“If there is no profitability of continuing operations in the UK, no private company can continue operation. It’s as simple as that,” the Japanese Ambassador said after major Japanese investors in the UK saw Theresa May at No 10 earlier this month. He made clear that he was not just speaking about Japanese firms. “This is high stakes that I think all of us need to keep in mind.”
Supporters of Brexit—both those who believe that it is worth paying any economic price to regain British sovereignty, and those who don’t accept that we are likely to have to pay such a price once we are a “free trading nation” again—react with frustration at such arguments. Can’t the Japanese see that a new “global Britain” is going to be as strong a future partner of Japan as we were as a member of the European Union? Wouldn’t a proud Japan want to take back control of its laws and regulations if it had been “shackled” to an economic union for the past 40 years?
The answer is “no.” Japanese government and business regard the prospect of Brexit with concern. Over the past 40 years, over 1,000 Japanese companies have invested in Britain. They employ more than 140,000 people directly, with hundreds of thousands more in supply chains. Much of their business depends on free and frictionless trade with the EU, Britain’s most important export market. Many Japanese firms were encouraged to come to the UK in the 1980s by Margaret Thatcher, on the basis that Britain was part of the single market and the customs union. Millions of cross-border transactions are taking place, undocumented, because of that status. It was a powerful incentive to Japanese firms to make their European base in the UK.
That position is now under threat. Publicly, Japanese officials refer to their government’s hope that as much as possible of the current arrangement can be preserved. Privately, there is talk of “betrayal.” There is also bewilderment that Britain appears hell-bent on an act of economic and political self-harm. In the Japanese worldview, a country’s political clout depends on its economic power. Leaving the EU—and certainly leaving the economic structures that have supported business growth since the 1980s—will, in their eyes, inevitably mean Britain’s influence shrinking on the world stage, as our economy gets smaller. Our Permanent Member status on the United Nations Security Council is a legacy of the post-World War Two settlement. How sustainable is that going to be as the claims of a medium-sized economic power that has detached itself from the European trading bloc begin to fade?
“Privately, there is talk of ‘betrayal’”Japanese policy-makers and commentators are also sceptical about the rhetoric of “global opportunities” post-Brexit. It is not clear to them how Britain is currently shackled by membership of the EU from pursuing these. There is much talk of independent free trade agreements. But we are not—as some Brexit supporters have incorrectly claimed—in some way prevented from trading as an EU member. Don’t just look at German exports to understand this point; look at British ones. We exported over $200bn worth of products outside Europe in 2017. According to the government’s figures, Britain exports about £10bn worth to Japan each year, split between goods and services, making it our seventh largest market in value added terms. I spent much of my career as a British diplomat, which included nearly 13 years in Japan and another seven in London dealing with Japan, promoting UK/Japan trade and investment links. At no point was the EU a constraint on that process. If we leave the single market, we will be throwing away an important weapon in our armoury to attract investment, for the illusory advantage of gaining autonomy on trade that will not compensate us for what we have lost. The words “baby” and “bathwater” spring to mind.
Japanese observers understand the domestic politics in the UK and are following the debate within and outside the government with care. They have been reassured by ministers that there is no desire to damage the economic basis on which companies have invested in Britain. But the bottom line is whether, in the words of the Japanese government’s September 2016 note to the UK and EU, “the current business environment [can] be maintained as much as possible.” There may be no imminent threat of Japanese disinvestment. But if the British government cannot ensure that the current arrangements are maintained, the risks will, slowly but surely, begin to increase. High stakes, indeed.
