UK-Japan Comprehensive Economic Partnership Agreement

This note has been prepared in advance of the debate on the UK-Japan Comprehensive Economic Partnership Agreement (CEPA) in the House of Commons on 25 November 2020.

CEPA is a free trade agreement between the UK and Japan. The Government has described the deal as “historic” and “the first trade deal that the UK has struck as an independent trading nation.” The signing of the agreement should also be seen in the context of the Government’s ambition to join the CPTPP – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. This is a trade agreement between 11 countries in the Asia-Pacific region, including Japan.

Japan is an important trade and investment partner for the UK. The UK exported £14.7 billion of goods and services to Japan in 2019 (2.1% of all UK exports) and imported £15.4 billion (2.1% of all UK imports). A 2015 estimate indicated that 167,000 UK jobs were supported by exports to Japan. Japan was the 6th largest investor in the UK in 2018, with £89.2 billion invested while the UK was the 4th largest investor in Japan with £17.5 billion invested.

Trade relations between the UK and Japan are currently governed by the EU-Japan Economic Partnership Agreement (JEEPA). The UK will no longer be covered by this agreement when the Brexit transition period ends at the end of 2020. In the absence of a new agreement with Japan, UK-Japan trade would revert to World Trade Organization (WTO) terms.

The Government has presented CEPA as going further than the EU-Japan agreement in a number of areas, including digital trade and data. The Government’s Impact Assessment indicates that the agreement could lead to an increase of £15.7 billion in trade between Japan and the UK in the long-run (although the majority of this is Japanese exports to the UK) and an increase of £1.5 billion (0.07%) in UK GDP. These figures are against a baseline of trading with Japan on WTO terms rather than against the status quo of trade under JEEPA.

The House of Commons International Trade Committee (ITC) and the House of Lords International Agreements Sub-Committee have both published reports on the agreement. The ITC welcomed the signing of the agreement and the certainty and continuity it would bring. The Committee said “While the differences between CEPA and JEEPA may not be as extensive as claimed, there are notable exceptions, particularly the provisions on digital and data, and financial services.” The Committee recommended that the agreement should be debated in the House of Commons.

The International Agreements Sub-Committee’s report noted that the agreement provided “valuable continuity for businesses, consumers and other stakeholders”. The report also said that while the agreement contained some useful additional provisions compared to the EU-Japan agreement, these gains had been exaggerated by the Government.

Ratification of the agreement is governed by sections 20 to 25 of the Constitutional Reform and Governance Act 2010. This provides for a statutory period of 21 days during which either House can resolve that the agreement should not be ratified. There is no statutory requirement for a vote on ratification.