TOKYO -- Japan and the U.K. will sign a free-trade pact, perhaps by September, Nikkei has learned.
The deal will mostly follow the preferential tariffs in the Economic Partnership Agreement between Japan and the European Union, minimizing Brexit's impact on Japanese businesses.
According to customs data, Japan exported goods worth over 1.5 trillion yen ($14.1 billion) to the U.K. and imported goods worth 887 billion yen from the U.K. in 2019. The new trade pact is especially good for Japan, as it will avoid tariff increases.
It will be the U.K.'s first trade agreement with a large country since it left the EU and will serve as a model for negotiations with other countries.
Japanese Foreign Minister Toshimitsu Motegi and U.K. International Trade Secretary Liz Truss spoke by telephone Wednesday and agreed on most of the substance of the free trade deal. The two sides are looking to sign the pact as early as next moth and aim to have it take effect as early as January next year.
Under the agreement, there will be no auto tariffs on Japanese cars in 2026, after the tariff rate is gradually lowered, in line with the EU-Japan agreement. Tariffs on some auto and railroad parts will be eliminated ahead of the EU-Japan agreement, benefiting Japanese parts makers.
Imports of blue cheese from the U.K. will be guaranteed a tariff at the same level stipulated in the EU-Japan agreement.
A system will be created to import cheese at a higher tariff but later refund the supplier. Cheese importers will be charged a 29.8% tariff when they import from the U.K. Cheese importers will get a refund if the total import amount at the end of the year is below an agreed-to level. The refund will make the tariff equal to a 24.2% rate between Japan and the EU.
The rules for the digital sector will feature less government involvement, compared with the EU-Japan deal. Algorithms and cryptography will be included in the list of areas where governments cannot require companies to disclose information.
Preferential tariffs under the Japan-EU EPA are applicable to Japan-UK trade through December. Higher tariffs will take effect, starting next year, in the absence of a new Japan-UK trade agreement, which would hurt Japanese exporters.