Premium British brands are concerned that a no-deal Brexit could threaten a new free trade agreement with Japan, putting them at a disadvantage against their European Union competitors.
The EU and Japan’s Economic Partnership Agreement (EPA) came into force on February 1. The new free trade agreement will reduce duty on most goods to Japan. The UK, as a member of the EU, is part of this trade agreement, however, in the event of a no-deal Brexit, the UK will be automatically excluded. Paul Alger, international business director at UK Fashion and Textile Association (UKFT), which campaigned for the free trade agreement, said there would be “deep repercussions” for the industry if it collapsed.
“The UK would not get duty relief, therefore there would be 12% trade tariffs. The Japanese will quickly pick up that they could get 12% more for their money from other EU manufacturers. The issue is how long it is going to take to get a free trade agreement again if there is a no deal. The British government is saying it will move heaven and earth to create similar deals, but this agreement took seven years to negotiate.”
Japan is the third largest export market for UK fashion after the EU and US, the UKFT reports. Official statistics suggest that more than GBP 73 million of clothing was exported to Japan in 2017. However, UKFT believes this to be a conservative figure, as it does not include licensed products, which is a significant part of the market there.
Rob Huson, founder and director of outerwear brand London Tradition, said, “We’re very concerned because we have a close and direct relationship with Japan. We’ve been waiting awfully long for this trade agreement and were absolutely delighted when it was finally ratified. A no-deal Brexit would be a disaster because we would have to pay tariffs. We will 100% be at a disadvantage to EU competitors.”
Tom Glover, managing director or knitwear and outerwear brand Peregrine Clothing, agreed, “Paying a 12% tariff on products into Japan would be a huge problem and disadvantage for us. The Japanese have always liked UK brands, but I’m sure if we become 12% more expensive than our competitors in the EU, it will make a difference.”
The European Union-Japan Economic Partnership Agreement
In 2013 European Union governments instructed the European Commission to start negotiations with Japan. The negotiations were finalised on 8 December 2017. The European parliament gave its consent in December 2018. The EU and Japan’s Economic Partnership Agreement (EPA) came into force on 1 February 2019. If a no-deal Brexit is announced on 29 March, the UK will be automatically excluded from the EPA.
UK signs Brexit trade continuity deal with Switzerland
Ministers are rushing to try to ensure continuity of about 40 free trade deals held by EU
Britain has signed a trade continuity agreement with Switzerland to avoid disruption for thousands of businesses post-Brexit, less than 50 days before the UK is due to leave the EU. The Department for International Trade said the agreement would maintain UK-Swiss trade under the preferential terms currently available to both countries through an EU free trade deal. It comes as ministers rush to ensure the continuity of about 40 free trade deals held by the EU covering more than 70 countries, which Britain currently has access to via EU membership but will lose after Brexit. Ministers have conceded in private meetings with business leaders that they will not be able to replace all of the deals before the Brexit deadline on March 29, meaning a large proportion of UK exports could shift to World Trade Organisation rules. This would mean higher border tariffs and extra costs for companies in Britain and abroad. Japan has sought to extract hefty concessions from Britain before Brexit, while talks with many nations have been delayed by the lack of clarity over Britain’s future trading relationship with the EU.
The trade between Britain and the countries and regions covered by the EU free trade agreements amounts to about 14% of all UK goods imports and exports each year, worth as much as GBP 117 billion in 2017.
Signing the Swiss trade continuity deal will enable ministers to declare that progress is being made, but deals with major trading partners including Canada, South Korea and Japan remain to be signed. Britain has agreed mutual recognition trade deals with Australia and New Zealand, as well as trade continuity agreements with Switzerland, Chile, the Faroe Islands and the eastern and southern Africa trading bloc.
Liam Fox, the international trade secretary, who signed the Swiss accord in Berne with a Swiss federal councillor, Guy Parmelin, said the deal was of “huge economic importance” to Britain and would benefit 15,000 UK exporters.
“Not only will this help to support jobs throughout the UK but it will also be a solid foundation for us to build an even stronger trading relationship with Switzerland as we leave the EU,” Fox said. The deal simplifies trade and allows businesses in both countries to continue trading freely after Brexit without any additional tariffs, as is currently the case as part of EU membership.
A spokesperson for the Department for International Trade said, “Our priority is to avoid disruption to our global trading relationships as we leave the European Union and we are seeking continuity for existing free trade agreements.”
Moving from free trade to WTO terms alarms exporters
Having to trade on World Trade Organisation terms after Brexit would essentially kill the business, believe UK exporters. Many exporters of rely on markets outside Europe – mainly Canada and the US, and on the preferential access that the UK has as part of the EU’s trade deals. UK exporters fear that the price of their exports could double if they have to trade under WTO rules.
Many export businesses have stopped taking new orders in the midst of the uncertainty. The UK’s slow progress in rolling over the EU’s 40 preferential trade deals, covering 71 countries, matters whether or not Theresa May manages to reach an agreement with the bloc on Britain’s exit deal. Provisions in the draft withdrawal treaty say that Britain should continue to enjoy the benefits as well as the obligations of trade deals with third parties, but it is up to individual countries outside the EU to sign up to this approach.
Japan, for example, says it will trade with the UK under current terms for the length of Britain’s transition period – which could run until the end of 2022 – if London and Brussels agree an exit deal. But not all countries are so forthcoming.
The CBI said individual businesses that trade with markets outside Europe could potentially have “tariffs worth hundreds of millions of pounds slapped on them instantaneously”.