Japanese government issues dire Brexit warning of 'great turmoil' in Europe

Japanese government warns that the country's businesses with European headquarters in the UK may decide to transfer... to Continental Europe if EU laws cease to be applicable in the UK

Japan's Prime Minister Shinzo Abe arrives in China for the G20 meeting (Getty)

European economies will be thrown into “great turmoil” if the UK and EU cannot agree on a deal for Brexit that includes an element of free movement of labour, the Japanese government has warned.

Issued on the eve of the G20 summit in China, a document entitled “Japan’s Message to the UK and EU” warns of dire consequences for “the interests of the world” if an open Europe cannot be maintained.

The letter presents for the first time a coherent list of the demands Japanese businesses are making for the conditions of Brexit.

And it comes with a clear warning that if those demands are not met, major companies such as Hitachi, Fujitsu and Nissan could move their European headquarters elsewhere - with serious implications for the 140,000 people employed by Japanese businesses in the UK.

Among the demands are:

• Maintenance of trade in goods with no burdens of customs duties and procedures
• Unfettered investment
• Maintenance of an environment in which services and financial transactions across Europe can be provided and carried out smoothly
• Access to workforces with the necessary skills
• Harmonised regulations and standards between the UK and the EU

It also presents a key recommendation to the UK and EU - the idea of an “extendable transitional period” that would help to avoid any “unpleasant surprises” after the two years of negotiations are over and Brexit finally takes place.

Japan is not the only country using the G20 summit as an opportunity to weigh in on Brexit. Speaking alongside Theresa May in China, Barack Obama said the US would continue to prioritise its trade deal with the EU ahead of all others.

The US president said his much-derided warning ahead of the EU referendum, that Britain would be at "the back of the queue" for a deal if it voted to leave, still stood.

And he said both sides would have to work hard to prevent longstanding, positive trade relations between the US and UK from "unravelling" after Brexit.

In its letter, the Japanese government warned that “a number of Japanese businesses, invited by the Government in some cases, have invested actively [in] the UK, which was seen to be a gateway to Europe,”, adding that some have bases in the UK specifically “to oversee their activities in the EU”.

“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,” it warns.

The Japanese government says manufacturers, “especially of automobiles”, have raised concerns that they will be hit by a new wave of trade tariffs, in some cases a double whammy.

“[Car manufacturers] could have such levies imposed twice, once for auto parts imported from the EU and again for the final products assembled in the UK to be exported to the EU,” it says.

Businesses also fear the inevitable transfer of London-based EU agencies, such as the European Medicines Agency, which has up-to-now made it advantageous for major international pharmaceutical companies to be based in the UK.

And there are concerns Japanese research and development projects based in the UK will lose access to EU science funding, “which could possibly lead to a shift in the flow of R&D funds and personnel to Continental Europe”.

“This could force Japanese companies to reconsider their business activities,” it says.

Theresa May and her Japanese counterpart Shinzo Abe are both currently in Hangzhou for the 11th G20 summit, the first hosted by China, and UK officials are reported to be “astonished” at the timing of the letter, the most comprehensive foreign intervention into the Brexit debate yet.

Japan, the world’s third-largest economy, has a vested interest in Brexit being conducted smoothly - and not just for the sake of its businesses operating over the UK.

Japan's letter is an implied threat to the UK - get a Brexit deal that's good for business, or Japanese giants will go elsewere (Japanese foreign ministry)

The collapse in the value of the pound after June’s referendum result saw investors’ cash flowing into the Yen instead.

That might seem like good news for Japan - but with its own economy already faltering, the increased value of its currency has made it harder for the Bank of Japan to control inflation, as imported goods become cheaper.

The letter ends with a final note, addressed just to the rest of the EU once Brexit has taken place.

In effect, it asks Brussels to do all it can to welcome Japanese businesses in the event of a mass exodus from Britain.

Go easy on licensing procedures and “avoid the creation of extra burdens”, it requests, “in case there is a need to establish a new base in the EU”.