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February 25, 2019

Time runs out on UK trade deals with Japan and Turkey

By Hannah Abdulla

The British government has admitted that time has run out for the UK to transition existing trading arrangements with countries including Japan and Turkey in the event of a No-Deal Brexit, meaning trade would take place under World Trade Organization rules.

document released by the Department for Trade shows the UK is seeking to roll over deals with 40 current trading partners currently covered by EU membership. The idea is to replicate current trading arrangements which account for 11% of current UK trade.

But the department said in the cases of Japan and Turkey it would not “transition the agreements for exit day.”

Turkey is the third largest supplier of apparel and textiles to the UK after China and Bangladesh, and its apparel exports currently enjoy duty free access through the Euro-Mediterranean Economic Partnership Agreement customs union. According to the Office for National Statistics, in the three months to December 2018, Turkey’s apparel exports to the UK stood at GBP19.9m (US$26m). Textile fabric exports to the UK stood at GBP5.5m.

At the end of January, the head of the Istanbul Textile and Apparel Exporters’ Association (IHKIB) Mustafa Gültepe explained Turkish apparel exports would face a “severe blow” in the event of a No-Deal Brexit

Meanwhile, the EU recently entered into an Economic Partnership Agreement (EPA) with Japan. The EPA agreement promotes bilateral trade and economic growth between the EU and Japan by eliminating most tariffs and reducing non-tariff measures that businesses face when trading goods and services and investing. 

Tariffs on industrial products will be fully abolished, for instance in sectors where the EU is very competitive, including textiles and clothing. For leather and shoes, the existing quota system that has significantly hampered EU exports will be abolished immediately. 

Tariffs on shoes will go down from 30% to 21% at entry into force, with the rest of the duties being eliminated over ten years. Tariffs on EU exports of leather products, such as handbags, will go down to zero over ten years, as will those on products that are traditionally highly protected by Japan, such as sports shoes and ski boots.

According to the re:source by just-style sourcing tool, the value of EU apparel (HS Chapters 61 and 62) imports from Japan totalled US$49.5m in 2017.  The UK, as a member of the EU, currently has access to the deal’s benefits, but Brexit could change this. 

“In the event of a No-Deal Brexit, the UK would be automatically excluded from the deal as well as other EU FTAs with other markets such as Canada and South Korea,” warns the UK Fashion & Textile Association (UKFT).

Should the UK exit the EU on 29 March without a deal, trade will take place on World Trade Organization terms.

For imports into the UK, the government will determine and publish a new applied UK ‘Most-Favoured-Nation’ (MFN) tariff schedule before the UK leaves the EU. For exports from the UK duties applied to exports from the UK will vary by country. Many countries provide duty free treatment for all countries (so called mfn duty free treatment) on a significant amount of their imports. But where their imports are dutiable, without an arrangement in place to maintain preferences, traders would pay the non-preferential tariff rate applied in the country of import. 

The Department for International Trade assures that leaving the EU with a deal remains “the Government’s top priority”.

“This has not changed. While a number of these continuity agreements are likely to be concluded by exit day, it is the duty of government to produce a highly cautious list of those that may not be in place in order that businesses and individuals ensure that they are prepared for every eventuality.

“It remains our priority to conclude trade continuity agreements with these countries by exit day or as soon as possible thereafter. We are exploring a range of options to ensure continuity of effect for trade agreements if an agreement has not been ratified and brought into force in time for exit day.”

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