Last week the government announced that the UK and Japan had secured a free trade agreement (FTA), the first major trade deal made by the UK since it left the EU.
The Department for International Trade (DIT) said: “Government analysis shows that a deal with Japan will deliver a £1.5 billion boost to the UK economy.”
It’s worth clarifying that these benefits are relative to 2018 when the UK (as part of the EU) had no FTA with Japan. It’s not relative to the existing EU-Japan trade deal which currently governs trade between the UK and Japan.
That agreement came into force in February 2019, and, among other things, reduced tariffs on agricultural goods and helped EU companies access procurement markets in Japan.
DIT says of the new deal that it “is tailored to the UK economy and secures additional benefits beyond the EU-Japan trade deal, giving UK companies exporting to Japan a competitive advantage in a number of areas.”
For example it cites that there are new protections for “iconic UK goods” and more access for malt producers.
However, it’s hard to quantify how much more the new deal will benefit the UK economy than the old deal.
DIT estimated the 2019 EU-Japan trade deal would add somewhere between £2.1 billion and £3.0 billion to annual GDP after 15 years in 2017 prices, relative to a scenario where no deal was agreed. Its central estimate was a £2.6 billion increase after 15 years.
That’s around £1.1 billion higher than the GDP increase estimated as a result of the new deal. However there’s reason to believe that this estimate isn’t particularly comparable to the new one.
Senior Fellow at think tank UK in a Changing Europe Dr Meredith Crowley told Full Fact it 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 Copenhagen Economics and apportions part of the EU’s estimated gains from the EU-Japan EPA 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 EPA. So, it’s not really comparable to the more recent government study” (which is based on a CGE analysis).
There is uncertainty around each estimate. A fuller impact assessment of the new UK-Japan deal is expected to be published when the agreement is brought to parliament.
We have approached DIT for comment on why the old deal we currently operate under was estimated to bring more economic benefit than the new deal.