Eastern Promises: What might trade deal with Japan mean for automotive businesses?

The UK last week secured a free trade agreement with Japan. The government claims that the deal will increase trade with Japan by around £15 billion.

The deal will purportedly give UK businesses exporting to Japan a competitive advantage in a number of areas, with UK businesses set to benefit from tariff-free trade on 99 per cent of exports to Japan.

The deal will offer the same advantages to Japanese businesses exporting to the UK. This could be good news for Japanese automotive companies that have manufacturing bases in the UK.  

These manufacturers could benefit through reduced tariffs on parts coming from Japan to the UK, streamlined regulatory procedures, and greater certainty for their operations.

The exact details of how the automotive sector might benefit is not yet clear, as the deal has only been agreed 'in principle' and the final legal text is not expected to be published until October 2020.

However, the government's May 2020 policy paper, 'UK-Japan Free Trade Agreement: The UK's Strategic Approach' (which is available here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/885176/UK_Japan_trade_agreement_negotiations_approach.pdf ) contains some clues.

The paper sets out the government's negotiating objectives for the deal.  While there are no specific, express objectives relating to the automotive sector, the paper suggests that the UK would like to benefit from similar trading terms as it would have done under the EU-Japan Economic Partnership Agreement.

Such terms would include:

• the majority of tariffs on Japanese automotive exports (in final and intermediate goods) eliminated by 2025; and
• aligning of standards in automotive and automotive parts.

If this turns out to be the case, the deal may offer some reassurance to Japanese car manufacturers with UK bases concerned about what Brexit would mean for previously-secured promises on tariffs.