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Economy

Lessons from Tokyo on Britain's post-EU future

Japan offers useful advice on how the UK can recover from Brexit and build a new future

| Japan
British Prime Minister Theresa May toasts with her Japanese counterpart Shinzo Abe in Tokyo in August.   © Pool/Reuters

British Prime Minister Theresa May aims to mend fractured negotiations on Britain's exit from the European Union with a major speech on Sept. 22 in the historic Italian trading city of Florence. Scheduled talks have been postponed until after the speech and Britain has chosen Florence as the venue to highlight the strong trading links between Europe and Britain that were in place for centuries before the EU came into being 1993.

Opposition to her government's often antagonistic Brexit position continues to destabilize May's premiership. Last week, a new law to take Britain out of the EU began its passage through parliament, but with a significant number of politicians voting against it. Before that, May lost her parliamentary majority when she mistakenly called a snap election in June, indicating the degree of unease in both her policies and style of leadership.

What has been little discussed is how her decision to make such a high-profile speech came shortly after she made a pledge to Japanese Prime Minister Shinzo Abe that she would try to quieten the emotional political atmosphere arising from Brexit. The promise itself was a sign that voices not only from Japan, but the rest of Asia where Britain needs new trade partners, have finally been heard, emphasizing that if Britain plans to remain a leading global economy its post-Brexit thinking needs to be become far more grounded.

As of now, withdrawal talks with the EU have been slow and difficult and have fueled uncertainty. British politics have become polarized with defiant talk about the country preferring to walk off the cliff without an EU deal rather than bow to unreasonable demands, much of it wrapped in patriotic rhetoric.

Abe told May during her August visit to Tokyo that there needed to be transparency and predictability to minimize damage to business and he said that May had given him that commitment. His blunt message follows a year in which Japan has emerged as the key non-European economic power to give detailed guidance on what Britain must do to retain business confidence.

In September 2016, the Japanese government published a detailed memorandum laying out what was needed for Britain to retain the confidence of the 1,000 Japanese companies operating there that generate some 150,000 jobs.

The document listed many of the issues still dividing British politicians, including tariffs and custom procedures, the free movement of capital and investments and access for workers throughout Europe. It was a neutral, nonpolitical template of what investors anywhere in the world would be looking for to keep their money safe.

"These points were like a cold shower," said Ian Bond of the Center for European Reform. "Japan set out all the things that should have been discussed before the referendum."

Japan is Britain's second biggest investor and the strong business ties go back to the 1980s when then Prime Minister Margaret Thatcher pledged that Britain would be Japan's gateway for European trade. The decision to leave the EU, therefore, contravened that pledge. There has been a steady stream of British ministerial visits to Tokyo to try to restore trust and a few big names like Nissan, in return, have promised continued investment.

Of the three main Asian economies, China, India and Japan, Britain has received the firmest message and most comprehensive guidance from Japan which is playing the role of impartial mentor in many ways.

India is proving to be problematic. During her visit to India last November, May spoke about forging a new, strong relationship. But she came away with little because Delhi insisted on her relaxing visa restrictions for Indian students and skilled workers. Britain cannot meet that condition at this stage because cutting immigration is a cornerstone of why Britain is leaving the EU.

With India this year celebrating the 70th anniversary of independence from Britain, there also has been growing discussion in the lively Indian press about the injustices carried out under British rule. This might deter Indian ministers from cutting deals seen to be too favorable to the former colonial power.

China poses even more challenges. Before May came to office, London and Beijing had forged a relationship known as the Golden Era. Pioneered by former Finance Minister George Osborne, it included using London as the center to issue renminbi-dominated sovereign bonds, linking the London and Shanghai stock exchanges and promoting Chinese investment in critical British infrastructure such as power stations and high-speed railways.

As soon as she became prime minister in July 2016, May sacked Osborne and delayed an agreement for Chinese investment in a British nuclear power plant. The deal finally went through, but left a bad taste with Beijing and many projects are now on hold.

This already uneasy Sino-British trade relationship is now taking on a strategic dimension. Britain has announced plans to send warships for "freedom of navigation" operations in the South China Sea. The announcement did not go down well in Beijing which has constructed military islands in international waters there that it claims as sovereign territory.

Britain is also under pressure to speak out more forcibly against China's handling of its former colony of Hong Kong where Beijing is accused of violating the international treaty of self-government. Britain is the key signatory and the treaty runs until 2047.

"We should be much firmer in standing up to China," says Lord Patten, the last British governor of Hong Kong. "I don't think that the only way you can have a good and constructive relationship with China is by behaving in a craven sort of way."

Some business would inevitably suffer if Britain did harden its stand against Chinese policies in Hong Kong, the South China Sea or elsewhere. In that respect, the post-Brexit trading canvas in Asia may come to resemble the strategic one in which Britain has a working relationship with India, a complex and often difficult one with China and a solid trading and defense alliance with Japan.

Technically, Brexit should not affect defense arrangements within Europe in which Britain takes a leading role. Therefore, it would be in Japan's interests if Britain continued with that role by increasing its contributions to balance Chinese power in the Asia-Pacific.

Bruised by cabinet infighting, Brexit indecision and foundering popularity, May will need to draw all these strands together in her Florence speech because while Britain dithers, the world is moving on. Brexit is an all-enveloping topic in the British press, but barely mentioned in the European media. The EU Commissioner Jean Claude Juncker gave it only a couple of lines in his hour-long address to the EU parliament in early September in which he laid out a positive vision for a cohesive and unified Europe once Britain departed.

Britain cannot expect to retain global influence if it fails to implement an effective Brexit and it cannot succeed without making further inroads into Asia's expanding economies.

Japan has given blow-by-blow specifics of what is required. We will soon find out whether Britain's prime minister has taken note and is willing or able to follow the template.

Humphrey Hawksley is a former BBC Asia Correspondent. His next book, "Asian Waters: Chinese Expansion and the Shifting Balance of Power" will be published in April 2018.

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