Brexit: Japan says trade deal with EU is a greater priority than deal with UK

Exclusive: 'A lot of Japanese companies are concerned with the prospect of the Brexit,' senior minister warns

Japan is more focused on a securing major trade deal with the European Union than pursuing an agreement with a post-Brexit Britain, a senior minister has said.

Shinichi Iida, minister for public diplomacy and media, said his country's "first and foremost priority" was rubber-stamping its historic trade agreement with Brussels – the largest the EU has ever signed – before work could begin on establishing lucrative free trade deals with the UK.

As one of the UK's major investors, Japan has been outspoken in its concerns over Brexit, with its ambassador warning Theresa May earlier this year that its firms could leave Britain if a chaotic exit makes it "unprofitable" for them to remain.

Car giants Nissan, Honda, Toyota and Mitsubishi are among more than 1,000 Japanese firms operating in Britain, employing 160,000 workers in areas such as Sunderland.

In an interview with The Independent, Mr Iida said Japanese businesses were "concerned" about Britain's plans to leave the bloc, after setting up shop in Britain partly to secure access to the European single market.

He said his country would prefer if the UK remained in the single market – something the prime minister has ruled out – and suggested that the Government's position could change as the EU are "tough negotiators".

Offering a boost to the prime minister, Mr Iida said his government welcomed her "consistency" but warned that Japan would be watching closely as it has a "big stake in the Brexit process".

Speaking at the Japanese embassy in London, he said: "Frankly, our first and foremost priority at the moment is the early effectuation of the Japan-EU economic partnership agreement.

"Having said that though, once the Japan-EU economic partnership agreement comes into force, it could provide a very good and sound basis for the future trade between Japan and UK."

Mr Iida indicated that informal trade discussions are underway between Japan and the UK at senior official level but no deal could be signed until Britain leaves the bloc.

He said: "A lot of Japanese companies, to be very frank, are concerned with the prospect of the Brexit because it’s not a secret that a lot of Japanese manufacturing companies, in particular, have invested in the country for the market access to the continent of Europe.

"It’s a very important factor for them, so market access after the trade agreement is made between the UK and the EU is a very important factor for a lot of Japanese businesses operating in this country."

Some Japanese financial institutions have applied to set up businesses in Europe after it emerged that the UK would lose "passporting rights" when it leaves the single market, which allow banks to sell services across Europe without any barriers.

Mr Iida said: "Since it’s been made clear by both the UK Government and also the European Union that a single passport system would not be able to apply, it is true that some Japanese financial institutions have submitted the application for businesses in continental Europe."

He added: "But both with regard to Japanese manufacturing companies and also financial institutions, as far as we know there is no Japanese company that has decided to move their headquarters outside of the UK.

"They have been very cautious and we haven’t had any indication from any of them [that they will] make a hasty decision in that regard."

The rights of EU citizens remains a flash point for Japanese companies, who employ large numbers of staff from continental Europe in their businesses here, Mr Iida said.

He said: "One of the major voices of concern, if you will, from the Japanese businesses is the legal status of the EU citizens.

"As I said, Japanese companies overall have hired 160,000 people in the UK, but it’s not surprising that many of them are not British, they are EU citizens therefore their legal status in the immediate future after Brexit was a major source of concern for a lot of Japanese companies."

Japan would prefer the UK to remain in the single market and the customs union, but it has accepted the prime minister's assertion that both options are no longer part of Britain's long term future, he said.

"We originally wanted the UK to be part of the single market and also we indicated the possibility that UK might be able to stay in the customs union but prime minister May was very clear that Brexit means the departure from the single market and also the departure from the customs union," Mr Iida said.

"She has been consistent in that regard in the Florence speech [given in September 2017] and she has been consistent in that regard in the Mansion House speech [given last month] and that type of consistency is very important."

Asked if Britain could change its mind on the single market, he said: "Negotiation with the EU is extremely tough. We so well know how hard a negotiator the EU is."

"Any negotiation is an art of compromise so I wouldn't be surprised at all if the UK’s original position was a little different when they reach the final agreement with the EU.

"The Japan-EU economic partnership agreement is very different from Japan’s original position that we held four and a half years ago."

Ms May sought to woo Japanese firms through a high-profile visit to the country last year, as well as chairing a roundtable meeting between top Japanese investors and some of her most senior ministers, including Philip Hammond, the chancellor, business secretary Greg Clark, and trade secretary Liam Fox in February.

While in Tokyo, she received assurances from Japanese prime minister Shinzo Abe that it hopes for a copycat trade deal once Britain leaves the bloc.

However the UK cannot begin signing trade deals until it has officially left the union, under EU rules.