That was the plan anyway - and it might still come to pass. The UK has a territory in the Pacific, the Pitcairn Islands, permanent residents 43, which apparently provides some kind of rationale for being a ‘Pacific nation’. More importantly, even though the initial deadline of the end of July has passed, the UK may yet conclude a trade arrangement with Japan before the end of 2020.

Japan is a big country. It is much more economically significant than Canada, Australia or New Zealand, in fact more so that all three put together and has twice the population of the United Kingdom. Japan is the third largest economy in the world after the USA and China, the fourth if the EU is considered a single economy. In those terms, if your are going to do trade deals at all, then a trade deal with Japan should be worth doing.

Trade between the UK and Japan was “worth £29 billion” last year (2018) and the UK, while a member state of the EU, has been highly successful at attracting Japanese investment. Japan concluded a trade deal with the EU in outline in 2017, signed it off in 2018 and it came into force in January 2019. That was pretty quick for a trade agreement between major economies.

Now things have changed. The UK is not an EU member state and, without some kind of agreement, the trade arrangements with Japan of which the UK is currently part until 31 December will no longer apply.

What does this mean in practice? Actually, not that much. It does NOT mean, should a deal not happen, that the UK will fail to do any business with Japan. It does NOT mean, if a deal is done, that the UK will see immediate benefits. Trade benefits build slowly, could fall more quickly but maybe not. Existing trade and investment built since Japan emerged as a major post-war economic player in the 1960s, largely in the absence of a trade agreement. The UK Government estimates the benefits of a trade agreement as a potential additional £15.2 billion - around an additional 0.7% of GDP over the medium term. This is not out of line with the projections made by the EU Commission of the potential benefits of the 2018 agreement with Japan, which the UK has had no time yet to realise. Japan currently accounts for around 2% of the UK’s exports - that is less than a third of stuff we sell to the Netherlands, only a little more than a third that we sell to Ireland and a mere fifth of the goods we sell to Germany.

However, Japan made a conscious decision to pursue a policy of free trade agreements and has delivered on its intent. It’s agreement with the EU represents the largest bi-lateral trade agreement in existence. The UK is a smaller but important market within that which Japan would like to retain with as little disruption as it can manage. It seemed like the first step was to roll over existing trade arrangements - i.e. to take the arrangements that currently apply and sign them off quickly. Indeed, rolling over existing arrangements and seeking minimal disruption appeared to be the policy of the UK Government for some time.

Sake all round?

All good then? Common sense prevails? Sake all round? Unfortunately it seems not.

Whatever went on at those meetings that Ms Truss’s people thought necessary to remove from the public record, we know that the agenda of the Brexit Ultras is not continuity of any kind. Any trade agreements done by the EU must be bad - because the EU did them. So any trade agreements concluded by the UK and third parties must be ‘better’ than the existing arrangements between the EU and those parties. So into shape focus comes Ms Truss’s well documented penchant for cheese, in this case Stilton. Selling more cheese was to bethe barometer of a ‘better deal’.

There is certainly scope for more cheese. If the potential benefits of an rolled over trade deal with Japan are modest, the scale of Stilton exports is supremely irrelevant. Apparently the UK currently exports £102 million worth of Stilton to Japan per year. Stilton is expensive stuff, but even taking some pretty heavy discounting into account, that quantity of Stilton amounts, very roughly to a single 747 worth of passenger luggage at most. No more than 100 grams (3.5 ounces, if you prefer) each year for each Japanese person - but probably a lot less, more like a pharmaceutical dose. The website savvytokyo.com in listing the 10 foods not to serve at a Japanese dinner party puts blue cheese at number 2. They really are not big on the stuff at all. Reportedly he Japanese weren’t so keen.

So why does it matter? Well, it doesn’t. Not in the slightest, but it is an example of what happens when in trade negotiations the agenda is broadened and especially if stumbling blocks are placed in the route to an agreement. It doesn’t mean it isn’t possible but it certainly takes longer.

So Ms Truss finds herself between a rock and a hard place. She either backtracks to conclude the ‘easy deal’ with the partner ‘most committed to free trade’ on the basis of what is possible and least disruption or she holds out for a ‘better deal’ and quite possibly ends up with nothing. A rational politician would go for the first option, but Brexit long since dropped out of that pattern. Nonetheless the choice of Stilton is baffling. Expert opinion suggests that there is all sorts of scope for ‘commitments’, ‘declarations’ and even a few practical agreements over things like financial services or digital economy - that are actually useful to the UK economy - that can then be dressed up as a ‘better deal’ that the EU-Japan FTA and trumpeted as such. Like I say, this might yet happen.

Meanwhile back on Pitcairn ...

The trouble with trade agreements is they have knock on consequences. Bi-lateral deals are all very well, but there are not the only relationships. A thing called ‘most favoured nation status’ means essentially that you can’t offer better terms to another partner without offering the same terms to the partner with whom there is a ‘most favoured’ clause in the agreement.

Thus, were Japan to offer better terms to the UK on something that is specifically documented in their deal with the EU then they have to offer that to the EU. So the best way UK negotiators can do a ‘better deal’ with Japan is to find things that are outside the scope of Japan’s FTA with the EU. This runs into problems when people start talking about cheese.
Triangular relationships are also important to the Japanese because they have used the UK as a stepping stone to the EU market and it is the base for many Japanese companies trading in the EU. I met quite a few Japanese business representatives during my time as an MEP. They expressed a uniform sadness come bafflement that the UK was leaving the EU at all and a firm wish that the UK should ideally stay inside the single market Norway style or at the very worst conclude a far reaching deal that kept relationships close. Japan still holds on to ther hope that sooner or later something like that may happen and wish to remain in the position of parallel trade agreements. This is centrally why they are still keen.

Meanwhile back in the Pitcairn Islands the UK seeks to position itself as a potential business hub for nations around the world interested in trading with the rest of the world. Thus, through the CPTTP, the UK Government seems to believe it will become the first port of call for the Pacific rim nations and possibly even as a “gateway to Europe” - oh, hang on a minute. The CPTTP is certainly interesting, having come out of the ashes of the Trans Pacific Partnership - which Donald Trump pulled the US out of because he didn’t think of it. CPTTP has a Commission, a disputes resolution mechanism and a number of agreements on things like state intervention. Is all this remind you of something.
Fanciful? You may say that - but all this Pacific stuff may help expain Tony Abbott - as if anything could explain Tony Abbott.