Japan’s Unprecedented Brexit Warning To UK

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Japan pulls no punches in a 15-page report, warning that companies may leave the UK if Brexit negotiations are unsatisfactory.

At the start of the G20 Summit, the Japanese government has taken the unprecedented step of warning of a series of corporate exits, “great turmoil” and harmful effects if Brexit leads to the loss of single market privileges.

An official Japanese government task force on Brexit, has collated views of big Japanese companies from car companies to banks and pharmaceutical companies that invest in the UK.

It has produced a 15-page list titled “Japan’s message to the UK and the EU”, detailing requirements from Brexit negotiations.

It lists the consequences if the requirements are not delivered.

Half of Japanese investment in the EU comes to the UK including companies such as Nissan, Honda, Mitsubishi, Nomura and Daiwa.

Japan's next PM Shinzo Abe attends a news conference in Tokyo

Mr Abe is likely to meet Theresa May later this month in New York.

“Japanese businesses with their European headquarters in the UK may decide to transfer their head-office function to Continental Europe if EU laws cease to be applicable in the UK after its withdrawal,” the report concludes.

It says: “In light of the fact that a number of Japanese businesses, invited by the Government in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe, we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses.”

The list is the most tangible account anywhere of what businesses are asking for from the Brexit negotiations.

It suggests Japanese car companies fear that they will be hit by a double whammy of trade tariffs.

There were fears of levies being imposed twice “once for auto parts imported from the EU and again for final products assembled in the UK to be exported to the EU – which would have a significant impact on their businesses.”.

The report also states that the UK leaving the EU would damage exports from Britain to third countries because of trade privileges within the EU single market around so-called “rules of origin”.

“Brexit would make such products unable to meet the rules of origin as EU products, which means that Japanese companies operating in the EU would not be able to enjoy the benefit of the Free Trade Areas concluded by the EU,” the report said.

It also calls on the UK to “maintain access to workers who are nationals of the UK or the EU”, saying the European labour market could suffer “great turmoil” if EU nationals could not freely travel between and stay in the UK and continental Europe.

The Japanese government warns its banks will move their European HQs out of London if the Brexit negotiations fail to secure the financial services passport to operate in the EU.

“If Japanese financial institutions are unable to maintain the single passport obtained in the UK, they would face difficulties in their business operations in the EU and might have to acquire corporate status within the EU anew and obtain the passport again, or to relocate their operations from the UK to existing establishments in the EU,” said the report.

This concern has already been noted by the Bank of England, but this is the strongest indication yet of other nations spelling out the implications of some types of Brexit.

Those impacts also will be felt in the pharmaceutical industry, says the report, which sees the location of the EU’s European Medicines Agency in London as crucial to the UK’s high tech research appeal.

“Many Japanese pharmaceutical companies are operating in London, due to the EMA’s location in London.

“If the EMA were to transfer to other EU Member States, the appeal of London as an environment for the development of pharmaceuticals would be lost, which could possibly lead to a shift in the flow of R&D funds and personnel to Continental Europe.

“This could force Japanese companies to reconsider their business activities,” says the report.

PM Shinzo Abe warned of some of this ahead of the Brexit vote in a joint press conference with then-Prime Minister David Cameron.

UK officials reacted with astonishment that Japan had chosen to publish this list of concerns and demands.

PM Theresa May is likely to meet Mr Abe later this month in New York.

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