I’m surfacing from my holiday to highlight a development in the Brexit negotiations which further undermines the
fantasies hope of Leave proponents, in the form of a letter from the Japanese government outlining its expectations to 10 Downing Street.
One of the beliefs of the pro-Brexit camp was that the UK was such an important export market to the EU that Britain would have negotiating advantage. We’ve thought this belief was misguided, in that the UK’s own export sectors were far more vulnerable. The critically important transport industry is almost entirely in foreign hands, and its owners could migrate production to the EU over time if the UK lost access to the single market or for other reasons became a less attractive location than now. Similarly, there is no reason to believe that the dominant players in the EU, Germany and France, each of which has large, influential banks, would let UK banks get passporting rights without making very large concessions on other fronts.
As vlade pointed out, another shoe has dropped in the form of the 15 page letter of Brexit demands from the Japanese government. The UK is being exposed as having fewer degrees of freedom in these talks than its leaders assumed by virtue of its deep economic integration with other economies. As the Guardian points out:
Above all, the Japanese memo underlines that the UK is not only negotiating bilaterally with the EU commission and council of ministers, but with many other foreign firms that have invested in the UK, each of which is quite capable of upping sticks in the next phase of their investment cycle.
And it focused on the issue we’ve stressed, that the only reason foreign manufacturers were in the UK was to get access to the single market with more favorable labor regulations. Upend that equation and those firms have no reason to stay:
The warning in the covering letter to the UK government could not be clearer. It says: “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.”
In particular, the document emphasises Japanese firms fear for their future potential to export from Britain to third countries because of trade privileges within the EU single market around “rules of origin”.
The Japanese missive also called for the free movement of EU citizens, which is antithetical to pro-Brexit demands for curbs on immigration.
Moreover, the Japanese letter is likely to encourage other countries whose companies have a significant presence in the UK to convey their own set of Brexit requirements.
Moreover, the Japanese trade negotiators, who ran rings around their US counterparts in the 1980s and appear to have come out very well in the TPP talks (having gotten major concessions independent of the deal getting done) look to have decided to influence the talks while the UK’s position was still in flux:
The additional difficulty for May is timing. Her government is still far from united in its demands and is playing a long game by remaining studiously vague about the deal she is targeting. Bland reassurance has been May’s strategic goal so far.
The Japanese demands blow that strategy apart by being very specific. It says: “What Japanese businesses in Europe most wish to avoid is the situation in which they are unable to discern clearly the way the negotiations are going, only grasping the whole picture at the last minute. It is imperative that the outcome is free of unpleasant surprises and reducing the risks emanating from uncertainty.”
In effect Japan is trying to force the UK to show its hand, something five House of Lords EU select committees will also start to seek to achieve this week when they begin a coordinated grilling of ministers and experts across the whole Brexit field.
The Guardian report also says that the UK government was caught out by the publication of the letter in Japan last Friday, even though it had received it earlier, as part of the advance work for a meeting between May and Abe today. The Government had apparently assumed that the Japanese requests would be handled out of the public eye. Oops.
The Brexit negotiations are proving the truth of Dani Rodrik’s policy trilemma: you cannot have national sovereignity, democracy, and deep international economic integration all at the same time. And while some Brexit backers acknowledged the costs that might be incurred, far too many others (as revealed not just in the UK press but in unduly optimistic remarks in NC’s comments section) blew them off as scare talk by nay-sayers. We are now seeing that the UK leadership is unprepared, both on an operational and strategic level for handling these negotiations, much the less with managing outcomes. It’s not a pretty picture.