Commentary / Japan

Decision day for Japan Inc. in England

by Denis Macshane

Contributing Writer

The moment of truth is arriving for the more than 1,000 Japanese firms that are based in Great Britain as the prospect of the dispute over Brexit looks set to continue well into the next decade.

In the 1980s, British Prime Minister Margaret Thatcher persuaded Japanese industries and finance houses to use London and the regions of England as their base to sell into the rest of the European Union. She was the architect of the Europe Single Market and led the charge to abolish all national protectionist rules to allow foreign firms in Britain to sell into Europe.

Now there is $77 billion worth of Japanese invested in the United Kingdom. More than 1,000 firms employ 140,000 workers. The big Japanese auto firms produce 800,000 cars, mainly for export to the EU market. Most of the components in Japanese automobiles made in England are produced in continental Europe and taken by trucks on a just-in-time basis to Nissan, Honda and Toyota plants in England.

Thatcher’s successors in Downing Street maintained that guarantee to Japanese industrial and service firms that if they invested in the U.K., the giant EU market of 450 million middle-class consumers would be fully open without tariffs, duties, regulatory requirements or problems in hiring staff.

Producing an automobile or constructing a financial service product and selling it in Poland or Italy would be the same as producing a car in Yokohama and selling it in Hokkaido.

Now all that comes to an end following the deal agreed between British Prime Minister Theresa May and the other 27 European governments that will stay united in the EU.

Britain is going to leave the EU treaty on March 29. According to May, that means Britain is out of the EU Single Market since she rejects the so-called four freedoms of EU economic relations: the freedom of goods, capital, services and citizens to move across borders without being subject to national protectionist controls.

For the EU, these four freedoms are said to be indivisible. If you reject one, you reject them all. The problem with the U.K. referendum in June 2016, when just 37 percent of the total British electorate voted to “leave” the EU, is that no one defined what leave meant.

Prominent “leave” campaigners said the U.K. would never leave the Single Market. Conservative politician Daniel Hannam said, “Absolutely nobody is talking about threatening our place in the Single Market.” The Conservative Cabinet minister Owen Patterson said, “Only a madman would actually leave the Single Market.”

But that is exactly what the British government now says must happen. As Prime Minister Shinzo Abe told The Financial Times in October, Brexit means “the U.K. would lose its role as the gateway to Europe after Brexit.”

British ministers like business secretary Greg Clark go regularly to Tokyo to reassure the government that Japanese investment will not be affected following the hard Brexit that May now appears to want. As a former U.K. minister responsible for relations with Japan under Prime Minister Tony Blair, I wish him well.

I went to the same Oxford college, Merton, as the next Japanese emperor, and all Merton alumni and I would hope everyone in Britain welcomes the close U.K.-Japan relationship incorporated in the person of the next emperor.

But in business the bottom line is what matters and every Japanese firm has to calculate how much extra cost will be involved in paying for longer delivery times, waits at borders to check that all EU regulations have been met by a U.K. that has left Europe, and the difficulties of recruiting motivated and skilled employees when the supply of hard-working Polish and other European workers dries up as Britain brings in a tough immigration bureaucracy to curb the number of EU citizens working in Britain.

The Europeans are young, fit and make a massive net contribution to the British treasury in contrast to immigrants from Pakistan, India or Bangladesh, who cost more to the British taxpayer than they contribute.

My friend and former parliamentary colleague, Lord David Howell, wrote in these pages recently that he hoped the opposition from his Conservative Party to the draft U.K.-EU deal would fade away. I read his words while listening in Tokyo, where I was the guest of the Genron NPO think tank, to the BBC account of the almost universal condemnation of May’s deal in the House of Commons, mainly from Conservative MPs.

Even if the prime minister’s deal is accepted by MPs, it simply opens the door to many years of difficult, tetchy negotiations between Britain and 27 other governments over the rules of the future economic, investment and social relationship between Europe’s offshore island nation and the European continent.

In 2012, I was the first person in England to use the term “Brexit.” Now the title of my book on the subject is called “Brexeternity” as I predict many, many years of uncertainty and political quarrels over the U.K.-EU relationship. How Japanese firms live with this uncertainty is a matter for them. For nearly four decades, Japanese capital, business and executive have enjoyed their love affair with England. But as Britain seeks a divorce from Europe, will Japan Inc. stay faithful to England or will the time come to look for new and more welcoming friends, and a new home in Europe?

Denis MacShane is the former U.K. minister for Europe. He was a Labour MP for 18 years and a minister under Prime Minister Tony Blair for eight. He now advises government and business on Brexit, working with the Brussels-based consultancy Avisa Partners.