This blog post, written by Professor Panos Koutrakos, assesses the UK’s Comprehensive Economic Partnership Agreement with Japan and its lessons for UK-EU future relations.
In a previous blog I wrote about the rollover trade agreements that the UK has negotiated since Brexit. This post examines the Comprehensive Economic Partnership Agreement (CEPA) with Japan, which the UK signed on 23 October 2020.
CEPA: what is it for?
CEPA is a rollover agreement: it draws on an existing agreement that was concluded by the EU, that is the EU-Japan Economic Partnership Agreement. The latter has been binding on the UK, first, under EU law and, during the transition period, under Article 129(1) of the UK-EU Withdrawal Agreement.
Given its nature as a rollover agreement, the main objective of CEPA is continuity: it aims to avoid a sudden disruption in legal relationships once the EU-Japan Agreement has ceased to apply to the UK and, to that effect, it will enter into force once the transition period provided for in the Withdrawal Agreement has expired.
In policy terms, the entry into force of CEPA is viewed as a stepping stone to the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which brings together Japan with Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. This was made clear in the document setting out the UK’s negotiating objectives. It is also acknowledged by Japan: the Department for International Trade’s Report on the UK’s Future Trading Relationship with EU Japan, presented to Parliament and accompanying the text of CEPA, includes a letter by the Japanese Minister of Foreign Affairs in which the Japanese Government ‘expresses its firm determination to support the early accession of the United Kingdom to the CPTPP in accordance with the Accession Process of the CPTPP’.
The main features of CEPA
The Agreement is based on the EU-Japan Agreement both in structure and content. It is not, however, identical.
Tariffs on goods, for instance, while largely unchanged, are brought forward for a small number of products. Another example of change is provided regarding sanitary and phytosanitary measures: the entire set of provisions, laid down in Chapter 6 CEPA, is excluded from the dispute settlement mechanism established in the Agreement (Article 6.16), whereas the EU-Japan Agreement only excludes specific provisions related mainly to risk assessment, equivalence and imports procedures.
There are also some additions. There is a new set of provisions on digital trade, including cross-border data transfer (Article 8.84), cross-border financial use, processing and storage of financial data (Article 8.63), and a ban on a data localisation requirement (Article 8.82). There is also a new chapter on trade and women’s economic empowerment (Chapter 21) which, however, imposes no legal obligations and is expressly excluded from the dispute settlement mechanism established under the Agreement.
CEPA and the UK-EU relationship
While it will govern the trade relationship between the UK and Japan, CEPA has been drafted and will be applied in the shadow of the legal rules that will govern the UK’s trade relationship with the EU. This link between the two sets of relationships is illustrated in various ways.
Take, for instance, the case of tariff rate quotas (TRQs). These allow a certain volume of a product to enter the market at a zero or reduced tariff rate while any imports above the quota are subject to a higher tariff rate. TRQs apply to agricultural products and the EU-Japan Agreement provides for 25 of them. CEPA provides for 10 TRQs (laid down in Annex 2-A, Part 3 Section B) and grants UK exporters access only to annual left-over quota unused by EU exporters. There is, therefore, a degree of uncertainty for UK exporters. According to the Department for International Trade, ‘this is not expected to have a significant impact on trade flows’ (at para. 52), whereas the House of Lords European Union Committee considers the relevant arrangements ‘suboptimal (at para. 24).
The duration of the transition period, as laid down in the Withdrawal Agreement, and the UK’s choice not to seek an extension have also had an impact on the CEPA negotiations. For instance, while the UK wished to extend the scope of geographical indications beyond the 7 currently protected under the EU-Japan Agreement, there was not enough time to negotiate and, instead, a process is provided (about the submission of additional geographical indications for consideration once CEPA has entered into force (Article 14.34(5) CEPA). The DIT has provided an explainer of this issue.
Rules of origin also illustrate the close threads between the UK-EU and the UK’s trade relationship with the rest of the world, in general, and Japan, in particular. CEPA ensures continuity by providing for cumulation so that EU inputs will continue to be accounted for as being from the UK for the purpose of meeting the local content requirements necessary to qualify for the zero-tariff treatment. The Agreement, however, also provides for the possibility of extending cumulation to the EU so that Japanese and UK components would qualify as originating components in terms of imports to the EU from the UK and Japan respectively (Article 3.5(11) re: UK-EU). This would be a significant development in economic terms for the UK’s motor vehicle industry. Its fate depends on its acceptance by the EU and the outcome of the current negotiations for its post-transition relationship with the UK.
Finally, CEPA provides the first reference so far in rollover agreements to the Northern Ireland Protocol to the Withdrawal Agreement. According to Article 1.9.(5)(a) CEPA, in the event of an inconsistency with the latter, CEPA ‘shall not prevent a Party from taking a particular measure not consistent with the obligations under this Agreement and relating to the inconsistency between this Agreement and that Protocol, provided that such a measure is not applied in a manner that would constitute a means of arbitrary or unjustified discrimination against the other Party or a disguised restriction on trade’. A notification and consultation procedure is also set out (Article 1.9.(5)(b) CEPA). The House of Lords EU Committee has expressed concerns about the practical application of this provision and has relied upon it in order to call for greater clarity in the UK-EU relationship (at para. 101).
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