Japan will apply preferential tariffs to British-made cars and other industrial products, even when they use many parts made in the European Union, according to discussions between Tokyo and London.
The Japanese and British governments have begun discussions toward a bilateral trade agreement, accompanying the United Kingdom's departure from the EU.
The same preferential tariffs would also be applied to Japanese products using many EU-made parts.
This can be seen as a relief measure based on the reality that both British and Japanese companies had been operating with Britain as an integral part of the EU. Tokyo and London aim to reduce the effects on the prices of imports and exports through this special provision.
The Japanese and British governments are trying to reach the trade pact by as soon as August as the process must be completed during the post-Brexit transition period, which ends at the end of the year.
Foreign Minister Toshimitsu Motegi is expected to visit Britain as soon as early August to discuss the pact with Elizabeth Truss, the British secretary of state for international trade.
The goal is to reduce or eliminate tariffs on industrial products to the same level as in the Japan-EU economic partnership agreement, which currently applies to trade between Japan and the United Kingdom.
However, these tariffs are based on rules of origin (see below), so once the transition period ends, regarding Japan-U.K. trade, British cars would be considered foreign products and subject to higher tariffs if they use a large number of parts manufactured in the EU.
The special provision would relax the rules of origin requirements. Products made by both British and Japanese companies using EU-made parts would be considered to be made in their respective countries and would not be subject to high tariffs.
There is a large amount of trade between Japan and Britain in sectors such as automobiles and electronics, and in many cases, companies in both countries often source parts from the EU.
About 15% of the auto parts Japan imports are made in the EU. The major auto companies export vehicles produced in Japan using EU parts to Britain.
Nissan Motor Co. and two other major automakers have factories for finished vehicles in Britain that also use parts made in the EU.
According to government trade statistics and other sources, Japan imported about 150 billion yen worth of finished vehicles and other products from Britain in 2018 and exported about 250 billion yen worth to Britain.
This month, the Japan Automobile Manufacturers Association and the British Society of Motor Manufacturers and Traders (SMMT) submitted a written request on the new trade pact calling for a relief measure on the rules of origin for EU parts in the automobile trade between Japan and Britain.
--Rules of origin
These rules for imports and exports are used to determine in which country an item was produced as a standard for determining which products are eligible for lower tariffs or exemptions. For industrial products such as automobiles, the assessment is not only based on the number of parts, but the extent to which the added value of the product was created in which country is also a determining factor. Products that are made of mostly imported parts and only finished in a particular country will likely not be considered a product of that country, and thus not subject to any preferential tariffs.
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