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UKFT update on the EU-Japan EPA

06/02/2019

The EU- Japan “Economic Partnership Agreement” came into force on 1st February 2019. This is a massive free trade agreement (FTA) between the world’s largest trade bloc and the UK’s third largest export market for fashion and textiles. UKFT had campaigned for this FTA on behalf of the industry and it has taken 7 years for the FTA to be agreed and ratified.

The EPA is intended to have the effect of reducing duty on most goods traded between the EU and Japan.

The UK, as a member of the EU, is now part of this agreement 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. If the UK exits the EU with a deal, the expectation is that the UK would remain part of these FTAs for the period of the transition, or as agreed, in the hope that the UK government would be able to sign its own deals with those and other governments by the time the UK leaves the EU.

This agreement will promote 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 10 years. Tariffs on EU exports of leather products, such as handbags, will go down to zero over 10 years, as will those on products that are traditionally highly protected by Japan, such as sports shoes and ski boots.

This preferential treatment applies to products manufactured within the European Union. However, the Rules of Origin can become complex to understand, especially when the supply chain involves multiple countries. The Rules of Origin in Japan can be subtly different from those commonly used in the EU. See appendixes at the end of this document.

How to get Preferential Rates under the agreement?

To be able to export products to Japan at the preferential rate, companies must be able to demonstrate that goods are of EU origin by issuing a Statement of Origin to that effect. EUR1 forms, previously used for this purpose, are not recognised under the Japan-EU free trade agreement.

Exporters should apply to be a Registered Exporter through the REX scheme at   https://www.gov.uk/government/publications/apply-to-become-a-registered-exporter if the consignment exceeds €6,000 in value. This is compulsory for consignments is over €6,000 but it is still recommended for smaller consignments. REX registration allows you to issue Statements of Origin.

The Institute of Export has also produced a useful news release at https://www.export.org.uk/news/news.asp?id=433468 .

Once REX status is confirmed, the exporter can export goods free of duty or at a reduced rate to Japan depending on the product.

The registered Exporter Scheme (REX) is also used to demonstrate EU origin for EU FTAs with Canada and South Korea. The scheme applies to all EU member states so UK companies manufacturing within the EU may still use this scheme after 29th March 2019.

UKFT’s advice to all companies in the fashion and textile industry is to go ahead and register for REX even if your exports to Japan are currently under €6,000 per consignment.

In many cases, your Japanese customer will handle the physical importation of the goods into Japan. In these cases, they will require either to know your REX number for you to send make a Statement of Origin. They may have their own templates or requirements for this. Please ask them asap.

HMRC have issued a guidance note on EPA at https://www.gov.uk/guidance/preferential-trade-deal-between-the-eu-and-japan-cip2

There is also a helpdesk at https://www.eu-japan.eu/epa-helpdesk. UKFT members can also contact UKFT for more information, and other documents and updates are available at www.ukft.org

Labelling:

Japan has already adopted the international textiles labelling system used in the EU. Textile labels therefore no longer need to be changed on every single garment exported to Japan, as was the case before. This also means that the Ginetex care labelling symbols must now be used in Japan. UK companies will require a licence to use these which can be obtained as part of UKFT’s Membership Plus Package. Email: martial.ramage@ukft.org for more details.

Another agreement, the Strategic Partnership Agreement between the European Union and Japan came into force on 1st February 2019 on a series of wider issues.

For more details visit:

https://www.gov.uk/government/publications/impact-assessment-of-the-eu-japan-economic-partnership-agreement-epa-on-the-uk

http://trade.ec.europa.eu/doclib/press/index.cfm?id=1955

http://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/

http://www.customs.go.jp/english/tariff/index.htm

https://www.gov.uk/government/publications/existing-free-trade-agreements-if-theres-no-brexit-deal/existing-free-trade-agreements-if-theres-no-brexit-deal

https://cdn2-eeas.fpfis.tech.ec.europa.eu/cdn/farfuture/5NlzjyWex4BUAb6PPp0gKWYOTPu1kxepN6yt50nI03s/mtime:1544695746/sites/eeas/files/factsheet_eu-japan_strategic_partnership_agreement_japan.pdf

Appendix 1.

Extract from Outline of Rules of Origin from Japanese Customs www.customs.go.jp/roo/english/origin/outline_of_roo.pdf

Even if [the] goods are produced using materials from other countries, goods are considered as originating goods of a beneficiary country if the goods are produced through a manufacturing or processing which satisfies the requirement to be considered as ‘substantial transformation’. In general, substantial transformation requires such production that leads to a change of heading (HS 4 digit) between the tariff classification of the non-originating materials and the good produced. It is provided for in Article 8 of the Ordinance for the Enforcement of the Act on Temporary Measures concerning Customs.

As for the goods listed in the Appendix to the Ordinance for the Enforcement of the Act on Temporary Measures concerning Customs, a good needs to satisfy the requirements provided in the Appendix to be considered as originating… However, even if the above criteria are satisfied, goods are NOT considered as originating if the last processing operation is either: to ensure the preservation of the product in good condition during transport and storage, simple cutting, repacking, affixing of marks, etc.