Is the UK's trade deal with Japan better than the EU's?

30 November 2020
What was claimed

The new UK-Japan trade deal will deliver a £1.5 billion boost to the UK economy.

Our verdict

This is the estimate of annual GDP growth after 15 years, relative to 2018, before the existing EU-Japan trade deal took effect.

What was claimed

The old EU-Japan trade deal was estimated to deliver a £2.6 billion boost to the UK economy.

Our verdict

This is the estimate of annual GDP growth after 15 years, but it can’t be compared to the estimate for the UK-Japan deal because they used very different calculation methods.

A clip of Emily Thornberry, Shadow Secretary for International Trade, comparing the old EU-Japan trade deal with the new UK-Japan trade deal has gone viral on Twitter.

The UK recently agreed a new deal with Japan, which will govern trade between the two countries from 2021, once the UK is not bound by the EU-Japan deal which came into force in February 2019.

In the clip, from a parliamentary debate on Wednesday 25 November, Ms Thornberry says that government analysis shows that the old deal was projected to increase UK GDP by £2.6 billion, but the new deal is only projected to increase UK GDP by £1.5 billion over the same period.

This is correct, as noted by Full Fact back in September when details of the new deal were published—although we can’t really compare the two estimates reliably.

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What are the deals worth?

The Department for International Trade (DIT) estimated the 2019 EU-Japan trade deal would add somewhere between £2.1 billion and £3.0 billion to the UK’s annual GDP after 15 years in 2017 prices, relative to a scenario where no deal was agreed. Its central estimate was £2.6 billion.

That’s around £1.1 billion higher than the GDP increase estimated as a result of the new deal.

However, the two figures can’t be simply compared.

Senior Fellow at think tank UK in a Changing Europe Dr Meredith Crowley told Full Fact the £2.6 billion benefit of the old deal is “what an economist would refer to as a ‘back of the envelope calculation’ or a ‘ballpark estimate’."  

“It basically takes a 2009 study from [consultancy] Copenhagen Economics and apportions part of the EU's estimated gains from the EU-Japan [deal] to the UK in a more-or-less sensible way. 

“However, it doesn't do a fully general equilibrium (CGE) analysis of the extent to which Japan's engagement with each member state of the EU will change under the [deal]. So, it's not really comparable to the more recent government study” The recent estimate is based on a CGE analysis.

DIT also told us in September that the two figures were not comparable as they were calculated using different models and assumptions.

But it hasn’t, to our knowledge, published anything which tries to quantify the impact of the differences.

So is the new deal any better?

The new deal goes beyond the EU’s in areas such as e-commerce and financial services, but it also has some drawbacks.

For example, the UK reportedly wanted to receive quotas for some agricultural products which could be exported with a lower tariff than normal. Instead the UK will be able to use whatever’s left over from the EU’s quota with Japan, potentially putting UK exporters at a disadvantage.

In September, Euronews reported Iana Dreyer, founder of European trade policy analysis website Borderlex as saying: "Fundamentally, this is an exercise in keeping the status quo and in damage limitation."

And Dr Minako Morita-Jaeger, International Trade Policy Consultant and Fellow at the University of Sussex writes: “While the Agreement has a certain political significance, its economic impact is likely to be very small. This is because it contains very limited improvements relative to the EU-Japan Economic Partnership Agreement (EPA).”

Ultimately, while it seems like additional provisions in the UK’s deal will have little impact, trade experts also do not expect the new deal to be worse than the old one.

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