Japan’s concerns about UK’s Brexit deal

A letter from the Japanese Ministry of Foreign Affairs published last year has resurfaced this week, and is a stark reminder of how little progress has been made on Brexit negotiations, and of the uncertainty it causes for industry and trade.

The letter was written after extensive consultation with Japanese businesses who have made significant investments in the UK, and who seek assurances that, if the UK leaves the EU, it will continue to be a stable environment for business and trade.

One of the main concerns that the Japanese have is the future status of the customs relationship between the UK and the EU. Anything less than maintaining the current zero tariffs and clearance procedures will cause significant problems for all companies in the UK, but especially global companies who are based in the UK in order to sell across Europe.

If the UK and EU cannot agree a deal that maintains the status quo, (which is unlikely, given the UK government seems unable to form a coherent vision for a post-Brexit customs arrangement), businesses could have customs tariffs imposed and in any case face delays in customs clearance, which would increase the costs of logistics operations and make the UK a far less appealing base to operate from than it currently is as a member of the EU.

The letter also asks the UK to ensure ‘the consistency of regulations and standards between the UK and the EU’, a concern shared with many businesses currently operating in both the UK and the EU. If there is no consistency, businesses will have to adhere to two different and inevitably divergent sets of rules, causing increased administration and cost.

Businesses will face additional hurdles if the UK leaves the range of EU technical agencies to which it currently belongs. For example, pharmaceutical companies will find approvals delayed if the UK decides to leave the European Medicines Agency, which is already planning to relocate its offices out of London. Chemical companies will no longer have their products tested and authorised for the whole of Europe through the European Chemicals Agency. And so on, in numerous sectors.

The letter also raises concerns about immigration controls. Many Japanese businesses in the UK have employees from other EU countries. Although the British government has since proposed that EU migrants in the UK already will be allowed to stay, new plans to reduce EU migration post-Brexit will have a significant impact on businesses’ ability to recruit or post specialist staff with key skills to plants in Britain.

Indeed, a recent leaked proposal to limit the residency period for high-skilled migration to between three and five years would, if adopted, cause severe problems for businesses in sectors such as banking, who rely on highly skilled professionals from other EU countries in their work, and who would no longer be able to give them a guarantee of long-term employment.

Furthermore, the letter says there is a need for an inflow of labour from outside of the EU. This clearly serves the purpose of Japanese businesses, but it is a request that the UK can expect from other countries too as it opens trade talks with countries across the world.

Of course, many financial businesses were attracted to the UK, because of the so-called passporting system which gives its financial sector access to whole of the EU, which is highlighted in the Japanese letter as an ‘important prerequisite for financial operations’, and which has contributed to London’s status as a global financial centre.

If the UK does not maintain the financial passporting system, the letter warns that businesses will either have ‘to acquire corporate status within the EU anew and obtain the passport again,’ causing significant disruption and administration, or ‘to relocate their operations from the UK to existing establishments in the EU.’

This will not be limited to Japanese businesses, either. Any global – and even UK – businesses reliant on passporting will already be considering this, and making contingency plans, especially in light of foolish comments such as ‘no deal is better than a bad deal’, made by Theresa May and her ministers which threaten a cliff-edge Brexit, with a sudden lack of access, legal limbo and panic reactions.

A year on, this letter illustrates the mountain of work that needs to be done by the UK government if it wants to limit the damage of Brexit, and underlines how little progress has been made so far on what is undoubtedly the most complex international negotiation the UK has been involved in since the end of World War II. The claims of the Brexiteers that it would be ‘easy’ ring false and hollow now.

Finally, it puts to bed the idea touted by various Brexiteers that the UK can just walk away from the EU; to do so would mean global companies leaving the UK in droves, and further worsen an already bleak economic outlook.

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