Brexit Stakes Ramp Up - Japan Weighs In

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The high stakes game between the U.k. and the European union over Brexit has recently started picking up speed. Although very little real world movement has taken identify since the vote in June, with (now not and then new) UK Prime number Minister Theresa May yet hanging on her tagline of "Brexit ways Brexit", the only thing we really know for sure is that the United kingdom of great britain and northern ireland volition not trigger Article 50 of the Lisbon Treaty (the legal machinery for formally beginning withdrawal from the European union) in 2022.

The Brexit Background: What we know

The high level points of the United kingdom'south impending exit from the Eu are below:

Markit published the Purchasing Managers' Alphabetize after the vote with a significant overall drib in both the services sector (about 80% of UK economic output) as well as manufacturing dropping from 52.4 in June to 47.7, a 7 year depression.
This prompted the Bank of England to cutting interest rates by 25 basis points to their current all fourth dimension low of 0.25% with the prospect left open up for further cuts.
Latest data nonetheless shows that the BoE may have knee-jerked a bit every bit the services sector PMI has since rebounded to 52.9
Sterling is still in the doldrums vs. both the Us Dollar and the Euro, currently languishing at about $i.34 and €1.19 to the pound.
The European union has appointed what is viewed as a relatively hostile political leader to oversee Brexit negotiations from their side, although it is clear that the countries themselves and not the Commission in Brussels volition probable take the atomic number 82 on the big decisions to exist made.
Technically speaking, the U.k. government is non bound by the result of the plebiscite.

What nosotros surmise

Although zero has officially been confirmed, the below seems somewhat probable given comments in the press by both sides:

It does indeed seem likely that the outcome is highly reflective of UK stance on the free movement of people given that this was the basis on which the leave army camp campaigned.
Brexit, in some form or other is highly likely to get alee despite the vote not beingness binding on the government and petitions and politicians of various ilk calling for a rerun of the vote or some other referendum to sign off on the deal once it's finalised.
The UK is highly likely to seek curbs on the Eu principle of gratuitous movement of people, while wanting to keep every bit much equally possible of the complimentary movement of goods, capital and services (the so chosen "Iv Freedoms" of the EU).
The Eu on the other hand will be pushing back hard and is expected to offer petty to no concessions on the remaining iii freedoms if the UK does not have the fourth.
The United kingdom economy is highly dependent on the Services sector and there are pregnant concerns around the cyberbanking sector losing its "passporting" ability inside the Eu.
The European union exports a lot of physical goods to the United kingdom and major exporters such as Germany will desire to maintain easy access for their goods to the United kingdom marketplace.

brexit

What does it all mean?

Ultimately, a trade war between the Great britain and the residuum of the Eu benefits no one then it makes sense for people to go along a level head and try to hammer out a reasonable deal for all sides. The difficulty actually comes into the situation from a political motivation standpoint. Anti-EU sentiment is rife in many European countries these days with anti-clearing parties on the ascent especially given the big number of migrants in recent years along with some of the cultural clashes and terrorist attacks in the European union.

What this means is that the political will to give the Great britain a "good deal" is extremely low. If the UK gets a great bargain and doesn't have to open its borders, that will merely make the calls in other countries that much louder to potentially look at leaving the Eu and cutting their own deals. Of course the EU would rather avoid this outcome.

Every bit such, much volition come down to appearances. The Uk must be made to await similar information technology is getting a bad deal to European countries to stalk the risk of contagion to other member states, while the Great britain itself will of course want a good bargain so that a damaging merchandise war volition not impact information technology and its European partners too heavily.

Pressure has been edifice on the new UK government both at home and away to trigger article l which has been ruled out in 2022 and so the calls accept started for an early 2022 trigger, although no commitment has been made. Information technology is worth remembering that in one case article 50 is invoked, a 2 year negotiation flow sets in for the deal to be finalised. This is important since the electric current government (if it wants to guarantee that it finishes the task itself) needs to get-go the process sometime before May 2022 since there will be another United kingdom general election in May 2022 at the latest.

Enter Japan

japanese-gaming

And so against that backdrop, nosotros have Japan, whose Ministry of Strange Affairs has been working with some of its largest corporations to discover out what concerns they have about Brexit and has issued a 15 page "Bulletin to the United kingdom and the European Spousal relationship" with a shopping list of asks for the last bargain of Brexit.

It's possibly unsurprising that this came. A disproportionately big amount of Japanese investment into the European Union finds its way to the UK (most half) and there are evidently concerns amidst Japanese large business concern that Brexit may hamper their European operations. Japanese companies provide well-nigh 140,000 jobs in the Great britain and include numerous large organisations operating in both the manufacturing and services sectors with several large Japanese companies having their European base of operations headquartered in the Britain.

Hence, Japan isn't actually being unreasonable in what it'southward asking for, basically it wants the U.k. to maintain an environment which allows its established U.k. operations to go on to operate with minimal disruption and clarity on the negotiation process as it happens.

Unfortunately the devil is in the detail. It'south not a peculiarly detailed letter of the alphabet but information technology does spell out some problem areas. Highest on this listing is the issue of freedom of movement of labour (people).

It's an important distinction in the alphabetic character that on page 4, the MOFA chooses not to address the 4 freedoms wholesale, but explicitly separates out the point of free movement of people in point three, before going on to discuss the remaining freedoms.

Of course this comes as no surprise. As mentioned previously, this is seen equally the single biggest stumbling point which is likely to mess up the entire deal given that the U.k. volition in all likelihood exist pushing for curbs on liberty of movement and the EU will be pushing dorsum equally for an everything or zilch bargain with regards to the 4 freedoms.

What is remarkable here is that this is set against the backdrop of yet more Japanese investment into the UK (read our predictions of ARM weathering the Brexit tempest well hither, coverage of SoftBank (TYO:9984) purchasing ARM here and the deal concluding hither). Thankfully, most of ARM's largest customers are not EU based so the impact is lessened and the deal to acquire ARM includes certain guarantees about investing in jobs in the UK.

Shots Fired

shots fired

In geopolitical and economic terms, the stakes here are high. The fact that Japan has fabricated this an open letter of the alphabet is as well pregnant. It is also quite effectively alert the UK that if Japanese business doesn't go what it wants from the negotiations, the UK tin expect Japanese investment in the U.k. to pass up and may even come across some companies shut up shop in the U.k. and movement to other Eu countries so that they tin maintain their access to the unmarried market, which would of form threaten UK jobs and economical growth.

The likelihood of the negotiations being very transparent, which was the other fundamental ask is likewise likely to become broadly unfulfilled. This sort of negotiation is very much of the "nothing is agreed until everything is agreed" kind. What this means is that details will likely be in a continuous state of flux until the finalised deal is signed.
The shopping listing of asks is likely to be echoed by big business concern and governments around the world, whether made public or not. It seems like the last roll of the dice to attempt to subvert the will of the British people who voted for Brexit, but of grade this game will continue for years so it is unlikely to be the last. Warnings of impending doom were made far and wide in the stitch to the vote by world figures. These warnings were obviously non heeded.

Certain, people tin can ask now for what they want, but the likelihood of the referendum upshot beingness ignored or some quasi "not beingness in the EU but keeping all the rules of it" go out is not likely to go down well at home. Theresa May knows this and although she has been vague on detail, she has made clear in her European tour earlier this summer in numerous statements that she understands that the British people desire to restrict freedom of movement of people and that she intends to evangelize on that. With i of the four freedoms off the table, information technology's difficult to meet how large business organization will exist able to get what information technology wants. The side by side few years will be interesting to watch.