Tim Wallace
6 SEPTEMBER 2016 • 9:56AM
Prime Minister Shinzo Abe said Brexit could lead to Japanese firms
moving their European headquarters out of the UK
CREDIT: ETIENNE OLIVEAU/REUTERS
The bold statement does not reflect the public aims of Britain’s leaders nor those of the EU, but Japan’s warning reflects worries over the potential shock to global trade if ties with other nations are severed altogether.
“Japanese businesses with their European headquarters in the UK may decide to transfer their head-office function to continental Europe if EU laws cease to be applicable in the UK after its withdrawal,” the government said in a statement at the G20.
The document handed a list of demands to the UK and EU, warning that tariffs on international trade “could suppress the revenues of businesses” while burdensome red tape on trade between the UK and EU would “increase the costs of logistics operations, which would have a significant impact on business operations”, and that retaining and banking passport is vital.
In plain English, it is a threat of less investment and fewer jobs.
Japan is certainly a major investor in the UK. Almost 1,000 UK firms are owned by Japanese investors, with a combined turnover of £72bn last year and gross value added to the economy of £14.5bn, according to the Office for National Statistics.
Foreign direct investment into the UK from Japan totalled a net £2.2bn in 2014, with the UK receiving half of the country’s investment into the EU, seeing Britain as a gateway to Europe.
The Japanese ambassador estimates 10,000 Japanese firms operate in the UK, employing 140,000 people.
The impact of a wholesale shift away from the UK by any large firm could be significant, particularly when companies focus in one particular region.
Nissan and Hitachi are both big Japanese manufacturers with major operations in the North East of England – Nissan’s car plant in Sunderland employs 6,100 staff, and claims that more than 24,000 jobs are created in the wider supply chain supporting the factory.
Hitachi’s UK head office is in London and it has depots around the country, as well as manufacturing trains in Newton Aycliffe, County Durham. It has a total of 5,000 UK staff with 600 building trains in the North East for use in the UK and Europe.
The North East has benefitted from the investment and is now the only British region which consistently exports more goods than it imports, but remains sensitive to changes in the economic environment. Despite the Japanese investments the region still has the highest unemployment rate in the country at 7.6pc, making it vulnerable if large firms do pull out or cut back investment.
Nissan established its site in the 1980s and expanded in part because of an attractive tax arrangement designed to promote investment in a relatively deprived area. It has invested the best part of £4bn in the site and is still investing – last year Nissan announced it was spending another £100m on production of its Juke car.
It produces around 500,000 cars per year, the majority of which are exported. As a result it would suffer if a post-Brexit deal failed to secure a free trade arrangement with Europe and led to the imposition of tariffs on cars exported to the EU.
The company has yet to decide on the location of future investments.
“Nissan is working closely with the new UK government to ensure our success and investment in the UK continues. However, this depends on a number of important factors, including the UK’s trade and tariff negotiations with the European Union,” Nissan said.
“We will continue our discussions with the Government, however, future business decisions will be made on a case by case basis, as is our policy. It is in the interest of the businesses and people of the UK that a resolution is reached as soon as possible.”
Economists believe that Nissan in particular led to a wave of manufacturing growth in the area.
“The North East has a very long, proud history of being home to Japanese companies, and it is a significant part of the reason our region is a strong performer in exports,” said Jonathan Walker from the North East Chamber of Commerce.
“[Nissan’s investment] led to other Japanese firms investing in the automotive supply chain. It put the region on the world map and has brought in a huge amount of investment right through to this day.
“Ultimately we want to see businesses here and those who might want to come here continue to enjoy access to global markets and EU markets.”
Meanwhile Japanese bank Nomura has around 2,600 staff in the EU, with 2,000 of those in London.
EU access is important but not vital – it has staff in other parts of the EU who can continue to do business there, and its London office carries out business across the globe. Retaining good access to EU markets would help keep more of those workers in the UK, however, which is particularly important when the bank is already cutting back.
In April the bank said it would cut around 500 jobs, predominantly in London, as the latest bank to chop back in the face of tight regulation and volatile markets.
In other instances, however, Britain’s relationship with the EU will matter very little or even not at all.
Take Fujitsu as an example. It employs around 14,000 people in the UK – one-tenth of total Japanese corporate employment in Britain – yet has next to no direct exposure to Brexit.
http://www.telegraph.co.uk/business/2016/09/05/japans-threat-to-cut-investment-in-the-uk-would-hurt---but-is-un/
