LONDON (Reuters) - Japanese companies and investors would be forced to reassess their four-decade bet on the United Kingdom if there is a disorderly exit from the European Union that shattered supply chains and cut off access to the bloc, Japan’s ambassador said.
Japan, the world’s third-largest economy, made the United Kingdom its favoured European destination for investment. The likes of Nissan (7201.T), Toyota (7203.T) and Honda (7267.T) were encouraged by former Prime Minister Margaret Thatcher to use the country as a launchpad into Europe.
Brexit, though, worries Japanese investors. Many have expressed concern in private that a disorderly exit could turn upside down the entire business case for investing in British manufacturing.
Japan is one of the biggest sources of foreign direct investment in Britain, which its companies have long seen as a pro-business, liberal gateway into the rest of the EU.
“If those conditions drastically change and make it impossible for companies to adapt, they will have to consider very carefully how they will go about continuing business here in the UK,” Japan’s ambassador to London, Koji Tsuruoka, told Reuters.
“They like it here and they are happy being here,” Tsuruoka said. “The only hope that they are now wishing is that they will be allowed to continue to do good business here in the UK.”
Japanese companies have invested over 81 billion pounds in Britain, making its FDI the fifth-largest after the United States, Germany, France and the Netherlands, according to UK statistics.
More than three years of political squabbling over Brexit have left allies and investors puzzled by a country that for decades seemed a confident pillar of Western economic and political stability.
It is still unclear on what terms the United Kingdom will leave the European Union. Options range from a last-minute exit deal or delay to an acrimonious split that would knot up the networks of trade.
Prime Minister Boris Johnson has repeatedly said he wants to strike a deal at an Oct. 17-18 EU summit, but if the EU turns down British demands he will lead the United Kingdom out without a deal on Oct. 31.
Without a deal, Britain would quit the EU’s 500 million-strong single market and customs union overnight, falling back on World Trade Organisation rules, which could mean many import and export tariffs. There would be no transition.
Tsuruoka said he was hoping for an orderly exit. Nearly 1,000 Japanese companies based in Britain employ more than 150,000 people.
“The UK has provided Japanese companies and investors with very important business opportunities, which they have profited from now for three or four decades,” Tsuruoka said.
“The question really is whether this will drastically changed or will there be a continuity of the sound business environments they have enjoyed,” he said. “There are not too many answers that are available today and therefore they are watching very carefully.”
Car makers, the country’s biggest exporter of goods, has been one of the most vocal opponents of a no-deal Brexit, warning that production would be hit with tariffs, border delays and new bureaucracy, ruining the viability of many plants.
Of the just over 1.5 million cars produced in Britain last year, Japanese auto makers Nissan, Toyota and Honda built about half.
“The Japanese companies that are investing are global operators and they are watching it very carefully,” Tsuruoka said. “If none of the predictability is there, then you cannot plan, so you will have to stop and then consider when things are clear.”
British trade minister Liz Truss is currently on a visit to Tokyo and has called for a new post-Brexit trade agreement with Japan as soon as possible.
“I am in Tokyo today to deliver one very clear message: the UK is ready to trade,” Truss said. “The UK is an open, welcoming country and we are the perfect place to do business.”
Reporting by Guy Faulconbridge