No-deal Brexit could end Japan investment boom, envoy tells U.K. leadership candidates

LONDON/TOKYO – Foreign Minister Taro Kono has warned two candidates vying to replace Prime Minister Theresa May that a no-deal Brexit would be so disruptive Japanese capital’s 35-year bet on the U.K. could end.

In an appeal to Boris Johnson and Jeremy Hunt, Foreign Minister Taro Kono said Japan did not want a no-deal Brexit, that some companies were already moving out and that more investment could go.

“I know Boris and I know Jeremy, both of them pretty well,” Kono said Thursday in Osaka, where a Group of 20 summit began Friday. “I have communicated with them that Japan wouldn’t want a no-deal Brexit. So hopefully Brexit could be done through an ordinary and calm way.”

Japan has long seen the U.K. as a pro-business, liberal gateway into the rest of the European Union and has around 1,000 companies based in the country, including major carmakers and technology firms. Japanese firms have invested over £60 billion in the country.

But following the 2016 vote to leave the European Union, some Japanese companies have begun moving business out of the U.K., with particular concern over the impact of a possibly disorderly exit on Oct. 31.

“Please, no no-deal Brexit,” Kono told the BBC. “Some companies are already starting to move their operations to other places in Europe.”

Asked whether investment could leave the U.K., Kono said: “It could be that there is going to be less investment.”

French carmaker Peugeot also said Thursday that plans to build the next generation Astra vehicle at its Ellesmere Port car plant, which would keep the site open, will depend on the terms of Brexit. “The decision on the allocation to the Ellesmere Port plant will be conditional on the final terms of the U.K.’s exit from the European Union and the acceptance of the New Vehicle Agreement, which has been negotiated with the Unite trade union,” it said.

The factory built around 5 percent of the U.K.’s 1.5 million cars last year. The Astra will also be made at Peugeot’s Russelsheim plant in Germany.

Automakers have been particularly vociferous in their opposition to a no-deal Brexit due to fears over tariffs of up to 10 percent on vehicles, customs delays and new bureaucracy that could cripple just-in-time production practices.

The U.K.’s new leader will be announced on July 23. Both the leadership contenders — Johnson and Hunt — have said they are prepared to take the country out of the bloc without a deal, although it is not their preferred option.

No-deal means there would be no transition period, so the exit would be abrupt — the nightmare scenario for many businesses and the dream of hard Brexiteers who want a decisive split.

Former Prime Minister Margaret Thatcher’s Conservative government attracted Japanese carmakers to the U.K. in the 1980s to rebuild an ailing domestic industry with promises of access to the European single market.

Last year Nissan, Toyota and Honda made roughly half of the U.K.’s 1.5 million cars, employing tens of thousands of people both directly and through the supply chain.

Brexiteers have long argued that Germany, the EU’s biggest economy, which exports hundreds of thousands of cars to the U.K. every year, would not impose restrictions in order to protect that trade.

Some Brexit supporters say there would be short-term disruption but that in the long-term the U.K. would thrive if cut free from what they cast as a doomed experiment in German-dominated unity that has led to Europe falling behind China and the United States.

But Honda announced earlier this year that it will close its U.K. plant, and Nissan canceled plans to build a new sports utility vehicle at its Sunderland factory in the north of England. Both blamed factors other than Brexit.

Kono warned on Thursday about specific impacts of a disorderly exit on the sector.

“If there’s a no-deal Brexit and if they have to go through actual custom inspections, physically, those operations may not be able to continue,” he said.