Japan looks for a new gateway to Europe

Thatcher promised Japanese companies “a gateway to Europe” if they moved to the UK. That gateway may close soon.

“If you guys crash out of the EU, that’s it, we’re shutting down our plant!”

That’s not the exact quote but it’s pretty much the gist of what Toyota’s facility manager in Derbyshire said last weekend.

Brexit threatens to disrupt the carmaker’s operations. Toyota is fed up. So are many other Japanese businesses.

Electronics maker Panasonic and conglomerate Mitsubishi already moved part of their activities to the Netherlands.

Banks Nomura Holdings, Daiwa Securities Group, and Sumitomo Mitsui Financial Group have relocated to Germany. More companies contemplate leaving the UK.

The UK government once promised them “a gateway to Europe”. Brexit now threatens to close off Japanese companies’ access to the EU’s Common Market.

This letter by the Japanese government, three months after the 2016 EU referendum, is telling.

It implored the UK to “give due consideration to the context in which Japanese businesses have invested in the UK”.

Translation: You promised us something, remember?

The government’s failure to reassure businesses is causing an exodus of Japanese companies.

It’s a false start for Theresa May’s “Global Britain”.

Broken promise

Margaret Thatcher wearing a European flags jumper…

I wasn’t around for the 1975 referendum on the UK’s membership of the European Communities (EC).

That’s why former Prime Minister Thatcher and that jumper with all the flags of EC members on it are what I associate most with that vote.

At the time, two out of three British voters decided it was best to stay in the Common Market.

It might seem strange, then, that many people who voted for membership in 1975 voted against it in 2016.

The reason? People had consented to a common market, not the political union they found themselves in four decades on.

But British voters aren’t the only people who feel “misled”.

As Brits grew more Eurosceptic, Japanese firms have in turn become more Anglosceptic.

Since the 1980s, many Japanese firms have set up shop in the UK after a successful lobby that the country was “a gateway to Europe”.

Now there’s doubt about whether this gateway is going to stay open or close after Brexit.

As it turns out, British seniors and Japanese companies have something in common. Both feel the UK government has broken a promise.

A large group of Brits who were around for both the 1975 and 2016 referendums felt the government hadn’t been honest with them the first time.

“It’s not what we were promised,” they said as they cast their ballot against continued membership of the EU.

This “broken promise” in turn caused the UK government to break another promise. One it made to Japanese firms in the 1980s.

Back then, Thatcher made a strong pitch to Corporate Japan. The UK was an excellent destination for Japanese investment.

It was home to the English language, good universities that created an attractive hiring pool for business, and it provided a tariff-free gateway to the European Common Market.

The first two pull factors are still there. But the third, arguably the biggest draw, has had a large shadow of doubt cast over it for years.

That’s a problem for Japan.

Better safe than sorry

The UK is Japan’s second-favourite destination for investment, after the US.

As of 2017, the Asian nation splurged $153bn on the UK according to the Japan External Trade Organisation.

About a thousand Japanese companies are active on the British mainland. They provide work to roughly 160,000 people.

It just goes to show there was also a lot at stake for Japan in the 2016 EU referendum.

That’s why the Japanese government asked the UK to consider Japanese interests during the Brexit process:

“What Japanese businesses in Europe most wish to avoid is the situation in which that they are unable to discern clearly the way the BREXIT negotiations are going, only grasping the whole picture at the last minute.”

That plea has fallen on deaf ears. But it’s not all bad…

The government successfully persuaded Nissan to stay and invest in its Sunderland production plant.

To this day we have no idea what was promised to the Japanese carmaker, but whatever it was might convince more companies to stay put.

Foreign Secretary Jeremy Hunt can speak Japanese, which is always a plus in diplomacy.

And there are more silver linings:

“The UK government may hope its close relationship with Japan over the last four decades will at least help when it comes to negotiating a post-Brexit trade deal,” note Suzi Ring, Lisa Du, and Alex Morales in Bloomberg. 

“The fact that Britain was a key player in the creation of an EU-Japan agreement, signed in July after nearly five years, may count in its favour.”

Since the UK played a big part in the EU-Japan treaty, maybe this could act as a template for a deal between the UK and Japan.

Both parties could then make tweaks to the agreement that would reflect specific interests to their economies.

Still, various Japanese companies have decided it’s better to be safe than sorry. They’re opening hubs all over Europe to ensure their access to the Common Market post-Brexit.

I can’t help but feel this could have been avoided if the government had been better prepared for the Brexit negotiations.

Then it wouldn’t have had to change its stance midway through the talks and it would have provided clarity to businesses much sooner.

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