• The U.K. Department for International Trade said the deal will increase trade with Japan by an estimated £15.2 billion
  • The deal will also provide “strong tariff reductions” for U.K. pork and beef exports
  • Britain’s total trade volume with Japan in 2018 amounted to £29 billion

The U.K. has reached an agreement in principle on a trade deal with Japan, the world’s third largest economy.

The U.K.-Japan Comprehensive Economic Partnership Agreement will be Britain’s first major trade pact of the Brexit era.

U.K. Secretary of State for International Trade Liz Truss and Japan’s Foreign Minister Toshimitsu Motegi signed off on the deal during a video conference Friday morning.

The U.K. Department for International Trade said the deal will increase trade with Japan by an estimated £15.2 billion ($19.5 billion). (The Department did not specify a time frame for this figure)

“This is a historic moment for the U.K. and Japan as our first major post-Brexit trade deal,” Truss said in a statement. “The agreement we have negotiated – in record time and in challenging circumstances – goes far beyond the existing EU deal [with Japan], as it secures new wins for British businesses in our great manufacturing, food and drink, and tech industries.”

The International Trade Department further said the agreement will provide a boost to Britain’s annual gross domestic product by £1.5 billion ($1.92 billion).

British Prime Minister Boris Johnson tweeted: “The U.K. has just signed a major free trade agreement with Japan. We have taken back control of our trade policy [and] will continue to thrive as a trading nation outside the EU.”

Truss added: "From our automotive workers in Wales to our shoemakers in the North of England, this deal will help … create new opportunities for people throughout the whole of the U.K. and help level up our country."

Under terms of the deal, the U.K. will benefit from tariff-free trade on 99% of exports to Japan.

The deal will also provide “strong tariff reductions” for U.K. pork and beef exports and low tariffs for iconic British products such as Stilton cheese.

The pact also includes digital and data provisions that will “enable free flow of data whilst maintaining high standards of protection for personal data.”

The Department for International Trade also said the deal is part of an “important step” towards the U.K. joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which will give British businesses a “gateway to the Asia-Pacific region and help to increase the resilience and diversity of our supply chains.”

"It was a very tough negotiation, but we reached the agreement in principle in about three months, at an unusually fast pace,”  Motegi said. "While maintaining the high levels of access to the British market under the Japan-EU [economic partnership agreement], we improved our access to the British market on trains, cars and some auto parts."

In addition, the British international trade department said U.K. financial services will obtain “improved market access” including greater transparency and streamlined application processes for U.K. firms seeking licenses to operate in Japan.

Financial services comprise Britain’s biggest export item to Japan, accounting for 28% of all U.K. exports there.

“As we look to the U.K.’s global trading future, trade deals we sign should be about businesses of all sizes, which is why we are delighted to see a U.K.-Japan trade deal today that includes a comprehensive chapter for [small businesses],” said Mike Cherry, chair of the Federation of Small Businesses.

Carolyn Fairbairn, director-general of the Confederation of British Industry, said of the agreement: “The signing of the U.K.-Japan trade deal is a breakthrough moment. It will be welcomed by businesses across the country… It’s a huge opportunity to secure new Japanese investment across a wider range of sectors and U.K. regions.”

However, while the deal with Japan was largely welcomed by U.K. business leaders, many are concerned that an agreement with the European Union has stalled.

“Securing a free trade agreement with the EU remains critical to the future of businesses in the U.K.,” said Adam Marshall, director-general of the British Chambers of Commerce. "We urge [government] ministers to redouble their efforts to reach a comprehensive partnership with our largest trading partner [EU] at a crucial time in the negotiations."

Moreover, Ben Chu economics editor of Britain’s Independent newspaper, was less than impressed by the deal, citing that it essentially replicates terms of the agreement Japan has already had with the EU since 2018.

“For U.K. firms trading with Japan this is treading water, not some kind of surge forward into unexplored oceans,” Chu wrote. “And while the Trade department’s press release highlights potential gains to the U.K. economy of £1.5 billion over the long term, that represents less than 0.1% of our economy.”

Chu also cited that Japan’s trade business with the U.K. is minuscule compared to its ties to the EU.

Britain’s total trade volume with Japan in 2018 amounted to £29 billion ($37.2 billion), while trade with the rest of the European Union totaled £650 billion ($833 billion).

Chu noted that a no-deal Brexit would cut U.K. GDP by about 7.5% -- far worse damage than what would be gained by trading with Japan.

“Many [observers] in Europe wonder if this [trade deal with Japan] was actually an attempt by Downing Street to sabotage those talks [with the EU] by provoking the EU to walk away,” Chu wrote. “Whatever the truth, the likelihood of the U.K. falling out of the coverage of the EU’s tariff-free customs union with no agreement to replace it has plainly increased sharply this week.”