No-deal Brexit'will hurt Japan firms in UK'

Tokyo forum highlights irreversible damage political chaos in Britain is causing

Japanese experts have again called for clarity amid the chaotic Brexit process, even as British Prime Minister Theresa May earned a two-week reprieve from the European Union.

They told a symposium on Brexit yesterday that a disorderly, no-deal exit from the EU will hurt the interests of the 1,000 Japanese firms in Britain that collectively employ some 140,000 people.

Worse, Britain's reputation for being stable and relatively business-friendly could be irreversibly damaged by the political disarray, they told the conference, which was co-organised by Japan's Research Institute of Economy, Trade and Industry and Britain's Centre for Economic Policy Research.

Many Japanese firms are already acting on costly contingency plans to stockpile inventory to avoid sharp tariff increases, or to plan drastic changes to their supply chains, Hitachi's special representative for external relations Yasuo Tanabe said.

Already, there has been an exodus of firms such as carmakers Nissan and Honda and electronics giants Panasonic and Sony. Japan's financial services sector is also hedging its bets: While they have not said they will leave Britain, banks from Nomura to Mitsubishi UFJ, Daiwa, Mizuho and Sumitomo are expanding their presence in mainland Europe.

Hitotsubashi University economist Eiichi Tomiurasaid it was not just a matter of taking short-term measures, as the costs associated with reorganisation are huge.

"When there is going to be more uncertainty, then for contingency companies will need to prepare dual sourcing and redundancies," he said. "They will need to reallocate resources for those areas, which means the productivity of the global economy will be undermined. Who is going to bear the cost of that?"

University of Sussex economist L. Alan Winters, a British expert on the trade policy implications of Brexit, said Japan was clearly fed up with Britain. He said there was an outside chance, given the state of political meltdown, that the British Parliament may in the end revoke Article 50 to cancel the Brexit process, given mounting domestic and foreign pressures.

But it was more likely, he added, that Parliament will fail to agree to a deal by April 12, after an extension of the March 29 deadline, and Britain will crash out of the EU without any transition period nor economic buffer.

This means Britain will lose the benefits it enjoys under EU trade deals overnight, including the Japan-EU economic partnership agreement. Conversely, Japan will also lose these benefits when it trades with Britain.

Mr Jun Kazeki, deputy director-general of economic and industrial policy at Japan's Ministry of Economy, Trade and Industry, warned against this outcome.

While a lot of focus has been placed on trade in goods, tariffs and Customs procedures, he warned that not enough thought has been placed on the "equally important" sectors like trade in services and technical regulations.

Professor Winters was not just pessimistic, but scathing.

"Forty-five years of integration is difficult to unpick without massive collateral damage," he said. "Views of Brexit were ill-informed and diverse at all levels, and there has been no national conversation to work out what it is and what we want."

The economic discussion thus far, he said, has been characterised by "entirely wishful thinking by political players who have made no attempt to listen or to bridge differences, and who are increasingly focused on short-run survival".

He added: "We will take another deep breath and wait until April 12 for another crisis. But I'm hoping that Britain actually might come to its senses politically."

A version of this article appeared in the print edition of The Straits Times on March 23, 2019, with the headline 'No-deal Brexit'will hurt Japan firms in UK''. Subscribe