Politics

Brexit’s Shadow falls on Japan-UK Relations

The UK has been Japan’s favored business gateway to Europe – but Brexit, and fears of a UK turn to China, creates tough questions around the relationship.

Brexit supporters argued leaving the European Union would unleash the power of “Global Britain.” Liberate the United Kingdom from Brussels and its stifling rules, they said, and build even stronger economic and political alliances outside Europe.

Could that really happen? Relations with Japan make for an illuminating test case.

Japan has been no fan of Brexit — outside of the United Kingdom or Europe, some of the most outspoken criticism has come from Tokyo. Its discomfort comes as little surprise given that 1,000 Japanese companies employ over 160,000 Brits and the two countries traded £28 billion of goods and services in 2017-2018. Access to EU markets is a big part of the draw. Before the 2016 referendum vote, Hiroaki Nakanishi, chairman of Hitachi and Keidanren, the Japanese business group, pleaded for Remain in The Mirror. Prime Minister Shinzo Abe, a proponent of multilateralism and “rules-based order,” visited Britain arguing that staying in the EU would be “better for the world.”

Soon after the leave vote, Japan’s Ministry of Foreign Affairs issued a 15-page letter urging Britons to remember that Brexit is no mere bilateral negotiation between the United Kingdom and the EU. As it turns out, the situation that corporate Japan most wanted to avoid — “in which [Japanese businesses] are unable to discern clearly the way the negotiations are going” — is exactly the one they are in.

Botched Brexit negotiations have damaged prospects for Japanese investment in critical UK manufacturing sectors

Abe has tried to minimize the damage. A close ally of British Prime Minister Theresa May in the G7, he visited the United Kingdom in January this year in what media framed as support for May’s exit deal —a less-bad option, in Tokyo’s view, than a potentially chaotic no-deal Brexit. It was a brave move, risking furor in Britain for interfering in divisive local politics, in Europe for undercutting Brussels, and in Japan for tacitly condoning Brexit against the interests of Japanese business.

But his message was a drop in the ocean of Brexit noise. Instead, negative announcements by corporate Japan, particularly Honda and Nissan, on their UK presence have stolen the show in the British media. 8,000 job losses have been announced by Japanese companies. Japanese Ambassador Koji Tsuruoka has warned of a further exodus.

Botched negotiations to deliver the mandate of “the people” have damaged prospects for Japanese investment into one of the United Kingdom’s critical manufacturing sectors. Brexit uncertainty has delivered a potential deathblow to Britain as a gateway to Europe for Japanese businesses.

Far from the Brexit chaos, the United Kingdom and Japan have been forming closer security ties with joint exercises on Japanese soil — beating Australia to a landmark second after the United States — naval visits to the region to enforce sanctions against North Korea and defense industry cooperation including joint missile development. Prime Minister May’s 2017 visit to Japan has been a springboard for strengthened defense cooperation and her Asia-Pacific strategy has been more closely aligned with Japan than the China-courting of her predecessor David Cameron and Chancellor George Osborne.

Distance, resources and geo-economics impose limits to Britain’s contribution to Asia-Pacific security and economics

In the joint statement on Abe’s UK visit, there were commitments to extend collaboration on a Free and Open Indo-Pacific (FOIP) beyond security, as mentioned above, to connectivity by setting up frameworks to cooperate on infrastructure in third countries in the region. Partnering with the United Kingdom, which holds strong ties to several East African and South Asian nations, helps Japan operationalize the key concepts of FOIP in concrete activities. For the United Kingdom, such activities not only achieve important policy goals but are also gambits to secure a post-Brexit trade deal with Japan, be it a bilateral agreement modeled on the EU-Japan Economic Partnership Agreement (EPA) or membership in the multilateral Comprehensive and Progressive Agreement for Trans-Pacific Partnership Agreement (CPTPP).

There is a limit to substantial British contribution in Asia-Pacific security and economics because of distance and resources but also major power geo-economics. Although the United Kingdom will aim to avoid zero-sum calculations in future relations outside of Europe, by being outside of the EU, it will make itself vulnerable as a pawn in strategic competition. Non-European companies will take a hard line to extract as much as they can from the United Kingdom in negotiations. Joining a pact of middle-sized economies, such as the CPTPP, might well be a wise idea.

UK membership to CPTPP would be “welcomed with open arms,” as Abe has made clear. It makes sense for a Japan whose goal is to create a bulwark against U.S. bilateralism and induce a U.S. return to the multilateral economic framework. UK membership would extend the reach of CPTPP’s high-standard economic norms.

But even if a UK-Japan agreement is reached, the United Kingdom would be playing catch-up with the EU. The EU-Japan EPA took effect on February 1, diminishing the incentive for Japanese companies to export to Europe via the United Kingdom. Geography means cutting trade deals with countries on the other side of the world will have minimal impact, as eloquently argued by former Ambassador David Warren. CPTPP could also cause regulatory divergence, particularly for agricultural products, between the United Kingdom and Europe, making trade more difficult.

For some Brexiters, Chinese investment is the prize – but this risks exposing the UK to Chinese geo-economic coercion

The United Kingdom will be under pressure from the United States to form a bilateral trade deal, which a government under Boris Johnson could accede to. The Trump administration would likely use it to restrict economic ties between the United Kingdom and China. For example, forcing a Huawei boycott or including a ‘poison pill’ clause in a trade deal, preventing the United Kingdom from signing a pact with a “non-market economy”, i.e. China.

For other Brexiters, Chinese investment is the prize. Financial services, a favored sector of the British political economy, could benefit from a pivot to China and a contingent of Sino-friendly leavers in London envision a post-Brexit influx of Chinese trade and investment.

However, this risks exposing the United Kingdom to Chinese geo-economic coercion, about which a major think tank has raised red flags. Despite ambivalent support for the rules-based order, China sees economic and political gain in Brexit. After Italy, the United Kingdom is the next natural target for Chinese divide-and-rule of the G7.

A threat by British Defense Secretary Gavin Williamson to deploy British ships to the South China Sea, in line with FOIP, resulted in the cancellation of the Chancellor’s trade delegation to Beijing. The prospects for a strengthened UK-Japan partnership strongly depend on London’s vulnerable post-Brexit policies towards the U.S. and China. For Brexit Britain, aligning with liberal democracies like Japan may be of secondary concern to a mercantilist gold rush from China.

Harry Dempsey
Harry Dempsey is an analyst for Anniversaries, Inc., a new U.S.-Japan relations think tank. He has worked as a research associate at the Asia Pacific Initiative (API) and as a researcher at Shinko Research (part of the Kobe Steel group). He has additional experience at the British Embassy Tokyo and London Research International. He was on the JET Program in 2014-15. He holds a BA in philosophy from Cambridge University.
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