UK-Japan Trade Deal and Its Impact on Different Businesses

Summary

• The UK currently conducts its bilateral trade with Japan through the existing deal that they negotiated with the European Union last year
• UK and Japan have reached an agreement in most of the areas such as car trade and financial services; both countries are hopeful of striking the deal by the end of this month.
• The UK exports and services to Japan are likely to increase with a deal between the two nations

Recently, the Japanese Foreign Minister, Toshimitsu Motegi was in London to iron out a trade deal with the UK. The United Kingdom is looking forward to wrapping up negotiations on a post-Brexit deal. Both countries are working to replace the existing agreement Britain has with Japan through the European Union. This is the first deal which has happened since the crisis induced by the coronavirus pandemic.

The UK currently conducts its bilateral trade with Japan through the existing deal that they negotiated with the European Union last year. Britain was hoping that deal would automatically be rolled over as is the case with some other countries. By the end of this year, once the post Brexit transition period ends, the existing deal would expire for Britain.

Therefore, the UK is rushing to secure its own version of the EU-Japan deal. UK Japan trade is totalling worth around £30 billion a year. UK is keen to get this over the line as this will be the first major deal signed by Britain since Brexit, something which would fill the nation with pride.

Industry experts believe that this deal with Japan would bolster the GDP of the United Kingdom. UK exports and services to Japan are likely to increase with a deal between the two nations. In addition, imports of goods & services in the UK might increase as well.

How is the deal likely to be, and what are the hurdles?

The trans-pacific deal could be largely the same in many respects when compared to the existing EU-Japan trade deal. The UK would like to expand into areas such as digital trade, seeking better access to services such as data, technology, financial services, agriculture, and reduction in Japanese tariffs in various products & services. According to market experts, the deal between the UK and Japan would not be as ambitious as the EU-Japan deal because the UK is a smaller market in comparison to the EU. Nevertheless, Japan would like to strengthen its ties on security, defence and maintain the privilege they have in the British market.

The United Kingdom left the European Union in January, earlier this year. Since then the UK is looking forward to striking free trade pacts with several leading economic powers, including the United States. However, an FTA with the US seems unlikely this year. The trans-pacific deal with Japan, which is one of the largest trading partners of the UK could ultimately increase its trade with Japan by about £15 billion each year.

Also read: 5 Things UK Could Consider on Trade Pact with the US

Both countries are interested in closing the deal before the end of 2020. In case the deal between UK and Japan does not arrive a conclusion, World Trade Organisation trade rules would be applied, which could result in a significant increase in tariffs on imports and exports as well as other trade barriers.

UK and Japan have reached an agreement in most of the areas such as car trade and financial services; both countries are hopeful of striking the deal by the end of this month. However, blue cheese has been amongst the major point of differences between the two nations. According to some media reports, the UK wants to expand its market share for blue cheese in Japan. Overall, the negotiations have been productive for both the countries.

In this article, we would put a lens through some businesses which could benefit through the potential trans-pacific deal.

1. Aston Martin Lagonda Global Holdings Plc (LON:AML)

The automotive sector has been the worst hit during the unprecedented crisis due to the closure of retail stores. The revenue of the company has been hit, and losses have climbed. During the first half of 2020, sales tumbled significantly in both retail and wholesale divisions while the operating losses worsened. The uncertainty surrounding the impact and duration of Covid-19 pandemic continues. However, the trade deal between UK-Japan could turn the tables for the luxury carmaker as it is having good business prospect in Japan.

On 12 August 2020, at the time of writing (before market close, GMT 10:49 AM +1), Aston Martin Lagonda Global Holdings Plc’s shares were 5.41 per cent down against its previous day closing price, trading at GBX 69.05. AML shares have witnessed a huge price correction and were down by 86.67 per cent on a YTD basis.

2. Premier Foods Plc (LON:PFD)

Premier Foods is a Great British Food Company, which is involved in the manufacturing and distribution of own-label food and beverage products as well as branded food products. The Company’s operation is differentiated into three segments, include Grocery, Sweet Treats and International.

With a backdrop of a trade deal in place with Japan, the UK based food processing company is expected to reap benefits through its unique portfolio of products. The UK would like to expand its trade in Japan through processed foods.

On 12 August 2020, at the time of writing (before market close, GMT 11:00 AM +1), Premier Foods shares were 0.59 per cent up against its previous day closing price, trading at GBX 85.50. PFD shares have witnessed a lot of price appreciation and were up by 123.39 per cent on a YTD basis.

3. Metro Bank Plc (LON:MTRO)

The financial sector has been under the pump since the onslaught of the novel coronavirus. According to the first half 2020 results, the Group has faced an exceptionally tough six months. However, the group has continued to grow the number of customer accounts, opened six new stores, and announced the acquisition of RateSetter (P2P lender). The bank has decided to foray into the realm of P2P lending as well. With a backdrop of a trade deal in place with Japan, the UK based bank is likely to build upon its strengths and extend its reach in the Asian country.

On 12 August 2020, at the time of writing (before market close, GMT 11:00 AM +1), Metro Bank shares were 2.91 per cent up against its previous day closing price, trading at GBX 108.05. MTRO shares have witnessed a sharp price correction and were down by 49.81 per cent on a YTD basis.