The unveiling of the US $ 490 billion fiscal stimulus package in November coincided with the announcement by the UK Department for International Trade of a new export strategy. The aim is to increase exports to £ 1 trillion per year (£ 1.35 trillion) by 2030, from the current £ 600 billion.
While the two policy measures were entirely separate events, their similar timeline and scale of ambition, along with a groundbreaking digital free trade agreement between the UK and Japan, lay the groundwork for a larger merger. narrow their savings over the next decade.
The UK and Japan are not only located at different ends of a vast Eurasian supercontinent, but their future ties to the respective surrounding regional economic groupings have diverged considerably in recent years. As the UK severed its more than 40-year relationship with the European Union, Japan embarked on what will be the world’s largest free trade bloc, the Regional Comprehensive Economic Partnership (RCEP) .
Even so, what they have in common far outweighed their differences. As island nations, their economies have maintained close ties for several decades. Japan is one of the UK’s largest sources of foreign capital, with a level of direct investment currently exceeding $ 90 billion, while the UK has invested around $ 5 billion.
The two countries are also important trading partners, with pre-pandemic bilateral merchandise trade averaging around $ 24 billion per year, although favoring Japan by around $ 4 billion to $ 5 billion per year. These long-standing economic ties have been cemented by shared values on political governance and the promotion of global institutions based on transparency and the rule of law.
Arguably, in recent years the UK has turned to Japan more than the other way around. Driven by Brexit, British policymakers have oriented the country’s economic future towards the Indo-Pacific region. Japan, the world’s third-largest economy and among the most developed in this region, has played a key role in this effort.
Tokyo’s position as an economic magnet for the UK was bolstered by another large regional trading group, the Comprehensive and Progressive Trans Pacific Partnership (CPTPP), which Japan co-founded, later becoming a main sponsor of its successful conclusion with 10 other Asian countries. Pacific economies. Tokyo is now one of the main supporters of Britain joining the CPTPP.
Twinning of global financial centers
Prime Minister Fumio Kishida’s surprisingly large fiscal stimulus package in 2021 opens up great potential opportunities for Britain’s services sector, one of the largest in the world, which exported £ 52 billion in 2019. That year, UK services exports to Japan peaked at over £ 3 billion.
The largest share, valued at around £ 580million, was in financial services. Their prospects are enhanced by the recent ongoing cooperation between the City of London and Tokyo city authorities, as well as their bilateral free trade agreement, known as the Comprehensive Economic Partnership Agreement (CEPA).
With Tokyo seeking to expand its role as a major international financial center and other Japanese cities also reorganizing their financial sectors, UK financial players should be in a vantage point to support these developments.
Significantly, CEPA enables mutual regulatory equivalence of each country’s financial services standards and even establishes a platform for their regulators to work closely together on the regulation of services through its comprehensive annex on financial cooperation. CEPA’s annual dialogue will further facilitate a forum for authorities to coordinate regulatory development and address market access and other emerging issues.
Although CEPA mainly replicates the EU-Japan agreement, it strengthens cooperation commitments in the introduction of new types of financial services and in the practice of transparency regarding the licensing of new financial service providers.
In addition, it obliges the two parties to discuss regulatory matters before any possible abolition of mutual equivalence, thus ensuring greater stability in their long-term financial services relationship.
There are also additional provisions, relating to the EU-Japan Agreement, on the transfer of financial information between financial service providers, as well as a ban on the localization of data relating to financial data, except where this is necessary for specific purposes. supervisory and regulatory reasons.
On the other hand, CEPA’s benefits are limited for Japanese financial services companies using the UK as a single market access center given the loss of its European passport rights under EU agreements. -United Kingdom governing post-Brexit relations, other than some limited financial services commitments.
Develop and secure digital commerce
While the bulk of Japan’s spending program will be in the form of financial assistance to households and businesses, a significant portion of spending will be directed to achieving a “growth strategy”. Examples include investing in green innovation and promoting hydrogen and electric charging for all new motor vehicles by 2035.
The government will also invest in digital cities involving the deployment of local 5G (fifth generation telecommunications) networks, data centers and drone deliveries to local communities, in addition to the large-scale provision of digital health services.
In some ways, Kishida’s focus on digitization is driven by the need to upgrade Japan’s relatively underdeveloped digital service sector, in both public and private spheres of the economy.
Given Britain’s expertise in artificial intelligence, green technologies, cybersecurity and digital healthcare, UK digital providers would be in a strategic position to support this growth agenda. To benefit from Japan’s growth strategy, UK Prime Minister Boris Johnson’s new export strategy is expected to provide additional impetus, which aims to improve the digital and technological reach of UK exporters abroad.
To achieve this, the ongoing UK Tech for Growth program will be strengthened by expanding government business networks abroad, such as in Japan, to more effectively connect UK businesses and access promising opportunities there. The government will also launch a Council for Trade in Services to deepen access to international markets for service exporters, especially digital and e-commerce providers.
To ensure the success of the government’s new export strategy, some of the key performance indicators will measure the level of UK trade with countries with which it has a new free trade agreement, as a proportion of overall trade. It will also examine the expected impact on GDP of each FTA entered into and assess the number of market access barriers reported and resolved through its digital market access service.
On every metric, CEPA is expected to become a standard bearer for success in two-way digital commerce in light of its groundbreaking provisions on these services.
At the start of the deal’s deal, the government characterized it as benefiting from “cutting edge digital and data arrangements that go far beyond the EU-Japan deal” (it should be noted that the UK’s tentative digital economy deal with Singapore, announced on December 9, is now claimed by the Johnson government as “the world’s most comprehensive digital trade deal”).
For example, the provisions of CEPA prohibit restrictions on cross-border data transfer, as well as the localization of data. Other digital data provisions ensure a commitment not to impose tariffs on electronic data transfers, source code protection, the application of electronic signatures and upholding the principles of net neutrality.
From CEPA to CPTPP
UK digital service providers are therefore expected to benefit from trade with Japan on the basis of the enhanced regulatory certainty CEPA offers in e-commerce and data mobility. This will be particularly useful now that significant opportunities are about to emerge from the Kishida government’s spending plans on its new growth strategy and for the digitization of its economy.
Obviously, the UK will not be the only beneficiary of an enhanced digital trading relationship with Japan, as many of CEPA’s digital provisions, along with other benefits, are also contained in the CPTPP. However, in light of Britain’s cutting-edge digital services sector, CEPA will give a quick and significant boost to the integration of the two economies, narrowing the wide geographic divide with just one click on a desktop screen. computer.