There Are Growing Concerns About Brexit Among Japan’s Top Companies

Not so long ago, the Land of the Rising Sun was the 11th largest buyer of goods manufactured and exported from the United Kingdom.

At the same time, the two countries were successfully maintaining their business partnership, inducing envy in all the uninvited parties. Even today, Japanese entrepreneurs own more than 1,000 business ventures in the UK and reimburse around 140,000 UK citizens.  

But recently the partners have started to quarrel.

This is all in the aftermath of Brexit, which from the point of view of Japan breaches the agreement made between the two countries back in the 1980’s. Asian businessmen came to the UK on an invitation from its government, and under the guarantee that this new manufacturing and the trading ground will remain part of the single market. Former UK ambassador to Tokyo, Sir David Warren, has to deal with accusations of betrayal.

Will this tension resolve, or will the UK and Japanese counterparts agree to disagree?

What Brexit Means for Japanese Businesses

We’ve said that there are currently more than 1,000 active and hugely profitable Japanese businesses in the UK. The most notable are such motor giants as Honda, Toyota, and Nissan.

The UK’s decision to leave the customs union doesn’t forbid them from manufacturing and selling their products in the UK, nor does it forbid them from transferring the revenue from the UK to Japan. But, Brexit does affect their budget.

Customs, taxes, and duties are the natural consequence of the UK leaving the single market, and they’ll certainly applicable to the UK-based Japanese businesses, too. This means that these companies will be obliged to pay a certain percentage of their revenue in tariffs. Whether or not this amounts to a serious budgetary issue is not the main question. The question is – why pay extra money for manufacturing when they don’t have to?

Take Nissan, for instance.

With the post-Brexit tariff being estimated at 10%, this company would definitely need to adjust its short-term and long-term plans to work around this new expense. Why do that when Nissan is already building cars in Spain at a regular, tariff-free price? On behalf of the entire car industry, the union representative John Cooper warns the UK not to „underestimate the dangers that Brexit’s bringing“.

Apart from that, Greg Clark, the business secretary, has given his word to Japanese companies that their access to the single market won’t be limited in any way. The growing concern, especially in the car industry, is that this won’t be enough to keep Japanese leaders in the UK.

When asked about that by Bloomberg, John Cooper argued that these businesses might decide to disinvest from the UK.

Will the Japanese Companies Actually Leave the UK for Good?

In an interview for Financial Times, Sir David Warren shared his expert opinion on the direction in which the UK-Japan relations might head, and how quickly:

„I don’t think we should indulge in Project Fear by thinking that disinvestment is likely or imminent. The Japanese government and Japanese companies are pragmatic, they are not going to radically change their immediate or short-term plans“.

Just like Greg Clark, Sir David highlights the fact that Japanese companies that are currently based in the North of England and across the Kingdom won’t be restricted in any way when it comes to doing business in the open market, not by the UK government and not by the EU. „The Japanese just don’t get the argument that, by leaving the EU, we are somehow throwing off our shackles“, Sir David adds.

Regardless of that, the Japanese are heating up the debate.

Only a couple of days ago, Japan’s ambassador to the UK, Koji Tsuruoka, expressed his disappointment in the way the British government is handling Brexit negotiations with the EU.

Tsuruoka’s stance seems even firmer after a Downing Street meeting between the British ministers and Japanese businessmen, in the light of which he defined Brexit as a „high stakes“ venture that may cause a further dispute in the UK.

The ambassador’s opinion diverges from Sir David’s in one critical point: „If there is no profitability of continuing operations in the UK“, he said in a statement, then „no private company can continue operation“.

This takes us back to the issue of newly introduced tariffs, particularly in the context of UK’s hugely lucrative car industry in which Japanese companies and businessmen are peerless leaders.

Are Concerns of the Japanese Companies Founded?

If Koji Tsuruoka is the one to ask, then yes.

„Membership in the customs union is important for Japanese companies, especially in the motor sector, because it gives frictionless access to and from the UK and the EU, with large numbers of components crossing boundaries all the time“, he elaborates. His opinion is that Japanese companies won’t sit idly and watch as the agreement between them and the UK gets undermined thanks to Brexit.

Sir David, on the other hand, believes in the power of sentiment.

In his experience, the concerns among the Japanese companies result from confusion, as even the savviest of business executives he meets on a regular basis fail to understand what’s going on. There is, however, a strong emotional tie between these partners, the one that will prevail over the current disagreements.

The situation is certainly delicate, but both the UK and the Japanese sides will do what’s in their best interest.

Hopefully, the tension will resolve when both parties realize that their interests lay not in fixing what’s still not broken, but in overcoming their differences. Brexit is an act of democracy, and that’s something the UK and Japanese businessmen can agree upon. Everything else is open to discussion, which needs to be diplomatic and proactive. It will probably take them some time to get there, so let’s stay patient.

Until then, business can continue as usual. Except for those custom tariffs, of course.