The UK secured its first major post-Brexit trade deal on Friday after signing an agreement with Japan, just as discussions with the European Union appeared to be on the verge of collapse.
The deal, which has so far only been agreed upon in principle and for which details are thin, will increase commerce with Japan by around £15bn (dh71bn) and expands upon a recently signed deal between the EU and Japan.
“The agreement we have negotiated — in record time and in challenging circumstances — goes far beyond the existing EU deal, as it secures new wins for British businesses in our great manufacturing, food and drink, and tech industries,” said Britain’s international trade secretary, Liz Truss.
The government said UK businesses will benefit from tariff-free trade on 99 per cent of exports to Japan and that it will give British businesses a gateway to the Asia-Pacific region.
Skeptics say no amount of such trade deals can mitigate for the losses Britain would suffer in the event of a ‘no-deal’ outcome with the EU, given that trade with the 27-nation bloc accounts for around half the country’s total.
While the UK left the EU this year, it is still trying to agree on new trade relations when current deals expire at the end of the year.
Striking an accord with the world's third-largest economy has been a priority for Johnson, who is eager to demonstrate the ability to sign trade deals as an independent country — a key plank of the Brexit campaign he led. The UK benefited from the EU-Japan free trade agreement and needed a deal to avoid tariffs on commerce with Japan at the end of the year.
However, the deal and data showing the UK economy recovering was overshadowed by fears that Britain will end its post-Brexit transition period without agreeing sufficient trading arrangements, sending the pound to new 5-1/2-month lows.
The pound is set for its worst week against the euro and the dollar since mid-March, when the COVID-19 pandemic selloff was at its height, having lost around 4 per cent against both currencies.
Concerns over a post-Brexit deal have risen in the past few days as relations between the UK and the EU soured. The announcement from the British government that new legislation breaches parts of the withdrawal agreement, which allowed for the country’s smooth departure from the bloc, has prompted a furious reaction from the EU and raised the prospect of an imminent collapse in the talks.
Mr Johnson has also faced opposition closer to home. He has already been criticised by a string of ex-leaders of his own Conservative party and up to 30 Tory MPs are threatening a rebellion to give Parliament the ability to veto Mr Johnson’s plans.
Today, Labour’s former prime minister Gordon Brown waded into the row to accuse Mr Johnson of a ‘huge act of self harm’. Mr Brown said it was wrong to believe the EU was so desperate for a deal it would eventually back down.
The bill will face opposition in both houses of parliament as many senior British politicians have expressed shock that London is explicitly planning to breach international law.
"The government will have to think again," said Norman Lamont, a Brexit supporting member of the House of Lords, the upper chamber, who was finance minister when the pound crashed out of the Exchange Rate Mechanism in 1992. "It is impossible to defend."
Brussels has now stepped up planning for a 'no-deal' Brexit.
"The probability between a deal and no-deal are definitely shifting towards a no deal -- that is very clear," said Klaus Baader, global chief economist at Societe Generale.
"The risk of a no-deal is increasing every day."
Even before the standoff, the trade discussions had made little progress, with the two sides seemingly wide apart on several issues, notably on business regulations, the extent to which the UK can support certain industries and over the EU fishing fleet’s access to British waters.
The EU has been particularly insistent on ensuring that British-based businesses don’t have an unfair advantage as a result of laxer social, environmental or subsidy rules in the UK
British businesses are worried about a collapse in the talks that could see tariffs and other impediments slapped on trade with the EU at the start of next year. Though the UK left the bloc on January 31, it is in a transition period that effectively sees it abide by EU rules until the end of this year. The discussions are about agreeing the broad outlines of the trading relationship from the start of 2021.
EU chief negotiator Michel Barnier said on Thursday that the bloc was increasing its planning for a no-deal Brexit at the end of this year after trade talks made little progress.
"The UK has not engaged in a reciprocal way on fundamental EU principles and interests," Mr Barnier said. "Nobody should underestimate the practical, economic and social consequences of a 'no deal' scenario."
