U.K. inks Japan trade deal in principle just as EU talks sour

A pedestrian passes a sale sign in a shop window on Oxford Street in London, Thursday, Aug. 13, 2020. (AP Photo/Kirsty Wigglesworth)

LONDON — The U.K. secured its first major post-Brexit trade deal on Friday after signing an agreement with Japan just as discussions with the European Union appeared to be teetering on the brink of collapse.

The deal, which is largely a rollover of one the U.K. enjoyed as a member of the EU, has only been agreed upon in principle. Other rollover deals are in the works, too, including with Canada and South Korea.

"The agreement we have negotiated -- in record time and in challenging circumstances -- goes far beyond the existing EU deal, as it secures new wins for British businesses in our great manufacturing, food and drink, and tech industries," said Britain's international trade secretary, Liz Truss, who pointed to concessions on English sparkling wine and Wensleydale cheese.

The government said U.K. businesses will benefit from tariff-free trade on 99% of exports to Japan and that it will give British businesses a gateway to the Asia-Pacific region. Overall, it said the deal with Japan, the world's third-largest economy, will increase commerce with Japan by around 15 billion pounds ($19 billion) and deliver a 1.5 billion-pound boost to the U.K.

Britain's Conservative government has said that one of the benefits of Brexit is that it allows the country to negotiate trade deals with whoever it wishes -- the EU negotiates trade deals on behalf of its members.

Skeptics say the deal with Japan is little different to the one already in place via the U.K.'s former membership of the EU. They also say that nothing can mitigate for the losses Britain would suffer in the event of a `no-deal' outcome with the EU. Such a scenario would see tariffs and other impediments imposed on trade between the U.K. and the EU. Though both sides would suffer from the new barriers to trade, most economists think Britain would be hit disproportionately.

In 2019, the U.K. exported some 36.7 billion pounds of goods to Germany, Europe's largest-economy, or 10% of its total. Exports to Japan were just 7.2 billion pounds, or 1.9% of the total.

The talks with the EU have not collapsed yet and discussions are set to resume on Monday in Brussels. Though the U.K. left the bloc on Jan. 31, it is in a transition period that effectively sees it benefit from tariff-free trade until the end of this year. The discussions are about agreeing on the broad outlines of the trading relationship from the start of 2021.

Concerns over a post-Brexit deal have heightened in the past few days since the British government said that new legislation breaches parts of the withdrawal agreement, which allowed for the country's smooth departure from the bloc.

The diplomatic shockwaves from the British announcement could derail any hopes Prime Minister Boris Johnson may have of negotiating a U.S. trade deal. The House of Representatives speaker, Nancy Pelosi, warned the British government that there will be "absolutely no chance" of a trade deal if the U.K. violates its international obligations as they apply to the peace process in Northern Ireland. Congress has to ratify all U.S. trade deals.

Even before the current standoff, the trade discussions with the EU had made little progress, with the two sides wide apart on business regulations, the extent to which the U.K. can support certain industries and over the EU fishing fleet's access to British waters.

The renewed Brexit uncertainties come as the British economy gradually recovers from a deep recession caused by the shutdown of businesses during the coronavirus pandemic. The Office for National Statistics said the economy grew by a month-on-month rate of 6.6% in July as many sectors, including pubs and restaurants, started reopening. Despite the increase, the economy remains 11.7% smaller than it was in February.

The looming end of a salary-support scheme that will likely see unemployment rise and the heightened Brexit uncertainties are expected to weigh on growth in the months ahead.

Former Labour prime minister, Gordon Brown, urged the government to provide more support for those likely to be unemployed after the end of the Job Retention Scheme in October and to avoid a "huge act of self-harm" in its discussions with the EU.

"We've got a cliff-edge on the furlough scheme on Oct. 31 and we've now got a cliff-edge on Brexit," he told BBC radio.