Summary

• A breakthrough on tariffs for British cheese to be exported to Japan raises hopes for a trade deal between the UK and Japan.
• If the total import value of the British blue cheese by Japan at the end of a specific year turns out to be lesser than the agreed amount, the British suppliers would receive back the duty on exports.
• The import tariffs on the blue cheese from Britain would not change from the existing agreement between the EU and Japan.
• A potential trade deal between the UK and Japan holds specific significance post-Brexit as it would be the first trade deal that Britain has negotiated on its own or without the EU in 47 years.

It is most likely that September 2020 would see the UK and Japan reaching a trade deal at least in principle as a breakthrough has been attained on cheese tariffs. As part of a settlement in the trade deal between the two countries, the tariffs on the export of British blue cheese to Japan is set to be refunded later to the suppliers in case the total import amount at the end of the year remained lower than an agreed level.The participants in the negotiation from the British side pressed to completely remove the tariffs to prove that Britain could succeed in achieving a better trade deal on its own. The import tariffs on the blue cheese from Britain would not change from the existing agreement between the European Union (EU) and Japan.

In a recent development, Liz Truss, the UK’s trade secretary spoke to ToshimitsuMotegi, Japan’s foreign minister on 26 August 2020 and gave consent on majority of the core elements of the deal. It is to be recalled that Ms Truss had insisted earlier that she would not be in a hurry to finalise a deal with Japan until it meets Britain’s ambitions.The trade talks between the two nations got held up as Ms Truss included the blue cheese in the negotiations. It seemed that the Tory MP was interested on having a better free trade agreement with Japan for agricultural exports and Stilton cheese was a stumbling block. She insisted on an improved deal structure in comparison to the deal that the UK had with the EU, especially for similar products.

The trade secretary stated that the two countries had reached a consensus on majority of the deal’s elements and both the countries would agree on the principles of a trade deal by September 2020. However, given the assurancesfrom both the partners, tariffs on automotive goods and agricultural products remained a contentious issue in the negotiations.

A potential trade deal between Britain and Japan is specifically important post-Brexit as it would be the first deal that the UK has negotiated on its own or without the EU in 47 years. It is known that in majority of the trade agreements between any countries, agricultural aspects remain as a hurdle till the final leg of the negotiations. It was expected earlier that a deal would be reached duringMotegi’s two-day’s planned visit to London in August 2020. However, the reports that the two countries could not reach a consensus regarding imposition of tariffs on exports of blue cheese to Japan ruined the hopes. As per market estimates, in 2019 Japan had purchased £102,000 worth of the total £18 million of blue cheese that the UK had exported.

Also read: Post Brexit-Trade Talks Stall Again; Making Headway Seems Difficult Before the End of Transition Period

Also read: UK-Japan Trade Deal and Its Impact on Different Businesses

Also read: All you need to know about Australia- Britain Trade deal

The duty on automotive products is likely to fall incrementally

Another impediment in the trade deal between the two countries was the tariffs on export of automotives from Japan. The duty on automotive products is likely to fall incrementally as per the accord reached between the EU and Japan. It is expected that some tariffs on components for cars and railways would be completely eliminated,benefiting the manufacturers from Japan.Japan had hoped to remove tariffs on automotive products including automotive components previously than in the current agreement between Japan and the EU, which will stage out the import duties on automobiles from Japan by 2026.

Digital services would see lesser government interventions

In the new agreement, there would be lesser involvement of the government as compared to the interventions seen within the EU-Japan framework with regards to the digital services. According to the new agreement, the companiesfrom both the nations would not be required to reveal details about algorithms and cryptography. This could possibly lead to a relaxation on the rules and regulations on the flow of data in addition to storage of data. Some experts believed that the UK-Japan trade agreement in this form would be a great achievement. The competencies of the British firms would improve substantially if more digital companies from Japan come to the UK.

Some other benefits of the UK-Japan trade deal

According to government forecasts, a trade agreement between the UK and Japan would add less than one per cent to the country’s gross domestic product (GDP) in the longer-run. Additionally, there would be 21 per cent increase in British exports of goods and services to the Asian country with a trade deal reaching between the UK and Japan. Many experts had emphasised their opinions on including the services segment in the trade deal.

Will the UK-Japan trade deal meet its deadline?

Earlier the UK Prime Minister’s official spokesperson had informed the media that the UK’s PM Boris Johnson expected the trade deal to be completed by its deadline of first week of September 2020. However, the Department of International Trade, a UK government’s department responsible for striking and extending trade agreements between the Britain and non-EU nations, besides encouraging foreign investment and export trade, feared that the deadline could get extended.At the same time, officials from both sides have stated that in all probability, the deal will conclude by the end of September 2020.

The UK-Japan trade deal is a crucial component of the government’s post-Brexit agenda of global Britain. The UK-Japan negotiations are happening along with other trade talks such as with the EU, the US, New Zealand, and Australia. The department of international trade highlighted that while Japan was under pressure to wrap up the agreement by the end-August 2020, it was important for the UK to finish the process before the post-Brexit transition period of 31 December 2020. In June 2020, the chief negotiator from Japan had stated thatthe deal was required to be closed by the end of summer season in order to get ratified in Japan’s parliament before end of this year.

Let us now take a closer look at one of the leading British companies into digital services Maintel Holdings plc, listed at the London Stock Exchange.

Maintel has recently installed its EMEA-wide cloud-based telephony system for Avon Worldwide, one of the world’s leading direct sellers. The switch to Maintel’s ICON platform is aimed towards transforming the systems at Avon. ICON is useful for staff and salespersons as it facilitates easier interaction and collaboration with each other, besides being integrated with various voice platforms, including the Microsoft Teams. This system would help the employees of Avon to communicate across multiple devices as well as make them completely flexible and mobile.

Maintel (LON:MAI) is a cloud and managed services company that focuses on communications related solutions and services to both the private and public sectors. On 28 August 2020, the company’s stock closed at £212.00. The 52-week low high range was recorded as 148.50 and 432.00. With a market capitalisation (Mcap) of £30.39 million, the stock provided a negative return on price, which was minus 47.91 per cent on a year to date (YTD) basis.

Conclusion

Any trade deal between two countries takes time to be completed due to the negotiations involved in reaching a consensus that suits both the countries. The agreement between the UK and Japan looks similar to the trade deal between the EU and Japan that was agreed in 2019. However, there would be additional important settlements on some crucial aspects, including agriculture or the blue cheese specifically, digital services, and automotive products, among others. Several experts agreed that it was a significant trade off to achieve a breakthrough on blue cheese exports, besides agreeing to permit increased access to the digital services companies from Japan.