Is The Time Right For Japan To Seek Free Trade with Britain?

BusinessIs The Time Right For Japan To Seek Free Trade with Britain?

Is The Time Right For Japan To Seek Free Trade with Britain?

Japan is looking to start informal talks with the UK about a free trade agreement between the two island nations in a post-Brexit world, the Nikkei business newspaper has reported without citing any sources.

The claim comes at a particularly interesting point in time, as negotiations between Japan and the European Union about their own free trade pact seem to have gathered significant pace.

EU rules prevent all members of the trading bloc from holding official bilateral trade talks with other countries. That obviously still applies to the UK, despite the fact that Brexit negotiations have begun.

Of course, some preparation behind the scenes before the formal separation comes into effect is in the interest of both the UK and its trading partners, and particularly the biggest ones, like Japan.

There are presently more than 1,000 Japanese companies operating in the UK, employing close to 140,000 workers in the country.

Two industries, two different approaches

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Two of the most important industries, in terms of Japanese firms’ presence in the UK, are automakers and financial services, and each has so far responded differently to the challenges posed by the UK’s exit from the EU.

Japan’s major carmakers have emphatically shown their faith in the strength of a post-Brexit British economy, with both Toyota and Nissan announcing new rounds of major investments in their car assembly plants in Derby and Sunderland, respectively.

By contrast, big Japanese banks such as Nomura and Daiwa, have either already opened European subsidiaries or are planning to relocate some of their operations to the Continent.

The stakes for financial institutions are higher, because of the potential loss of the “EU Passport”, an agreement which currently enables all banks located in London to operate freely across the other European financial markets.

Japan’s negotiations with Europe

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Regardless of the approach, the risks that Brexit is likely to create for Japanese firms in the UK are serious. But is Japan’s apparent move to start informal trade talks with the UK a sign of nervousness or good preparation? It could well be just good timing.

Japan and the European Union have been locked in talks to ease some of the trade tariffs between them without success since 2013. That issue has certainly become more urgent since President Donald Trump pulled the United States out of the Trans-Pacific Partnership (TPP) pact, leaving that deal in limbo.

There are now growing signs that a wide-ranging free trade agreement between Japan and the EU may be at reach.

EU Trade Commissioner Cecilia Malmström has met with Fumio Kishida, the Japanese Foreign Minister, in Tokyo, in an effort to clinch such a deal in time for the G20 summit in Hamburg on 7-8 July. A deal like that would send a strong political signal to the rest of the world, perhaps even undermining the influence of the United States in the global scene.

Ms Malmström told reporters she was “quite confident” a deal would be reached, while Mr Kishida appeared hopeful, if somewhat more reserved. “We’ve made meaningful progress, but there are still important points remaining”, he said. “Since we are trying to reach a broad agreement in time for the summit, I am planning to travel to Brussels to make this happen”.

Japanese Prime Minister Shinzo Abe was more upbeat. “The Japan-EU Economic Partnership Agreement will be a model for 21st century economic order”, he said in a recent televised speech.

With the global political landscape undergoing unprecedented changes, it seems that Japan is squarely focused on protecting its national trade interests.

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