BY DOUGLAS BULLOCH
Hailed by Jean-Claude Juncker as “a message to the world about the future of open and fair trade” and sometimes dubbed the “cheese for cars” deal, the EU Japan Economic Partnership Agreement was heralded in 2019 as an enormously significant evolution for the future of world trade then descending into confrontation between the US and China. Why then, a mere eighteen months later are the same voices disparaging basically the same deal as a mere trifle, when the UK and Japan have agreed significantly improved terms?
Clearly, if the UK were not leaving the EU the earlier agreement would still apply so it can easily be argued that this new agreement is mostly a rollover of existing terms, and when compared to the size of UK EU trade it is much smaller so hardly worth shouting about from a UK perspective. But there is an undimmed ferocity that characterises so much of the debate about Brexit that it is no longer enough to simply say it doesn’t amount to much. The tone of argument on Twitter–a platform not noted for the exchange of moderate views–descended to describing it as worse for the UK, as if Japan had walked all over us.
No credit can be admitted for agreeing in mere months a better tailored agreement that avoids all the problems the critics warned of. Never can it be acknowledged that the same critics declared that Japanese carmakers and banks would simply leave anyway, and would have no interest whatsoever in agreeing a trade deal even on equal terms, let alone improved. But of course the real lacuna in their analysis is on the level of strategy, the very space where this deal makes the most sense in the long run, and poses the greatest possible danger to the EU. Why?
Reason 1/ Disappointment
In the immediate aftermath of the Brexit vote, the Japanese government was perhaps more forthright than any other in recommending the UK remain closely aligned to the EU. They produced documents and openly listed their demands, speaking in slightly wounded terms about how Japan had invested in the UK on the basis of its membership of the EU. Any change, we were told, would inevitably cast doubt on future investment, and could be catastrophic. Car manufacturers, it was claimed, would leave while banks would swiftly relocate to Frankfurt or Dublin. These claims were seized upon by Remainers and published as ‘proof positive’ of the disaster that awaited, should foolish Brexiters ignore their import.
In spite of this Japanese banks quietly reassured anyone prepared to listen that they had been in London for over 100 years, and weren’t going anywhere despite the possible need to relocate some staff and operations. Car manufacturers equally remained calm and, while certainly reassessing their plans, decided on balance to stay. Honda, rather publicly, announced the closure of their Swindon plant, but also, more quietly, that it had little to do with Brexit. With each new announcement, Remainers seemed to become more annoyed, as if the deferral, if not outright cancellation, of the apocalypse they had foretold was extremely disappointing. Still today they warn that in the event of a hard Brexit, the plants may close after all, but it all sounds a bit hollow now that Nissan have proposed to relocate some Renault production from the EU to Sunderland. That was not supposed to happen.
Along the way the UK has been speaking to Japan about a possible trade deal that would follow the UK’s exit from the EU. Yet despite the UK being in no position to negotiate until after it formally left the EU at the end of January 2020, Remainers continued to report every suggestive hint that Japan might not be well disposed to such a thing, as it obviously exposed the overall naivety of the Brexiters. Nevertheless, negotiations commenced formally on June 9th 2020, and were completed pending signatures just over three months later, despite Liz Truss–UK Secretary of State for International Trade–apparently ruining everything by introducing impertinent demands over cheese at the last minute. By any measure, a broad comprehensive trade deal in three months is remarkable, and indicates high levels of interest and goodwill on both sides.
Reason 2/ Losing the Future
One of the less prominent, but nonetheless important, reasons for Brexit was long term disappointment in the UK over the direction of EU integration. Even europhiles rarely talked about UK membership in respect of the grand political ambition to create a political and strategic actor to rival the US and China. They might have privately spoken of the EU as a ‘peace project’ but most were only content to speak publicly about the economic advantages and opportunities that accrued from membership. Accordingly it was in the UK’s interest to be a member, and gave us a larger platform from which to extend our influence internationally, apparently.
With that in mind many have spoken of the creation of the Single Market as one of the UK’s signature contributions to the project, and the point at which we turned the whole project into the sort of free market, liberal economy that we had always wanted the EU to be. The trouble with this version of events is that it’s not, strictly speaking, true. The UK did propose and support the single market, but it was supposed to be the single market for goods and services, and the services part never really materialised. Our part in this arrangement was to offer up easier access to our goods market, where we were less competitive, in exchange for access to European service market, where we were very competitive. The whole effort had little to do with ideology or transforming the EU, but opening up European banking, finance and utilities markets, a project that remains incomplete.
The fact, however, that French and German interests conspired to prevent the opening of the EU services sector reveals an important structural problem the EU has in its hostility to reform. Not only does the UK suffer from this directly in not being able to expand our service sector while nevertheless having given free access to our goods markets, it’s also one of the factors that puts the EU in the slow lane internationally. For this reason the EU is always reluctant to prioritise an extensive services component in the trade agreements they take a decade to negotiate. Notably, however, the new Japan UK agreement contains extensive provisions covering digital, data, and financial services, along with new measures to cooperate on IP protection and looser migration rules for skilled personnel.
In addition to these specific provisions in the agreement, the rise of AI and advanced manufacturing are likely to have a transformational effect on trade and work patterns globally, vastly increasing the scope of the service sector generally and potentially ensuring that more manufacturing is conducted closer to the intended markets for the products concerned. While these ongoing technological developments make the UK’s future uncertain, they have the same effect across the board, and clearly a greater freedom to innovate both institutionally and in governance mechanisms will prove to be an advantage.
Reason 3/ The End of Regionalism?
Perhaps the most significant provision in the agreement is not exactly a necessary provision, but is hugely symbolic and that is Japan’s agreement to approve the UK’s application for membership of the Comprehensive and Progressive Agreement for Trans–Pacific Partnership or CPTPP for short. This new organisation is billed as a high quality trade organisation that encompasses about 14% of world trade. Since the US pulled out in 2017, Japan is the largest single member, but membership extends to Canada, Australia, New Zealand, Singapore, Malaysia, Chile and a few others, most of which have strong ties to the UK already. It is also politically associated with the strategic shift towards the ‘Indo-Pacific’ strategic concept which is slowly coalescing in the wake of the US and China’s increasing detachment.
Inevitably it will be argued that the the Pacific is far from the UK and that the EU is much closer, both of which are true, but in a brave new world of increased service sector trade, CPTPP membership has the potential to capture some important growth opportunities. Moreover, with the UK as a member, the nature of the organisation could shift from a regional organisation to being more global in orientation, as well as being more attractive to a wider range of countries, especially in the Indo-Pacific.
One of the guiding assumptions behind regional trade organisations is that proximity is the key determinant of trade. But in the case of the service sector, and financial services in particular, this is much less true. The danger for the EU, therefore, is not simply that the UK may find a range of useful trade arrangements around the world with which to widen its own horizons, but that the UK, merely by its example, shifts perceptions of the kind of trading relationships that are most advantageous to any state in the service focussed knowledge economy of the future, where manufacturing becomes increasingly localised and bespoke.
Contest of World Views
That is the real danger for the EU and perhaps the real reason why Remainers are so scornful of the UK Japan agreement. Not so much that the UK will compete directly with the EU, but that the EU’s reluctance to reform internally will render its governance structures and innovation atmosphere badly out of date. Equally, as new trading horizons are opened up by technology and political developments, the UK’s mix of research capability and high technology manufacturing, combined with its unparalleled position in financial services and its large cultural imprint mean it is very well equipped to take advantage of emerging trends as they materialise.
While the UK Japan Comprehensive Economic Partnership Agreement largely replicates the EU Japan agreement, it nevertheless contains important new provisions and represents the first step on a strategic pathway that will lead the UK ‘out’ of the EU’s ambit, ‘and into the world’ as the famous Spectator cover portrayed it. That is why Remainers are so discomfited by it; because it heralds the future they have long opposed and reveals to them their own failings. The EU took many years to negotiate their agreement with Japan, while the UK took three months to steal their clothes and further adorn them.
Lastly, both the UK Japan agreement and the CPTPP beyond it contain no explicit or implicit political content beyond a general commitment to a rules based trading order. The CPTPP was originally designed to fix the flaws in the WTO only trade regime that China was exploiting, and consequently provides a defence against the dwindling importance of WTO membership. It is quite likely, therefore that if the UK does succeed in joining the CPTPP, British representatives could find themselves on the other side of the negotiating table from their former EU colleagues, in a transformed world not to the EU’s liking.
By this comparison, the EU looks like an increasingly out of date organisation hamstrung by the search for a coherent political and strategic identity, while the CPTPP is a future oriented organisation that is itself a response to an emerging strategic imperative with which the UK is already well aligned and well equipped to contribute significantly. The UK Japan Comprehensive Economic Partnership Agreement takes us one small step towards that giant leap. No wonder, therefore, that Remainers are angry about it, though it is tempting to conclude they are really just angry with themselves.
Douglas Bulloch has ended up as a freelance writer based in Hong Kong after a lucky escape from UK academia just as it was woking up about 10 years ago. Having spent some more time teaching International Relations to students in Hong Kong, international relations itself intruded to put a stop to all that recently and years of pent up thoughts are now finding an outlet in The National Interest, and now Country Squire, among other publications. The small ‘c’ in his conservatism gets uncomfortably large when challenged, but he takes comfort from the direction some political debates have taken in recent years, if not yet all the outcomes. The countryside of North Devon and West Somerset comprises the backdrop of his inner hopes.