04 September 2016

Open Europe: Japan weighs in on Brexit negotiations

The full document can be found here and is very much worth a read. It comes as part of the Japanese Ministry of Foreign Affairs ‘Government Task-force regarding the Withdrawal of the United Kingdom from the European Union’, which plans to examine Japan’s response to Brexit. Such papers are not unprecedented – government’s often release non-papers laying out their position – but rarely is it done this publicly. Furthermore, the fact this has been done before either the UK or EU has said much about their own positions is surprising – it’s a strong intervention from a distant third country. [...]

Japanese vision very close to UK staying in the EU

While the paper is at pains to stress that “Japan respects the will of the British people as demonstrated in the referendum”, once you begin to get into the detail the message is essentially that nothing should really change. From the outset this means that some of Japan’s asks are unlikely to be met. Take for example the requests on customs. While the idea that there should be not customs duties/tariffs imposed by either side is certainly in play in the negotiations, the idea that there should be no change to customs procedures is tougher. [...] Japan does propose the introduction of the “accumulation principle” to the EU’s rules of origin, which would more easily allow for supply chains using Japanese inputs to continue across the EU.

Big asks of the EU

Taking account of the fact that Japan accepts the UK will leave the EU, the requests it lays out essentially amount to an incredibly ambitious new trade agreement between the UK and EU. This means it aims for a significant amount of access for the UK to the single market. There are two good examples of this. Firstly, the paper asks that the financial services passport be maintained. As we have noted before, this will be at the heart of the negotiations and, as of yet, there is no precedent for having the full passport as a third country (outside the EU or EEA).

Secondly, it requests that the UK be able to keep euro clearing in London, something which a number of EU leaders have already warned against. Similarly, the paper also suggests that the UK be able to keep institutions such as the European Medicines Agency in London. More broadly, the message of the paper is that negotiations need to be clear, sensible and transparent. It’s hard not to see this as a message to those who would like to see punitive terms applied to the UK following Brexit. Finally, it also makes clear that if there are to be substantial changes to the relationship then there should be a transition period to allow for adjustment – as we have noted before, this would amount to the EU giving up an advantage in the negotiations in terms of the ticking clock.

Warning to the UK

Understandably, much of the coverage of the letter has focused on the warnings to and asks of the UK which it includes. In terms of specific asks of the UK the focus is clearly on the UK remaining open. This applies in particular to migration – both in terms of skilled and unskilled labour from Europe – but also to foreign capital and investment. In terms of warnings the starkest seems to be, “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.” This is confused somewhat by the fact that the bullet point above calls for “easing of regulations to make the UK a more attractive investment destination” – as we have noted in our assessments of deregulation, both deregulating and keeping EU law/access in place will be a tough balance to strike. Linked to the points above on customs, there is a warning of the potential “harmful effects” on Europe wide value chains and where the UK is used as a “gateway” to the single market. There is also a specific warning over the financial services passport, if not maintained Japanese financial firms in the UK “might have to acquire corporate status within the EU anew and obtain the passport again, or to relocate their operations from the UK to existing establishments in the EU.” [...]

Full analysis on Open Europe

Japan's Government letter

© Open Europe