Exiting Britain

Prime Minister of United Kingdom, Theresa May, announced on Tuesday that U.K. would not remain in European single market to regulate immigrants from European Union or protect independence of judicial rights. “We do not seek to hold on to bits of membership as we leave,” told May, dismissing an option of half-in and half-out. Her choice of hard Brexit may urge Japanese industries leaving U.K.

It was the first announcement of May for the details of leaving E.U. “I want this United Kingdom,” May appealed in London, “to emerge from this period of change stronger, fairer, more united and more outward-looking than ever before.” She raised three principles for Brexit negotiation: providing business sectors with certainty, building a stronger Britain with taking back control of British laws and building fairer Britain by controlling immigration from E.U.

To ensure those principles, May chose exiting from European single market that was based on free transportation of people, goods and services, dismissing a model applied to European Economic Area, which allowed participation of European single market with condition of accepting immigrants from E.U. area. U.K. looks like going to have an individual free trade deal with E.U.

Japanese industries are interested in how hard Brexit will affect their business in U.K. Financial corporations are worried about losing “single passport,” the license from any of one country in E.U. which enables banks or insurance companies have business everywhere in the area. Having no base in continental Europe, Mitsui-Sumitomo Financial Group considers building new bases in Amsterdam or Frankfurt, maintaining current offices in London.

Impact on manufacturers should be great. If E.U. poses tariff on the products from U.K. after Brexit, the competitiveness of those products will significantly be eroded. World Trade Organization estimated annual burden of U.K. in tariff to be £5.6 billion. While Nissan Motor still keeps its plan to produce new type of cars in U.K., economists in Japan suppose that manufacturers will have to shift its bases or review its business strategy.

Reflecting anxiety for the future of Europe, the value of Japanese yen was immediately raised to ¥112 for $1 on Tuesday. Nikkei Average sank, breaking the line of ¥19,000 for the first time in a month. Business sectors in Japan also have a concern of slowdown of European economy as a whole. They do not have a good prescription for hard Brexit.