OSCOW, Valentina Shvartsman – The United Kingdom and Japan have practically no chances of producing a free trade agreement (FTA) before arch 29 when London leaves the European Union, which is likely to inflict a heavy cost on bilateral economic ties, with Honda and Nissan carmakers reconsidering their operations in the country being “just the tip of an iceberg,” experts told Sputnik.
An FTA with Japan has been among key priorities for London after the Brexit referendum, since Tokyo is the UK’s major economic partner, and Japanese businesses have invested billions of Pounds in the UK economy, while some 1,000 Japanese firms operating in the European country are employing nearly 140,000 people.
However, the signing of a new trade deal with Japan would take months or even years, David Bailey, a professor of Industrial Strategy at the Aston Business School, told Sputnik.
“There is little chance that the FTA will be signed by March 29th. It could take months if not years,” Bailey said.
Professor Ulrich Volz, the head of the Department of Economics at the SOAS University of London, agreed with such assessment saying that the two nations had “virtually zero” chances to negotiate a new deal in 2019.
“To get to a new agreement that will also be ratified it will take significant amounts of time, even with good will from both sides. I don’t expect this to happen in the current year,” Volz explained to Sputnik.
Bailey noted that London was seeking to produce a deal similar to the EU-Japan FTA, which came into effect on February 1, but Japanese negotiators might use the UK rush for a new trade pact as soon as possible as leverage in the ongoing talks.
“The UK wants a cut and paste version of the recent EU-Japan trade deal but Japan can sense the UK’s desperation for a deal and may well press for further UK concessions,” he said.
The Japanese side has repeatedly voiced its concerns over the possibility of a no-deal Brexit that would deprive Japanese firms with headquarters in the United Kingdom of smooth access to the EU market something that brought them to the country in the first place.
Tokyo’s deep concerns over the looming possibility of the UK failing to reach an agreement with the European Union are among key reasons for the delay, Seijiro Takeshita, a professor at the University of Shizuoka’s school of Management and Information, told Sputnik.
“UK is asking for haste, but the Japanese delegates are not happy about the fact that they were promised that EU-UK deal would be made for sure and it has not,” Takeshita said.
Volz highlighted that Japan’s disappointment with the United Kingdom failing to alleviate its fears over losing access to the entire European market would also factor into the trade negotiations.
“Brexit is a stark blow to British-Japanese economic relations … There is great disappointment in the reliability of the British side. The UK should be under no illusions that she will get great concessions in trade negotiations with Japan,” Volz said.
Takeshita pointed out that aversion to risks and uncertainty, an inherent feature of Japanese mentality, had caused major Japanese brands to mull downscaling business operations in the United Kingdom over no-deal Brexit fears.
“Japanese hate uncertainty and have a very strong tendency of risk avoidance.
I know that many if not all are thinking of either shrinking their operation in UK or transferring totally to the continent,” Takeshita said.
Indeed, several Japanese companies have announced their decisions to limit business operations in the United Kingdom. In early February, Nissan automobile manufacturer announced that it had decided to consolidate X-Trail production in Japan, instead of the previously chosen Sunderland plant in England, citing wider industry pressures in the United Kingdom and Brexit uncertainty.
Earlier this week, Japanese carmaker Honda said it planned to close its only factory in the United Kingdom the Swindon plant that employs some 3,500 people in 2021, citing the need to restructure its global manufacturing network to focus on regions with higher production volumes of electrified cars.
Takeshita pointed out that Brexiteers were wrong in believing the Nissan decision to close its only plant in the United Kingdom was not motivated by Brexit, urging the UK government to “get real.”
“They [Honda and Nissan] are not alone, in fact just the tip of an iceberg which has surfaced,” he stressed.
Volz echoed his concerns, noting that more Japanese firms are likely to follow the suit of Nissan and Honda over the lack of trust for the UK government’s promises.
“We will likely see other high-profile cases with major Japanese companies shifting their headquarters and production out of the EU in case of a hard Brexit. It looks as if the assurances the British government gave to the Japanese government were not worth much,” he said.
Bailey suggested that Toyota car maker, that has previously voiced its concerns over possible impact of no-deal Brexit on its output, might be the next to reconsider having its production facilities in the United Kingdom.
Not only Japanese carmakers, but electronics companies too have had enough with the Brexit uncertainty. Panasonic has already relocated its European headquarters from the United Kingdom to the Netherlands, while Sony Corporation will follow suit in March.
The United Kingdom has been Japan’s second-biggest investment destination, but this may change as well due to growing ambiguity around Brexit.
“Japanese firms are clearly turning away from the UK. The UK has become significantly less attractive as a destination for Japanese investment,” Volz said.
Takeshita pointed out that the situation is likely to further deteriorate over the next few years whether or not the United Kingdom secures deals with both the European Union and Japan.
“Whatever the outcome, Japanese investments in the UK will have a free fall in coming years,” the Japanese expert said.
On June 23, 2016, the United Kingdom voted in a referendum to leave the European Union. The negotiations between the United Kingdom and Brussels started in June and are due to be completed by the end of March 2019. Immediately thereafter, on March 30, 2019, the transitional period will begin. It will last until December 31, 2020.
The failure to get the much-needed trade deal with Tokyo by the March 29 deadline was recognized by UK Business Secretary Greg Clark, who admitted on Tuesday that the FTA was unlikely to be in place when the UK Thalassa Mana cargo ship arrives in Japan on March 30, a day after Brexit, creating uncertainty about customs barriers UK exports might face.