Japan
calls for ‘soft’ Brexit — or companies could leave UK
Memo
urges Theresa May and EU to strike deal safeguarding UK’s current
rights in single market
yesterday
by: George Parker in
Hangzhou
Japan has issued a
daunting challenge to Theresa May, UK prime minister, to negotiate a
very “soft” British exit from the EU or risk seeing Japanese
banks and other companies leave for the continent.
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Mrs May, attending
her first G20 summit in China, was also warned on Sunday by Barack
Obama, US president, that strong business links between his country
and the UK could “unravel” unless Brexit was handled carefully.
The British prime
minister had been left in no doubt that Japanese and US companies
invested in the UK partly as a base to reach the 500m consumers of
the European single market, and that continued access was seen as
vital.
A memo on Japan’s
Brexit demands, posted on the ministry of foreign affairs website,
called on Mrs May and the EU to negotiate a post-Brexit deal that
safeguarded almost all of Britain’s rights in the single market.
The memo said the UK
government lured some Japanese companies to Britain on the basis that
it was “seen to be a gateway to Europe” and suggested it had a
moral obligation to honour those promises.
“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,” said the memo, setting out Japan’s position to both
British and EU negotiators.
“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
says.
It adds that
Japanese financial institutions might have to “relocate their
operations from the UK to existing establishments in the EU” if
they were to lose their right to the single passport obtained in
Britain to access the single market.
Almost half of
Japanese direct investment intended for the EU in 2015 flowed to the
UK, and Britain was one of the main destinations for Japan’s
investment stock within the EU as of the end of last year.
Toyota has two
plants and employs 3,500 in the UK. While not referring directly to
the government memo, the company said on Sunday: “Going forward, we
will closely monitor and analyse the impact on our business
operations in the UK and how we can maintain competitiveness and
secure sustainable growth together with the UK automotive industry
and other stakeholders.”
Sources in the
Japanese banking sector say they saw the memo on Japan’s Brexit
demands as making common sense.
Japanese
businesses with their European headquarters in the UK may decide to
transfer their head-office function to continental Europe
Memo posted on
Japan’s ministry of foreign affairs website
“It’s helpful in
some ways because it puts responsibility on the EU and UK [to sort
this out],” one of the sources said.
The sources were
cautious on the document’s implications that there would be big
changes to Japanese banks’ European headquarters if there was a
“hard Brexit”, stressing that there were other ways around
licensing issues beyond moving their headquarters.
As well as its UK
operations, which employ about 2,000, Nomura has an extensive
presence elsewhere in the EU, including banks in Luxembourg and
Frankfurt. Japan’s other two big banks with London operations —
Mizuho and Mitsubishi UFJ, which employs 1,200 in the UK — also
have other EU operations including licensed banks in Luxembourg.
But Japan’s
business wish list could be very difficult for Mrs May to deliver,
since it closely resembles Britain’s current relationship with the
EU, something that UK voters and many Tory MPs want to fundamentally
reform.
Japanese companies
want to retain access to workers who are nationals of the UK and EU
and to maintain current tariff rates and customs clearance
procedures. They also want to maintain harmonised regulations and
standards between Britain and the EU.
Mrs May had accepted
the need to “control” the free movement of EU nationals to
Britain, something that ministers conceded was incompatible with
membership of the single market.
Mr Obama, who met
Mrs May at the G20 in the eastern Chinese city of Hangzhou, said
Britain’s exit should be negotiated so that there was minimised
disruption of American investment in the UK and it did not “unravel”
strong business ties between the two countries.
Additional reporting
by Laura Noonan and James Wilson
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