Momentum is gathering for an agreement between Japan, the world’s third-largest economy, and the European Union over a combined free-trade agreement (FTA) and what they are calling an economic partnership agreement (EPA).
Earlier this month, the Financial Times (now Japanese owned) praised the talks’ progress, saying “Japan shows the world how to strike trade deals”.
Although the always thorny problem of Japan’s barriers to agricultural trade remain to be resolved, officials believe there is a good chance of a deal being struck by the end of January. The European trade commissioner, Cecilia Malmstrom, is planning a final pre-Christmas trip to Tokyo on December 19th, should the negotiations look sufficiently promising.
There is, however, one big gap in the agreement under discussion. It is Brexit.
With Article 50 not yet triggered, Ms Malmstrom is, understandably, refusing to talk with Japan about how Britain will feature in the future EPA since negotiations about Britain’s future relations with the EU have not yet begun.
This matters because more than 1,000 Japanese companies have invested in the UK largely on the basis of Britain’s full membership of the EU’s single market. That is one-sixth of all the Japanese companies invested in the EU.
So Japan’s interests in a successful FTA/EPA with the EU depend crucially on how those companies, which include the big carmakers Nissan, Toyota and Honda, stand to be affected by a future Brexit deal between the UK and the EU.
The Japan-EU talks may be too far advanced to be put on hold until Britain’s status has been clarified. With open trade under such threat, from Donald Trump as well as from anti-globalisation forces inside many European countries, it would be a mistake to miss this opportunity to strike an accord that would show that the world’s largest trading bloc and its third-largest economy still believe in liberalizing trade.
But before closing that agreement, Japanese negotiators would be well advised to demand the setting up of a tripartite pact giving Japan a voice in the Brexit talks.
Alongside Britain’s negotiations with the EU over its future status, Britain will have to negotiate with Japan over a bilateral FTA, and Japan will have to have a supplementary negotiation with the EU over how post-Brexit Britain is to be treated in the Japan-EU EPA.
The best way to deal with this would be to set up a tripartite committee including the top trade officials of Japan, the UK and the EU with a mandate to coordinate the talks.
This would have several virtues. One is that it would give Liam Fox, Britain’s Secretary of State for International Trade, something to do.
The bigger virtue is that it would place the interests of Japanese companies in the UK at the heart of Brexit decision-making, not just as merely one aspect of British requirements but backed at the tripartite committee by the Government of Japan. This would helpfully strengthen the arguments for continued British membership of the single market.
Finally, an even bigger virtue is that it would enable Britain and Japan to collaborate as today’s loudest and most credible advocates for openness and globalization.
That, after all, is what Prime Minister Theresa May says she wants.