The Japanese government paper on the implications of Brexit released on 2 September has been described in the UK media as an ‘unprecedented’ and ‘dire’ warning, a ‘stark’ threat, and dismissed as ‘doom-mongering’. In reality, it is a carefully-argued and very detailed analysis of the areas of Brexit-related concern to the thousands of Japanese companies in the UK, and those aspects of the current business environment that they want to preserve in the forthcoming negotiations. Setting out the Japanese stall in this way risks annoying British negotiators with the responsibility of finding their way through the minefield of agreeing the terms of Britain’s divorce from Europe. But the Japanese analysis, used constructively, is an important guide to what really matters in ensuring that a post-Brexit UK is not only ‘open for business’, but a country that the world’s major investors wants to do business with.
The paper is couched in terms of cooperation and partnership. Japanese inward investment into the UK has been one of the major industrial success stories of the last 40 years, with the 1984 decision of Nissan to build its car plant at Sunderland the turning point. The Japanese government and Japanese companies want to preserve this post-Brexit. But that means keeping radical changes to the current environment that might emerge from the Brexit talks to a minimum. Specifically, the Japanese want, among other things, to maintain current tariff rates and customs procedures, access to skills (including from within the EU), the current provision of financial services (50 per cent of the value of British manufactured goods is accounted for by services), the current arrangements for information protection and data exchange, unified intellectual property protection, harmonized standards and regulations, and access to the EU R&D budget and joint programmes. These requests are aimed at EU negotiators as well as at the UK. A 10-page annex goes into even more detail, sector by sector.
The context of these requests is not just concern about Brexit. The paper makes clear that leading the free-trade system remains a responsibility shared by Japan, the UK and the EU. The Japanese government are nervously watching the US presidential election, with Donald Trump openly adopting a protectionist line and Hillary Clinton now opposed to the Trans-Pacific Partnership (TPP) trade deal; they will also have been concerned at suggestions from European politicians that the US−EU Transatlantic Trade and Investment Partnership (TTIP) may fail. Hence their statement – echoed by President Obama at the G20 in Hangzhou in his remarks on TTIP – that the priority must be to finalize the EU−Japan Economic Partnership Agreement this year. A post-Brexit UK−EU relationship that erects protectionist walls would, in Japan’s view, be a disaster for everyone. The arguments in the paper are about preserving the health of the global economy.
And Japan calls for early clarity and transparency on the difficult issues. The paper argues that uncertainty causes volatility, and warns against the negotiating process producing ‘unpleasant surprises’. This advice may be unwelcome to UK politicians and negotiators who have to work out how to trade off being part of the single market with the need to restrict freedom of movement. This is a political dilemma that needs to be unravelled slowly; Britain’s economic partners’ need for early clarity runs directly counter to the politics which Prime Minister Theresa May and her cabinet have to manage over the coming months.
The paper observes that ‘Japan respects the will of the British people as demonstrated in the referendum’ and express confidence that ‘the UK and the EU will overcome . . . difficulties and lay the foundations for the creation of a new Europe’. Nonetheless, the menu of requests is challenging and almost certainly impossible to fulfil in its entirety, if, as the prime minister has said, ‘Brexit means Brexit’. But it is a guide to what foreign businesses, attracted to the UK by successive governments with the promise of being inside the single market in an EU member state committed to further trade liberalization, want from the new arrangements.
In that sense, it should also lift the level of current discussion on trade and investment relations away from the zero-sum political arguments during the referendum campaign – ‘being part of Europe’ versus ‘free trade agreements with the rest of the world’. Japan is saying, very clearly, that it is not an either/or choice. If the UK is to remain one of the world’s largest and most powerful economies – which, however much it is talked down in Britain, it still is – it is going to have to have a relationship with the EU that attracts foreign investors. After all, as the paper also makes clear, they have a choice where to invest. It does not have to be the UK.
Sir David Warren was British ambassador to Japan from 2008 to 2012, having served twice before in the British embassy in Tokyo during his career with the Foreign and Commonwealth Office (FCO).