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Politics

Asian companies face tough calls on Brexit after Johnson's UK win

British PM is now more likely to push for 'harder' divorce from EU

Britain's Prime Minister Boris Johnson, the leader of the Conservatives, poses with a sledgehammer after planting a "Get Brexit Done" sign in the garden of a supporter on Dec. 11.   © Reuters

TOKYO -- The substantial majority for Prime Minister Boris Johnson's Conservatives in Thursday's U.K. election is set to hasten the nation's departure from the European Union. This removes some uncertainty for Asian companies investing in Britain, but leaves them with difficult decisions to make.

"This one-nation Conservative government has been given a powerful new mandate to get Brexit done -- and not just to get Brexit done but to unite this country and to take it forward," Johnson said early Friday after winning in his constituency.

Johnson campaigned on a pledge to pull the U.K. out of the bloc by the end of January. However, he would still need to get his withdrawal deal through parliament, and then comes the tricky part: striking a trade agreement with the EU. He has vowed to do this by the end of 2020 -- a time frame that the EU's chief Brexit negotiator Michel Barnier said this week was "unrealistic."

"Johnson will get his deal though parliament quite quickly since he now has a mandate," Tina Burrett, associate professor of political science at Sophia University in Tokyo, told the Nikkei Asian Review. "There is a good chance of a harder Brexit -- harder relative to the type of Brexit that would have been agreed by the last parliament. ... This election represents the Brexit takeover of the Conservative Party. The new MPs will expect a harder Brexit."

This issue is weighing heavily on the minds of companies, business groups and governments with interests in the U.K. Perhaps it is felt most heavily in Japan, which has nearly 1,000 companies with operations in Britain and is Asia's biggest contributor to the U.K. economy, accounting for 5.8% of foreign direct investment in 2017.

The future of Nissan's Sunderland plant hangs in the balance.   © Reuters

Nissan Motor has said that its decision to build its Qashqai sport utility vehicle in the northern city of Sunderland -- which voted to leave the EU -- depends on a "soft" Brexit that includes a trade deal.

"We are among those companies with major investments in the U.K. who are still waiting for clarity on what the future trading relationship between the U.K. and the EU will look like," Nissan spokeswoman Azusa Momose told Nikkei. "As a sudden change from the current arrangements to the rules of the WTO will have serious implications for British industry, we urge U.K. and EU negotiators to work collaboratively toward an orderly balanced Brexit."

This week, during a trip to the northeast near Sunderland, Johnson said automakers in the U.K. will be protected after Brexit. "It's absolutely vital we protect supply chains, we protect Nissan Motors, we make sure people continue to want to invest in our country," the prime minister said.

Honda Motor earlier this year decided to close a plant in Swindon, east of London, amid the uncertainty over Brexit. In August, Panasonic blamed the Brexit risk for its decision to move its European headquarters from Britain to the Netherlands.

Japanese securities giant Nomura Holdings said it is prepared for Brexit, and has set up a corporate unit in Frankfurt to cover all the services they offer for European customers. Other Japanese brokerages and megabanks have created new bases in other parts of Europe.

More than 70% of Japanese manufacturers with bases in Britain are already feeling a negative impact from Brexit, according to a September-October survey by the Japan External Trade Organization.

"Most Japanese firms have already made some difficult decisions about moving European headquarters [out of London], and are clearly operating under no illusions that the going ahead is going to be particularly smooth," Adam Cathcart, a lecturer in Chinese history at Leeds University, told Nikkei.

"Having already made various contingency plans for no-deal Brexits and a disruption of supplies, they will surely be looking for concrete assurances from the post-mandate Johnson government that Japanese companies will continue to have access to and components from continental Europe."

Osamu Tanaka, chief economist at Dai-ichi Life Research Institute in Tokyo, told Nikkei that multinational companies will be closely watching the U.K.'s negotiations with the EU on a free trade deal. "They can't yet make important investment decisions."

Political leaders in Asia sent congratulatory messages to Johnson.

Indian Prime Minister Narendra Modi lauded his "thumping majority" in a tweet, saying he looked forward to working together for closer India-U.K. ties. Japanese Prime Minister Shinzo Abe said he would welcome Britain joining the Trans-Pacific Partnership, an 11-member free trade agreement.

Huawei's offices in Reading, U.K.: A company spokesman expressed confidence that Britain "will continue to take an objective, evidence-based approach to cybersecurity."   © Reuters

Under previous Conservative governments, the U.K. opened its arms to Beijing. The country allowed Chinese state-owned utility CGN to help build its first nuclear power plant in three decades, and London has become the world's biggest yuan trading hub outside of China.

But perhaps the biggest question remains over whether to allow Huawei to participate in building Britain's 5G telecommunications network.

Under pressure from U.S. President Donald Trump, Johnson said earlier this month that Britain would not allow the Chinese tech giant to get involved in the 5G network if it compromised the U.K.'s ability to work closely with its allies. He said Huawei's presence could hamper Britain's cooperation with its "Five Eyes" security partners: the U.S., Canada, Australia and New Zealand.

A Huawei spokesman said: "We're confident the U.K. government will continue to take an objective, evidence-based approach to cybersecurity. Our customers trust us because we supply the kind of secure, resilient systems called for by the NATO Declaration and will continue working with them to build innovative new networks."

Taha Coburn-Kutay, chairman of the UK Asian Business Council said "the U.K. will take a cautious approach [on China] because of the Huawei and Hong Kong situation," adding that stability in the former British colony will be paramount for financial markets and its net effect on London.

Jane Hayward, a lecturer in political economy and development in China at King's College London, told Nikkei that it is hard to say how a U.K. government under Johnson would negotiate its position after Brexit between the U.S. and China, the world's two largest economies.

"Johnson has made statements to the effect of not wanting to be caught up in the U.S.-China trade war and is showing no inclination to align with Trump against China on this issue," Hayward said. "How that three-way relationship would play out in post-Brexit negotiations ... is likely to depend on the strength of the U.K.'s negotiating position."

Johnson raises his arms as he arrives at the Conservative Party's headquarters in London following his general election victory.   © Reuters

While trade talks with the EU will be Johnson's immediate priority, he has spoken boldly of striking deals with countries around the world.

Trump tweeted: "Congratulations to Boris Johnson on his great WIN! Britain and the United States will now be free to strike a massive new Trade Deal after BREXIT. This deal has the potential to be far bigger and more lucrative than any deal that could be made with the E.U. Celebrate Boris!"

In the Conservatives' election manifesto, Johnson's party pledged to secure agreements with the U.S., Japan, Australia and New Zealand within three years, but some analysts see this as optimistic.

Sophia University's Burrett said that the U.K. has already agreed about 20 "rollover" deals with countries such as Singapore and Vietnam that have agreements with the EU. This will allow Britain to keep trading on roughly the same terms as the European bloc.

"With a deadline [for a trade deal with the EU] at the end of 2020, this will require urgent attention and give the PM little time to personally work on trade relations with other parts of the world," she said.

Coburn-Kutay at the UK Asian Business Council predicted the U.K. will seek free trade agreements with China and India after an early Brexit. But King's Hayward said much will depend on what kind of Brexit is achieved.

"A stronger, more cooperative relationship with the EU would see the U.K, with stronger bargaining power as it seeks trade deals elsewhere," she said. "A hard Brexit, of the kind Johnson currently appears to envisage, would put the U.K. in a weaker position and more likely to be compelled to force open its markets on terms decided by the whims of others, be that China or the U.S."

Additional reporting by Nana Shibata and Cheng Ting-fang

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