LONDON -- Japan and the U.K. on Friday agreed on most of the substance of a free trade pact meant to ensure continuity and prevent tariffs as Britain leaves the European Union, with a goal of reaching an agreement in principle by the end of this month.
The consensus was reached as Japanese Foreign Minister Toshimitsu Motegi and U.K. International Trade Secretary Liz Truss met here for two days of in-person negotiations. While most chapters were said to be agreed, neither side disclosed which issues remain unresolved.
For Japan, a deal would ensure no sudden tariffs when the Brexit transition period concludes at the end of this year. A U.K.-Japan pact is also considered an important step toward Britain joining the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which includes Japan and Singapore.
"We reached a shared understanding on the main issues," Motegi said in an online news conference.
"To ensure continuity for businesses in both countries, we have agreed to speed up the remaining processes so the deal can come into effect from January 1 of next year," Motegi told reporters. Negotiations lasted until Motegi had to leave for his flight back to Japan.
Truss called the negotiations "positive" in a tweet, saying: "Reached consensus on major elements of deal inc. ambitious provisions in digital, data and financial services that go significantly beyond EU-Japan deal."
Both governments will now work toward agreeing on the remaining issues, after which they would need to ratify the trade deal in their respective parliaments by the end of the year. Auto tariffs and agricultural quotas are expected to be contentious issues.
For Britain, a deal would be seen as a political win for Prime Minister Boris Johnson's government as it forges a new trade policy independent of the EU for the first time in over 40 years. The U.K. and Japan began negotiations on a bilateral economic partnership agreement on June 9 via video conference.
Speedy negotiations are necessary because without a deal in place by the end of the year, trade will revert to World Trade Organization terms, and tariffs will be reintroduced. For Japan, the deal needs to be ready in time for the autumn parliamentary session.
U.K.-Japan trade is now covered by the European Union-Japan EPA, but this will no longer apply after the end of 2020, when the Brexit transition period ends. Under the new EPA, based heavily on the old agreement, trading conditions would continue largely unchanged.
The government has a stated aim of having 80% of total U.K. trade covered by free trade agreements by 2022. The EU is Britain's largest trading partner by far, and accounts for around half of U.K. imports and exports.
Japan is an important investment partner for the U.K., as the second-largest non-European investor in the country, while Britain is the fifth-largest investor in Japan. Nearly 1,000 Japanese companies have operations in the U.K., sustaining more than 180,000 jobs, according to the Embassy of Japan.
The British Department for International Trade estimated that the agreement could increase U.K. gross domestic product by 0.07%. In the long run, bilateral trade is estimated to increase by 15.2 billion pounds ($19.9 billion).