We need a clear view of the post-Brexit landscape

(These are edited highlights from the memo, published on 3 September)

“Uncertainty is a major concern for an economy. We hope that predictability is secured whereby all stakeholders, not just the negotiating parties, have a clear idea of the post-Brexit landscape.”

So says the Japanese government in a memo addressed to the EU and the UK, in which it sets out a series of Brexit demands and warns that its companies are likely to withdraw from the UK if it is no longer part of the single market.

“[Predictability] will be possible if the Brexit negotiations are conducted through an uninterrupted and transparent process, which could include arrangements such as the establishment of a provisional period and, if there need to be institutional changes, the granting of time for the transition and publicising of such changes,” the memo says.

A considerable number of Japanese businesses operating in Europe are concentrated in the UK, and they have made requests for the maintenance of trade in goods, with no burdens of customs duties and procedures; unfettered investment; maintenance of an environment in which services and financial transactions across Europe can be provided and carried out smoothly; access to workforces with the necessary skills; and harmonised regulations and standards between the UK and the EU.

“The government of Japan trusts that the UK and the EU …… will maintain the current business environment or alleviate the impacts of any radical changes, so as to remain an attractive destination for doing business,” says the memo.

Seeing the whole picture

The withdrawal of the UK from the EU will have a substantial impact not only on the future of European integration but also on the international community as a whole, which is why the world, including Asia is paying close attention to the Brexit negotiations.

What Japanese businesses in Europe most wish to avoid is the situation in which that they are unable to discern clearly the way Brexit negotiations are going, only grasping the whole picture at the last minute.

It is imperative for the UK and the EU to regain the confidence of the world and ensure their unwavering competitiveness by increasing the predictability of the process, ensuring the outcome is free of unpleasant surprises and reducing the risks emanating from uncertainty.

From this perspective, we strongly hope that the UK and the EU will present to the world the whole picture of the Brexit process as early as possible, cooperating to avoid a vacuum or stagnation in their relations and instead generating a seamless process.

Japan’s investments in Europe

There are numerous Japanese businesses operating in Europe, which have created 440,000 jobs. A considerable number of these firms are concentrated in the UK. Nearly half of Japanese direct investment intended for the EU in 2015 flowed to the UK.

While benefiting from the single market of the EU, Japanese businesses have contributed to the development of the European economy. It is of great importance that the UK and the EU maintain market integrity and remain attractive destinations for businesses where free trade, unfettered investment and smooth financial transactions are ensured.

In light of the fact that a number of Japanese businesses, invited by the [UK] government in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe, 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.

The demands include:

• maintenance of the current tariff rates and customs clearance procedures;
• maintenance of the access to workers who are nationals of the UK or the EU;
• maintenance of the freedom of establishment and the provision of financial services, including the “single passport” system;
• maintenance of the current level of information protection and the free transfer of data;
• unified protection of intellectual property rights;
• maintenance of harmonisation of the regulations and standards between the UK and the EU (including the maintenance of established frameworks of mutual recognition and equivalence);
• the location within the UK of EU agencies such as the European Medicines Agency;
• maintenance of the UK’s access to the EU budget for research and development and participation in the Japan-EU joint research project.

While trusting that the UK, will give due consideration to the context in which Japanese businesses have invested in the UK, the EU will recognise that it is not easy for the UK to respond to some of the requests solely on its own. We request that both to heed the voices of Japanese businesses to the fullest extent.

Some Japanese firms, including small and medium-sized enterprises, may not be able to respond sufficiently to the drastic changes in the business environment that could be caused by Brexit, and they also have difficulty in articulating their requirements publicly.

In light of the diversity in the backgrounds of the various Japanese businesses which have established their activities in Europe, as well as the current state of their operations, their interests need to be catered for as precisely as possible. We request that the UK and the EU amplify appropriate opportunities to exchange views with the Japanese side, including a framework for dialogues where Japanese businesses can directly convey their specific requests to the UK and the EU.

Keep EMA in London

Amongst the many requests, the memo calls for the current location of the European Medicines Agency (EMA) and the certification system for medicines between the UK and the EU to be maintained, saying Japanese companies are concerned about the relocation of EU agencies currently located within the UK.

Many Japanese pharmaceutical companies are operating in London due to the EMA’s location in London. If the EMA were to transfer to other EU Member States, the appeal of London as an environment for the development of pharmaceuticals would be lost, which could possibly lead to a shift in the flow of R&D funds and personnel to continental Europe. This could force Japanese companies to reconsider their business activities.

On R&D, the memo calls for the maintenance of the UK’s access to the EU budget for research and development and participation in the Japan-EU joint research project, to allow Japanese businesses in the UK to continue their participation in various R&D projects and to obtain subsidies even after the UK’s withdrawal and to establish a framework to allow British researchers to continue to participate in Japan-EU joint research projects.