1. It took me a while and it's still work in progress but...first impressions on the UK-Japan deal for UK automotive. If you don't bother with detail, the FTA broadly delivers on the sector's key priorities, with many positives and a few caveats...but better read the thread!

2. First: timing. Trade negotiations are complex stuff, even when the parties start from a text already negotiated by someone else. A couple years ago, it was a common belief in @tradegovuk that replicating a deal meant replacing “EU” with “UK”. They have come a long way.

3. Going from formal opening of negotiations to signature in less than 5 months is an achievement in itself and it delivers on and automotive sectors’ asks. It gives traders a very good chance to avoid a cliff-edge in bilateral trade on January 1st.

4. However, signature ≠ ratification. Entry into force after the end of the transition period depends on the parties’ ability to conclude their domestic processes. Any obstacle (you know, say, heard of covid?) could ultimately result in a delayed implementation because…

5. …there is no clause in the deal to ensure provisional application will apply (at least, I haven’t found one – trade geeks out there, please check!). The issue could be overcome also without it, but still we can’t be certain CEPA will apply on 01/01/21.

6. This links nicely to the second point: tariffs. Delays to ratify the deal = tariffs. A bridging mechanism could help, but it is unlikely to avoid paying the duty in the first place and maybe ask for reimbursement at a later stage.

7. Tariff-wise, a delayed entry into force would not harm UK automotive exporters. They would still be able to enter the Japanese market tariff-free, because Japan does not charge tariffs on manufactured goods across the board.

8. So, if UK exporters won’t pay tariffs in any case, a good question someone might ask is…why bother at all? Well, because reverting to WTO tariffs on Japanese imports even on a temporary basis would harm UK consumers, Japanese exporters and UK importers of Japanese parts.

9. But let’s assume @meti_NIPPON will soon announce the formal ratification by the Japanese Diet; will CEPA deliver on automotive tariffs? In general, yes.

10. The UK has successfully maintained the tariff staging included in the original EPA for many automotive products. As already reported everywhere, imports of Japanese passenger cars will be fully liberalised by 2026.

11. A gradual phase out for is a positive outcome. It avoids a sudden change to the UK car market’s competitive conditions without precluding enhanced consumers’ choice and it gives continuity to business planning undertaken on the basis of the EPA since Feb 2019.

12. For the record, the phase-out schedules for buses, commercial vehicles and tractors have also been replicated, with UK buses shielded from full tariff liberalisation for a longer period than cars and CVs.

13. For parts and components, the picture is slightly different. Engines and most typical accessories will maintain the current tariff schedule. Electrical board controls will be liberalised upon entry into force instead of 2024.

14. Automotive parts that will be subject to 0% tariffs under the new UK WTO schedule have also been fully liberalised. Is any of this a problem? Not really. It could make sourcing of a limited number of components (minimally) cheaper sooner rather than later. So far, so good.

15. But discrepancies between CEPA and EPA’s tariff schedules could have some repercussions if different tariffs apply in the EU and in the UK on Japanese products that might be subject to requests of extended cumulation in negotiations with the EU.

16. However, differences in applied tariff rates in the EU and in the UK would be minimal and short-lived, given that ultimately preferential tariffs on Japanese products will be fully dismantled both by the EU and the UK.

17. So, different tariff rates do not automatically exclude the possibility to extent cumulation to few commodities originating in Japan in trade between the EU and the UK...but different origin rules would.

18. Allowing extended cumulation of Japanese inputs of production following different rules of origin under CEPA and EPA would create an irreconcilably uneven playing field on a permanent basis. And this is where @tradegovuk has done a great job resisting calls for easements.

19. Except for chassis fitted with engines, under CEPA all key automotive parts and components should follow exactly the same rules of origin as under the EPA.

20. Does this guarantee extended cumulation will ever be achieved in negotiation with the EU? Not even remotely. Does this give credibility to any such request today or in the future? Absolutely.

21. The fact that EU content will also be cumulable is a nice-have for continuity purposes, in particular for Japanese exporters and for the aspirational objective to create a real trilateral cumulation zone in the future.

22. Finally, a note. This deal is important, but will CEPA alone guarantee the sector’s long-term competitiveness? Will Japanese investment be secured? No, not without an ambitious EU deal. The answers to these questions hasn't changed. [END]