Cheese proves to be biggest stumbling block in UK-Japan trade negotiations

The thorny issue of Stilton cheese drove a wedge between Japanese and British trade negotiators and ministers

Shinzo Abe and Boris Johnson
The UK and Japan are negotiating a trade deal to replace the current EU-Japan agreement

“Pigs will fly,” they said. “A deal in days,” they said. And yet, after two days of talks in London, Liz Truss, the trade secretary, and Toshimitsu Motegi, the Japanese foreign minister, parted ways empty-handed.

If the world’s third and sixth-largest economies can agree a free-trade agreement, it would be the first Britain has negotiated independently of the EU in 47 years, hence its political significance post-Brexit.

After reports that Ms Truss was on the verge of bringing home the bacon, with Japan poised to wipe out tariffs on British luxury leather goods hit by 30pc taxes, it transpired that the talks had stalled over a commodity that represents 0.007pc of total UK exports: Stilton cheese.

But trade experts are unanimously optimistic that a deal will be concluded soon so that it can be ratified in the Diet, Japan’s parliament, at the latest by early September.

Michito Tsuruoka, associate professor at Keio University, Tokyo, explains: “That is why minister Motegi was in London to try to administer negotiations.

“I believe the Japanese were quite disappointed that we were not able to announce an agreement. I don’t understand why you can say things can be solved at the official level in a few weeks’ time if the ministers weren’t able to seal the deal.”

Stilton cheese has caused a stink in trade negotiations between the UK and Japan Credit: Heathcliff O'Malley  

For Sam Lowe, senior research fellow at the Centre for European Reform think tank, the anticlimax was merely part of the “theatre” of negotiations.

“From a UK perspective, there’s a need to be seen to be putting up a good fight – to be getting something the EU didn’t to show the UK can do trade agreements by itself,” he says.

Pernille Rudlin, managing director of Rudlin Consultancy, which specialises in intercultural consulting with Japanese companies, notes that the festival of Obon, when the Diet shuts and people return to their hometowns for a fortnight to commemorate their ancestors, began yesterday. “That’s why they wanted it all done and dusted now,” she says.

Agriculture is typically an “eleventh-hour” issue in trade talks between any nations. Nonetheless, Tomohiko Taniguchi, a special adviser to Shinzo Abe, Japan’s prime minister, insisted his negotiating team was unaware of the significance of Stilton to Britain.

“Arguably it’s one of those soul foods that people in Britain have long cherished and loved and that much has not been conveyed well to the Japanese negotiators, let alone the Japanese public,” he told BBC Radio 4’s Today programme on Thursday.

Tsuruoka observes that they were probably not alone: “I’m not sure there’s a consensus on the UK side about the real importance of Stilton.”

They must not have heard Ms Truss’s admonition to the Conservative Party conference in 2014: “We import two thirds of our cheese: that is a disgrace!”

Under the current EU-Japan deal, which Britain is attempting to roll over, only a quota of exports of blue cheeses are tariff free. The UK wants to improve on those terms but Japan has argued that it cannot give Britain a better deal given its relative economic value.

Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, questions whether this is a hill worth letting the talks die on, given Britain’s cheese market in Japan is unlikely to grow.

First, he notes the high incidence of lactose intolerance in Japan. “When dairy was first introduced in schools, parents could give a note to the children’s teacher saying they didn’t want their children to stink of milk.

“Also, Japanese consumers are the most sophisticated and affluent in the world. Everything from artisanal leather goods to niche French wines always find a huge market. Marcolini, the upscale Belgian chocolate brand, has more self-owned shops under its own name in Tokyo than in the entirety of Belgium. But Stilton isn’t a mass-market product. It’s already found its way.”

Finally, he adds, there is a ban on shipping milk between prefectures in Japan, forcing farmers to make by-products with their surpluses, which results in a lack of demand for imported cheese.

A compromise could come from within the agricultural chapter of the deal, perhaps by protecting Wagyu beef as a geographical indication. “There’s a big misconception in Europe that Wagyu is a kind of cow – it’s domestic Japanese beef,” he says. “Why on earth would UK farmers make Wagyu beef?”

Stilton also fits into a broader tussle at the heart of the UK-Japan trade talks: between cars and cheese – automobiles and agriculture. Lowe says: “Ultimately the compromise is Japan doesn’t get all it wants on car tariff reductions and the UK doesn’t get everything it wants on agriculture.”

Japan could agree to follow Korea by changing its rules of origin to allow EU inputs to UK goods to be counted as British, which would save Japanese car manufacturers in Britain such as Nissan, Toyota and Honda from having to pay additional tariffs.

A Honda executive says: “By liberalising tariffs, reducing regulatory barriers and facilitating the flow of people and ideas, such an agreement will support the UK’s climate, productivity and innovation ambitions, while mitigating any potential disruption to UK-Japan trade at the end of the Brexit transition period. Both sides appear confident that the UK and Japanese negotiators will reach an agreement shortly.”

Another prize would be a chapter on digital services, which would involve commitments not to make a company’s market access dependent on them handing over their source code and not to force companies to host data locally, as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) allows, although Lowe notes rather than unlocking new trade, this would merely provide certainty for firms that the current digital market will exist in future.

Indeed, like US president’s Donald Trump’s “Phase One” trade deal with China, a quick UK-Japan trade deal is likely to be seen as a step towards the UK’s accession to the 11-member trade pact.

For Lee-Makiyama, an agreement with Tokyo is “one of the easiest the UK could renegotiate”.

“Ninety per cent of the issues are already settled,” he says. “If we were talking about France, we would have started at zero, but the UK is not an export-led economy, nor is it an agriculture-exporting economy.

“The UK economy is driven by consumption and foreign investment, which is another area where the UK can say, ‘Now we’re out of the EU, we can talk to Japan about stuff we couldn’t talk about for constitutional and political reasons,’ and there will be the possibility to adjust the agreement so it can be more aligned with their interests rather than being tied down by the lowest common denominator of the EU 28.”

Tsuruoka is clear that responsibility for the delay lies not with the trade officials. “The technical expertise is there but when it comes to finishing trade negotiations, political sense is also needed.

“It’s not possible to win 100pc over your negotiating partner. If you can claim a 51pc win in trade talks, that is an adequate success. I don’t think there is realistic, political sense in London.”