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UK-Japan trade talks to run past July deadline

The UK and Japan expect talks on a post-Brexit trade deal to continue past a July 31 deadline as they struggle to resolve outstanding points on market access, investment protection and rules of origin.

According to officials on both sides of the talks — which have taken place at breakneck speed to allow for ratification by the end of the year — many sections of the new trade treaty are now settled but rules of origin on UK exports to Japan are a particular sticking point.

Their comments suggest talks have reached the endgame where both sides have to compromise on the most difficult issues. The UK is under particular pressure to strike a historic agreement and show it can make its own deals outside the European Union.

Both sides still believe they will reach an agreement within days. One Japanese negotiator said they were “still optimistic” and UK officials said they were “hopeful that a deal is pretty close”. Japan’s foreign minister, Toshimitsu Motegi, is expected to visit London in the first half of August to announce a deal.

Although free trade negotiations normally take years, the UK-Japan talks only began in June, with Tokyo setting the end of July as a deadline to reach agreement. Negotiators are using the existing EU-Japan trade deal as a template. That agreement will expire when the Brexit transition runs out at the end of the year.

Japanese chief negotiator Hiroshi Matsuura told the Financial Times last month that both sides would have to “limit their ambition” because of the tight deadline.

On market access, the UK is still pressing Japan on the sensitive topic of agriculture, while Tokyo is seeking the faster removal of British tariffs on industrial goods. The UK is pushing to match the “baseline” of the existing Japan-EU trade treaty before agreeing to cut its own tariffs further.

“We will work to ensure that a deal can be finalised as soon as possible, but we are clear that we will not accept rollbacks on key UK market access,” said an official on the British side.

On rules of origin, the UK wants “extended cumulation”, so that goods count as British under the treaty even if a lot of components come from Europe. However, Japan has not yet given the UK everything it wants.

There are also a number of points outstanding on the services chapter of the treaty, which includes investment and digital trade, with the UK making a late push to demand that Japan reduce its regulatory barriers.

A British government spokesperson said: “Both sides are committed to an ambitious timeline to secure a deal that will enter into force by the end of 2020 if at all possible. Our priority is to maintain and enhance the trading relationship between our two countries.”

And UK international trade secretary Liz Truss said the government was a “step closer” to securing a trade deal with New Zealand. 

After the first round of talks concluded on Wednesday, Ms Truss said: “We are a step closer to reaching a comprehensive trade deal with a like-minded friend and ally.

“The first round of talks were positive and productive, with a shared aim to be particularly ambitious in areas including digital trade and sustainability.”

Last week it emerged that the UK government had abandoned hopes of reaching a trade deal with the US ahead of the presidential election in November, with British officials blaming the Covid-19 pandemic for slow progress.

This article was first published at https://www.ft.com/content/3df986a2-fa57-4755-a799-0ce9cea4c38d

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The Markets Today