Budding Ties? The Impact of Brexit on Europe-Japan Relations

Irina Angelescu1
Council on Foreign Relations (CFR) Hitachi Fellow

The decision of the UK to leave the European Union (EU) following theBrexit referendum of June 2016 came as a big surprise for Japan. Faced withthe prospect of losing access to the Single European Market and a weakened EU
and UK, Japan has accelerated its engagement with Europe. Together with theelection of Donald Trump in the U.S., the Brexit vote served as a catalyst for amore proactive Japanese involvement in international trade and foreign policy
matters. As a result, the country was able to make substantial progress innegotiations with the EU on a series of agreements, and began a parallel set of
discussions with the UK. If the high level of political will for closer ties between
Japan and Europe remains constant in the next few years, these developments
promise to have lasting economic and political consequences for the actors
directly involved, the U.S., and the rest of the world.
This paper is divided into three parts. First, it looks at why Brexit isimportant for Japan, and briefly outlines its potential economic, political anddefense impact. Second, the paper focuses on the specific forms of economic
and political engagements between Japan and the EU – and, to a lesser extent,
the UK – following the Brexit referendum. Finally, it concludes with someobservations about the opportunities and limitations posed by Japan’s renewedinterest in European affairs, and possible consequences for the U.S.

1 The paper is based on research of publicly available documents and discussions with dozens ofJapanese, European and U.S. diplomats, academics, business representatives and journalists carried out
as part of the CFR Hitachi fellowship from May 2017-March 2018. The author would like to thank her
interlocutors for their insightful conversations – and to the Council on Foreign Relations (CFR), Hitachi
and the Japan Institute of International Affairs (JIIA) for their generous support. The views expressedin this piece are the author’s own, and do not necessarily reflect those of any organization she has everbeen associated with.

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Budding Ties? The Impact of Brexit on Europe-Japan Relations

I.

Why Brexit matters for Japan“Everybody was surprised by the results of the Brexit referendum, but
the Japanese were absolutely shocked,” one senior diplomat in Tokyo told theauthor more than a year and a half after the 2016 Brexit referendum. The tworecurring sets of questions in almost all the interviews carried out during theduration of this fellowship focused on Donald Trump on the one hand, and theprobability of the UK reversing its decision on Brexit and stay in the EU, on theother. The latter question in particular is a sign of the difficulty on the Japaneseside to understand and accept the UK decision.
The main reason Brexit is so important to Japan is because of thedisproportionate importance of the UK in most aspects of Japan’s engagementwith Europe, be it economic, political, or defense-oriented. Consequently, as
detailed below, Brexit stands to affect all of these facets of Japanesecooperation with Europe – and have forced it to reconsider its approach
towards both the EU and the UK.

I.1. Brexit’s impact on Japan

Japan considers the UK its “gateway to Europe,” particularly in economic
matters. By concentrating its investments in the UK, Japan gained access to theEuropean Single Market of more than 500milion relatively rich consumers.
Depending on the outcome of Brexit, Japan stands to lose some of that accessfor its companies currently located in the UK. Today more than 1,000 Japanesecompanies operate in the UK, hiring directly approximately 140,000 people,
and indirectly creating at least 500,000 jobs. The UK is also the second
destination for Japanese direct investments, after the U.S.
There are several reasons Japan has decided to concentrate its European
investments in the UK. They include the business friendly environment, the useof the English language, historical and cultural ties, London’s cosmopolitan

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Budding Ties? The Impact of Brexit on Europe-Japan Relations

lifestyle, but also - as the Japanese government was keen to stress in a 15-pageletter the Japanese Ministry of Foreign Affairs (MOFA) released just threemonths after the referendum2 – the fact that, since the 1980s, the British
government has pro-actively courted Japanese investments. Consequently,
there is an implicit understanding from the Japanese side that the UK
government “owes” special attention to Japanese interests, and should keep
those interests in mind when negotiating Brexit. The former UK Ambassador to
Japan, David Warren, indicated that some of his Japanese counterparts share asense of “betrayal,” and feel that the UK does not share the same understandingof the situation.3
In particular, Brexit is most likely to impact the following specificeconomic sectors of the Japanese business presence in Europe:The automotive industry, which currently functions based on
the “just-in-time” operating system of frequent border-free crossings ofauto parts and limited warehouse storage. Among the first to respondthe UK government’s invitation to invest in the 1980s, three Japanese car
manufacturers (Honda, Nissan and Toyota) now make almost half of the
1.67 million cars produced in the UK. The majority of those vehicles arethen sent for export to the rest of the European market. For an industry
based on a high volume/low profit business model, the main concerns
are the reintroduction of border-controls as well as tariffs and non-tariffs
barriers post-Brexit. Speaking before the Paris Chamber of Commerceon February 26, 2018, Yoichi Suzuki, Japan’s chief negotiator for the EUJapan free trade agreement, said that standard divergence between the
UK and EU would make it more difficult to export Japanese cars
assembled in the UK.4 Britain’s biggest carmakers, including Jaguar Land
Rover, warned UK Prime Minister Theresa May that the additional costs
2 The Ministry of Foreign Affairs of Japan, “Japan’s Message to the United Kingdom and the European

Union,” September 2016. http://www.mofa.go.jp/files/000185466.pdf
3 David Warren, “The Japanese Ambassador is right to sound the Brexit alarm,” Prospect, February 23,
2018. https://www.prospectmagazine.co.uk/world/the-japanese-ambassador-is-right-to-sound-thebrexit-alarm
4 Claire Guyot, “Brexit to decide future of Japanese car industry in the UK,” Euractiv, March 1, 2018.
https://www.euractiv.com/section/uk-europe/news/brexit-to-decide-future-of-japanese-carindustry-in-the-uk/

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incurred because of Brexit would hurt the profitability of the industry,
saying that any regulatory divergence between the UK and the EU would
be a “fallback to the Middle Ages.”5
The UK has tried its best to offer assurances to the Japanese car
manufacturers – which at least for the moment seem very reluctant tomove from the UK. The industry welcomed news of a mutually agreed
21-month transition period after March 2019 during which current rules
will continue to apply. Consequently, Toyota recently announced its
plans to keep its Burnaston factory near Derby as the sole European
producer of its Auris hatchback, a decision which safeguards
approximately 3,000 jobs. Since approximately 85% of Toyota’s British
output is exported, the company’s regional president, Johan van Zyl, said
“continued free and frictionless trade between the U.K. and Europe will
be vital for future success.”6 Honda has similarly indicated that itremains committed to maintaining its only European factory in the UK,
and is considering building larger warehouses there.7
The pharmaceutical industry has been comparatively lessvocal than the big Japanese car manufacturing companies, but no lessworried about the potential negative consequences of Brexit. Its share ofconcerns relate to restrictive tariffs, delays at ports, divergent rules, therelocation of the European Medicines Agency (EMA) from London to
Amsterdam, and whether there will be post-Brexit recognition of testing
and regulatory alignment. Depending on the post-Brexit relationshipbetween the UK and the EU, the industry could incur additional expenses
tied to retesting medicines, transferring marketing authorizations,
5 Costas Pitas, “Jaguar Land Rover warns Brexit deterring supplies, EU workers,” Reuters, September 7,

2017. https://www.reuters.com/article/us-jaguarlandrover-tech-europe/jaguar-land-rover-warnsbrexit-deterring-suppliers-eu-workers-idUSKCN1BI1WH
6 Christopher Jasper and Suzi Ring, “Toyota to Keep Auris in U.K., Showing Post-Brexit Confidencen,”Bloomberg, February 28, 2018. https://www.bloomberg.com/news/articles/2018-02-28/toyota-tokeep-auris-in-u-k-in-show-of-post-brexitconfidence?cmpid=BBBXT030118_BIZ&utm_medium=email&utm_source=newsletter&utm_term=1803
01&utm_campaign=brexit
7 Andrew Merrell, “Honda remains committed to the UK – despite the Japanese PM warning,”
GlouchesterLive, February 14, 2018. https://www.gloucestershirelive.co.uk/news/business/hondaremains-committed-uk--1211620

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changing manufacturing licenses, but also the departure of skilledworkers, and a blow to the UK’s reputation as an attractive place to carryout research. Other international pharmaceutical companies have been
more vocal about their worries than their Japanese counterparts.
GlaxoSmithKline Plc estimates that, in the next two-three years, it could
incur costs as high as 70 million pounds ($98 million) of Brexit-related
costs.8 Similarly, Johnson & Johnson estimated that it could face as manyas 50,000 additional tests in the amount of 1 million pounds if there will
be no post-Brexit mutual recognition of testing between the EU and theUK.9 AstroZeneca and MerkKGaA raised similar concerns.

The financial sector where, given London’s preeminent roleas the financial capital of Europe, the City serves as the current European
headquarter of all the major Japanese financial companies. For aconsiderable time after the Brexit referendum it was unclear whether
the UK would be able to preserve the so-called “passporting rights” thatallow it to provide financial services across the EU. Since it takes
approximately eighteen months to obtain a license to operate in other
European countries, the major Japanese financial institutions based in
London followed the example set by their U.S. counterparts andannounced their decision to preemptively relocate part of their staff tocontinental Europe. Mitsubishi Bank UFJ picked Amsterdam as its basefor EU securities operations, while Nomura Holdings, Daiwa Securities
and Sumitomo Matsui Financial Group said they would move toFrankfurt.
It was only in early 2018 that it became clear the UK would lose
passporting rights. Prime Minister May acknowledged this fact in her
8 James Paton, ‘Glaxo sees up to $100 million in initial costs from Brexit,” Bloomberg, March 16, 2018.

https://www.bloomberg.com/news/articles/2018-03-15/drugmaker-glaxo-sees-up-to-100-million-ininitial-brexitcosts?cmpid=BBBXT031618_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180316&u
tm_campaign=brexit
9 James Paton, “50,000 new drug tests among Brexit worries for pharma companies,” Bloomberg,
December 4, 2018. https://www.bloomberg.com/news/articles/2017-12-04/50-000-new-drug-testsamong-brexit-worries-for-pharma-companies

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Manor House speech10 on March 2, 2018, and the EU’s publishednegotiations for the post-Brexit arrangement with the UKt11 indicate asimilar understanding. The financial sector is one of crucial economic
importance for the UK, and London would like the greatest possible
access to the EU financial market post-Brexit. However, as the EU is keen
to note, the UK red lines in the negotiations limit the two sides to a postBrexit free trade agreement – a format that is not conducive to deep
cooperation in the field. The EU proposed instead a system of “improved
equivalence”12 that will grant UK banks access to the single market as
long as the EU considers British rules to be equivalent to the bloc’s.
Compared to the current situation, this would be an unstablearrangement given the fact that the EU can rescind it at short notice.
While many Japanese banking representatives don’t anticipate London tolose its important role as a financial global capital, they privately
acknowledge that the relocation of the European Banking Agency (EBA)
from London to Paris and potential regulatory divergence it would cause,
as well as the potential negative economic impact of Brexit on the British
economy could negatively affect their business in the future.

The economic sectors listed above are among the most likely to be
impacted by Brexit, but all Japanese businesses operating in Europe share
general economic concerns about the potential negative impact of Brexit on
the British economy in particular. In its “2017 Survey on Business Conditionsof Japanese-Affiliated Companies in Europe” of the Japan External Trade
Organization (JETRO), Japanese companies across Europe listed “UK economic
slowdown” as their top concern regarding Brexit.13 Japanese companies
10 UK Government, “PM speech on our future economic partnership with the European Union,” March 2,

2018. https://www.gov.uk/government/speeches/pm-speech-on-our-future-economic-partnershipwith-the-european-union
11 European Council, “European Council (Art. 50) Guidelines,” March 23, 2018.
http://www.consilium.europa.eu//media/33458/23-euco-art50-guidelines.pdf
12 Nikos Chrysoloras and Ian Wishart, “EU Digs in over bank’s post-Brexit access, but divisions emerge,”
Bloomberg, March 20, 2018. https://www.bloomberg.com/news/articles/2018-03-20/eu-offers-u-kimproved-equivalence-for-financial-services
13 JETRO, “2017 Survey on Business Conditions of Japanese-Affiliated Companies in Europe,” December
4, 2017. https://www.jetro.go.jp/en/news/releases/2017/aa69fb794e4db59f.html

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operating in the UK are also worried about access to both skilled and unskilledworkers, given the stated goal of the current UK government to limit migration.
Consequently, Japanese companies continue to follow Brexit negotiations andthe reaction of various industries and third parties like the U.S. very closely.
Decisions such as that of Unilever – the UK’s third largest company toconsolidate its HQ in the Netherlands and abandon the separate London HQ isjust one recent example that has caused more unease among third parties
about the outcome of Brexit.14 As The Economist noted, exports are a large
source of growth for Japan, so the country “fears the world is losing its taste fortrade.”15
While most Japanese companies have been reluctant to expand theirpresence in the UK, and have been cautious about waiting to relocate theirbusiness on continental Europe, some companies have made a conscious
decision to stay, and some have even expanded their investments in the
country. This is the case especially for companies operating in the field oftechnology, fintech, internet of things (IOT), and most companies which have an
operating mode less dependent on cross border trade.16

Last but not least, while it is true that Tokyo generally sees Brexit as aphenomenon that will impact primarily its economic interests, they are also
concerned about the political and defense implications of Brexit. The UK is
one of the most important European partners for Japan, given the country’s
global political clout, military importance, and international standing. There iscurrently very good cooperation between Japan and the UK in this field, as
illustrated by the fact that the UK is one of the few countries with which Japanhas 2+2 regular consultations. Japan’s first modern National Security Strategy
14 Thomas Buckley, “Unilever picks Netherlands over U.K. as base in blow to May,” Bloomberg, March

15, 2018. https://www.bloomberg.com/news/articles/2018-03-15/unilever-chooses-single-base-innetherlands-in-blow-tomay?cmpid=BBBXT031518_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180315&ut
m_campaign=brexit
15 The Economist, “Trade deals between the EU and Japan only get you so far,” October 5, 2017.
16 Duncan Bartlett, “Japan’s Business Leaders Vow to Stay in Britain Despite Brexit,” JapanForward,
March 7, 2018. http://japan-forward.com/japans-business-leaders-vow-to-stay-in-britain-despitebrexit/

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Budding Ties? The Impact of Brexit on Europe-Japan Relations(NSS)17 speaks about the country’s proactive contribution to peace, based oninternational cooperation. Consequently, Japan is worried that both the EU andthe UK will become more inward-looking, and potentially consumed by thenegative forces of populism. Given a wide variety of threats and concerns
coming from North Korea and China, but also cybersecurity, space,disinformation campaigns, etc., Japan wants consolidate its cooperation withthird countries that share its values, and commitment to rule of law and theliberal international order. 18
By and large, Japan is not concerned that Brexit will have a negative
impact on its cooperation with Europe when addressing the North Korean
threat. China is a different matter. Japan is worried that the rise of China may
not evolve in full respect of international law. The country’s actions in theSouth and East China Seas have made Japan increasingly uneasy. Japan would
therefore like Europe to take a more active stance on these issues, even if onlyin the form of (strong) public statements. The EU follows an approach of“principled neutrality” when it comes to territorial disputes in Asia, limiting its
contribution to general calls for the respect of international law. However, theEU’s mild statement in response to the 2016 International Court of Justice (ICJ)
ruling on the South China Sea –- where China was able to make use of its
political influence over certain EU member states to weaken the final
statement19 – raised alarm bells in Tokyo. Some circles in Japan view China’s
Belt and Road Initiative (BRI) as an attempt to enhance its economic andpolitical influence over Europe and continue a strategy of dividing the EU. The
expected negative economic consequences of Brexit on both the EU and the UK
could make both actors more willing to accept Chinese investments despite thepolitical ties they may come with.

17 MOFA, “National Security Strategy (NSS),” http://www.mofa.go.jp/fp/nsp/page1we_000081.html
18 See also Irina Angelescu, “The Economic and Political Impact of Brexit on Japan,” Sasakawa USA

Forum Issue No. 11, January 31, 2018. https://spfusa.org/sasakawa-usa-forum/economic-politicalimpact-brexit-japan/
19 Robin Emmott, “EU’s statement on South China Sea reflects divisions,” Reuters, July 15, 2016.
https://www.reuters.com/article/us-southchinasea-ruling-eu/eus-statement-on-south-china-seareflects-divisions-idUSKCN0ZV1TS

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I.2. Official Japanese reaction to the Brexit decision
The previous section listed some of reasons underpinning Japan’suncharacteristically strong reaction to Brexit. Even before the Brexit
referendum the Japanese Prime Minister Shinzō Abe made clear his country’s
preference for the UK to remain in the EU. At a joint press conference with
then-UK Prime Minister David Cameron in London one month before the Brexit
referendum, Abe stated clearly:“The question on Brexit, this is a matter to be decided by the
British people. But I believe that, because of the close partnershipwith the UK, Japan’s interests are also at stake. Japan very clearly
would prefer Britain to remain within the EU. It is better for theworld that Britain remain in a strong EU.” (my emphasis)20
Immediately after the vote the Japanese diplomatic and business
communities promptly came together to coordinate responses and a joint
position. The international diplomatic community was very surprised when, a
few months later, MOFA released the afore-mentioned 15-page letter to the UK
and the EU, a “wishlist for Brexit” of sorts for the Japanese on the future
relationship between the UK and the EU:“The Government of Japan trusts that the UK and the EU […] will
maintain the current business environment or alleviate the impactsof any radical changes, so as to remain an attractive destination for
doing business.” (my emphasis)
The Japanese position has remained consistent about its preferences for
Brexit from the very beginning: no Brexit or the “softest” form of Brexit, withunhindered access to the European Single Market – preferably preceded by avery long transition period that would allow Japanese businesses to adapt to20 UK Government, “PM Statement at press conference with Japanese Prime Minister Abe,” May 5, 2016.

https://www.gov.uk/government/speeches/pm-statement-at-press-conference-with-japanese-primeminister-abe-5-may-2016

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changes.21 Its 15-page letter sent an important message to the UK and the EU,
and was followed up by less visible, but no less ambitious and vocal, frequent
visits and consultations between Tokyo, London and Brussels – as well as
occasional public statements from the Japanese Ambassador in the UK.22 TheJapanese business association Keidanren in particular is in close contact withits businesses operating in Europe, listening to their concerns, and advocating
for their interests during period trips to Brussels and London, where they meetwith some of the highest level decision-makers. Indeed, the UK and the EU
generally welcome these meetings as a reminder of the impact the outcome of
their negotiations will have on third parties as well.
The Brexit decision has left the Japanese side dumbfounded and, almosta year since the negotiations officially started in June 2017, Tokyo is left
wishing for more clarity about the post-Brexit relationship between the EU andthe UK. The Japanese side is puzzled by the British government’s rhetoric
about the global opportunities that will follow Brexit because they thinkopportunities for closer cooperation between the UK and other parts of theworld have always been there. So, while there are some Japanese officials andbusiness representatives23 who think the UK has the potential to reinvent itself
and make the best of Brexit, others privately say they find British position on“Global Britain” perhaps “a little patronizing—the more so because theyquestion whether an independent UK will continue indefinitely to play a toptable role in the world.”24 From this perspective, discussions in Tokyo mostly
reflect the view of Donald Tusk, President of the European Council:“because of Brexit [the EU and the UK] will be drifting apart. In fact, thiswill be the first FTA in history that loosens economic ties, instead ofstrengthening them. Our agreement will not make trade between the UK
and the EU frictionless or smoother. It will make it more complicated

21 Keidanren, “Opinion on the second phase of Brexit negotiations,” March 16, 2018.

http://www.keidanren.or.jp/en/policy/2018/019.html
22 Costas Pitas, “Japan warns on Brexit: We cannot continue in UK without profit,” Reuters, February 8,
2018. https://uk.reuters.com/article/us-britain-eu-japan/japan-warns-on-brexit-we-cannot-continuein-uk-without-profit-idUKKBN1FS1MJ
23 The Economist, “Trade deals between the EU and Japan only get you so far,” October 5, 2017.
24 Duncan Barlett, “Japan’s Business Leaders Vow to Stay in Britain Despite Brexit,” Japan Forward,
March 7, 2018. http://japan-forward.com/japans-business-leaders-vow-to-stay-in-britain-despitebrexit/

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and costly than today, for all of us. This is the essence of Brexit.”25 (myemphasis).

II.

EU-Japan and UK-Japan Relations After the Brexit Referendum

The Brexit referendum – together with the decision of U.S. President
Donald Trump to pull the U.S. out of the Trans-Pacific Partnership (TPP)26 –have made Japan more determined to strengthen its ties with like-minded allies
across the world. Japan has pursued a dual-track approach with the EU that
includes an intensification of negotiations on economic and politicalagreements that had been under discussion before 2016. In parallel, Japan has
also began a parallel set of discussions with the UK aimed at reaffirming thestrong economic, political and military ties between the two partners. While
Japan is not in any way in a “either [the EU]-or [the UK]” position, it believes
that the best solution to promote its interests would be for the UK to reconsider
its Brexit decision, thus amplifying the impact of the Japan-EU agreements
under discussion.

II.1. EU-Japan economic cooperation

The first “bud to blossom” in the EU-Japan cooperation post-Brexit
referendum was the EU-Japan Economic Partnership Agreement (EPA). Even if,
as acknowledged by Norio Maruyama, spokesperson for the Japanese
25 European Council, ““Statement by President Donald Tusk on the draft guidelines on the framework

for the future relationship with the UK,” March 7, 2018.
http://www.consilium.europa.eu/en/press/press-releases/2018/03/07/statement-by-presidentdonald-tusk-on-the-draft-guidelines-on-the-framework-for-the-future-relationship-with-theuk/?utm_source=dsmsauto&utm_medium=email&utm_campaign=Statement+by+President+Donald+Tusk+on+the+draft+guid
elines+on+the+framework+for+the+future+relationship+with+the+UK
26 Irina Angelescu, “Trump’s visit re-energized Japan,” RealClearWorld, November 20, 2017.
https://www.realclearworld.com/articles/2017/11/20/trumps_visit_re-energized_japan_112636.html

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government, it was too early to “predict […] the real effect of Brexit” on the
EPA,27 the EU and Japan demonstrated significant political will to reach an
agreement. In repeated conversations during 2017 Japanese contacts stressedthat the conclusion of the EPA – alongside that of TPP after the U.S. withdrawal(“TPP11”) – was one of the most important foreign policy priorities for Japan,
enjoying support at the highest political levels. As a result, the two sides
reached an agreement in principle in July 2017,28 and finalized theirnegotiations in December 2017.29
EU and Japan are important trade partners for each other, but thisagreement promises to bring them even closer. For example, in 2016 Japan was
the EU’s second largest trade partner in Asia, with 3.6% of trade – but still
ranking far behind its most important Asian partner (and second overall, after
the U.S.), China, with 14.9% (see table below). The EU is also the second
destination worldwide for Japanese investments, after the U.S.
No.
1.
2.
3.
4.
5.
6.

Total EU
trade with…
USA

Million
euros

Share
(%)
17.8

613,975
China
514,597
Switzerland
263,855
Russia191,185
Turkey144,653Japan
124,636

14.9
7.6
5.5
4.2
3.6

Source: The European Commission.

27 Jacky Scanlan-Dyas, “EU-Japan Economic Partnership Agreement,” Hogan Lovells Brexit blog,

September 7, 2017. http://www.hoganlovellsbrexit.com/blog/85/eu-japan-economic-partnershipagreement
28 Irina Angelescu, “EU-Japan Agreement: Good news on the long road to a deal,” European Council on
Foreign Relations, July 14, 2017.
http://www.ecfr.eu/article/commentary_eu_japan_agreement_good_news_on_the_long_road_to_a_deal_7214
29 Irina Angelescu, “EU-Japan partnership agreements herald new ear of close cooperation,” European
Council on Foreign Relations, January 29, 2018.
www.ecfr.eu/article/commentary_eu_japan_partnership_agreements_herald_new_era_of_closer_coopera12
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Media reports have dubbed the EU-Japan EPA the “cars for cheese” deal
because it significantly reduces or altogether eliminates approximately 98% of
all tariffs between the two parties. According to EU estimates, European
companies will save up to €1 billion in customs duties per year, and the valueof EU goods and services could rise by up to €20 billion as a result of the EUJapan EPA.30 European partners are likely to benefit from increased exports ofchemical products, automobiles, processed food, medical devices – as well as
enhanced cooperation in telecommunications and financial services, theprotection of IPRs, and the partial opening of public procurement in certain
cities. From Japan’s perspective, some of the biggest benefits of the EU-Japan
EPA include tariffs elimination for specific industrial goods (e.g. 10% on autoparts, 14% on electronic devices), movement of persons and other barriers, andtransparency and improvement of the operation of regulations. 31
European businesses welcome the opportunities the EPA brings to open
the Japanese market – which has been “more closed” than other markets
around the world because of the “particular characteristics of the Japanese
economy and society, such as the local business culture, and consumers withstrong domestic preferences” but in most part because of “the large number ofregulatory and other ‘behind the border’ obstacles.” 32 In their turn, Japanesecompanies also complain about nontariff barriers to the EU market, because ofincomplete alignment of regulatory and legislative frameworks in individual EU
member states. At the same time, Japanese officials privately acknowledge thatthe country – which produces the lowest percentage of agricultural goods
among OECD countries – is prepared to open its market to European goods toaddress the problems of an ageing agricultural labor force as well.
The EU-Japan is by all intents and purposes a “mega trade agreement”
that includes in its 21 chapters not only provisions related to lifting tariffs andnon-tariff barriers to trade, but also measures to address environmental
30 Kristina Binder, “EU-Japan free trade agreement within reach,” European Parliamentary ResearchService (EPRS) Briefing, July 2017, p. 1.
31 Yumiko Nakanishi, “Economic Partnership Agreement between Japan and the European Union and
Legal Issues: A Focus on Investment,” Hitotsubashi Journal of Law and Politics, vol. 44, 2016, p. 19.
32 Kristina Binder, “EU-Japan free trade agreement within reach,” European Parliamentary ResearchService (EPRS) Briefing, July 2017, p. 4.

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degradation, labor rights, intellectual property rights (IPRs), etc.33
Consequently, Prime Minister Abe called the EPA a “model for the 21st
century.”34 European and Japanese officials both believe that the EPA is one thebest options available to address some of the shortcomings of the current
World Trade Organization (WTO) system and set standards for global trade in
the modern era.
Last but not least, the agreement is important because it stressed theimportance of common values, and a shared commitment to free trade, rule oflaw, and fundamental rights. Consequently, third parties have also praised the
EPA its contribution to promoting democratic values globally. Writing in The
Japan Times a month after the conclusion of the negotiations, former NATO
Secretary General Anders Fogh Rasmussen stressed that:
Besides economic benefits [the EU-Japan EPA] sends a powerful
sign that U.S. retrenchment will not see the democratic worldabandon our values. This trade agreement is about freedom, and weneed Japan to help us defend it.”(author’s emphasis)35
The agreement is the result of eighteen months of negotiations whichstarted in 2013. The EU and Japan announced the start of the negotiations only
a few months before the EU-South Korea free trade agreement (FTA) came into
effect in July 2011. Given the similarity of the two East Asian economies,
Japanese businesses were worried South Korea now had a comparativeadvantage because of the FTA, and pushed hard both for the start and theconclusion of the EPA negotiations. However, it took the Brexit vote and the
U.S. decision to withdraw from TPP that the EPA to seal the two sides’commitment to the deal. At the time of writing the text of the agreement isgoing through the so-called “legal scrubbing” and translation into the 22 official
33 The full text of the agreement can be found on the European Commission website, at

http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684
34 Janosch Delcker, “With Trump looking on Abe calls EU-Japan trade deal ‘model for the 21 st century’,”
Politico, July 7, 2017. https://www.politico.eu/article/with-trump-looking-on-abe-calls-eu-japantrade-deal-model-for-21st-century/
35 Anders Fogh Rasmussen, “Japan-EU trade agreement is about freedom,” The Japan Times, January 17,
2018. HTTPS://WWW.JAPANTIMES.CO.JP/OPINION/2018/01/17/COMMENTARY/JAPANCOMMENTARY/JAPAN-EU-TRADE-AGREEMENT-FREEDOM/#.WMAEQAIWA70

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EU languages and Japanese. There is great political will on both sides to ratify
the agreement in time for it to come into force in early 2019, just before Brexit.
Ironically, at the time when negotiations were first announced in 2011, they
were part of a global trend of mega-FTAs, but the EPA is one of the few to be
finalized and which stands a very good chance of being adopted andimplemented.
In addition to the ratification and adoption of the EPA, the EU and Japanare also negotiating an agreement on data protection, and on investment
protection standards and dispute resolution.

II.2. EU-Japan political and security cooperation

In parallel to the EPA, the EU and Japan have also been negotiating a
Strategic Partnership Agreement (SPA). Despite the fact that somepolicymakers describe it as the “big bang” of bilateral relations,36 the document
is more modest in purpose than its economic equivalent described in theprevious section. The EU and Japan have been strategic partners since 2003,
and are now looking at the SPA to upgrade their partnership. The goal is to
move away from the current sectoral and segmented approach towards acomprehensive, binding framework. The negotiating sides reached anagreement in principle on the SPA in July 2017, and EU officials in Tokyo
indicated they expect to finalize the deal in early 2018.
While, as The Economist put it, the document appears to contain “little tothrill the soul,”37 its importance should not be understated. Quoting sourcesfrom the Japanese Ministry of Foreign Affairs (MOFA), Marie Söderberg notedthat the document “represents something completely new for Japan, insofar as
it has essentially had no such agreements with any other parties” other than the
U.S.-Japan security treaty and a looser agreement on political cooperation with
36 Axel Berkofsky, “The EU-Japan Strategic Partnership Agreement (SPA) – Responding to the Crisis of

the Liberal World Order,” Bertelsmann Stiftung Asia Policy Brief, December 2017, p. 1.
37 The Economist, “Trade deal between the EU and Japan only get you so far,” October 5, 2017.

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Ethiopia in 1954.38 The SPA will include political and regional dialogues,
provisions related to the promotion of human rights and fundamental
freedoms, as well as economic, scientific and cultural cooperation. 39 In its
essence, “the SPA is meant to create synergies between the EU’s
‘comprehensive approach’ to regional and global security and Japan’s ‘humansecurity’ concept in the Middle East and Asia.”40
SPA negotiations have not been altogether free of controversy. In
particular, the Japanese side has been wary of the introduction of the EU’s socalled “essential elements clause” that the EU typically includes in allagreements with third countries to promote respect for human rights. 41 This
provision makes Japan uncomfortable particularly because of the death
penalty. At the same time, European diplomats privately acknowledge the EU ishighly unlikely to activate the clause when it comes to its engagement withJapan.
Despite its commitment to a “proactive contribution to peace,” theJapanese side has been ambivalent about the potential of the relationship with
the EU itself. It is too early to speculate whether the SPA will be able to address
this position. As noted in a briefing paper of the European Parliamentary
Research Service (EPRS), the EU-Japan annual summits have “no equal in thearchipelago’s foreign policy, not even with its main ally, the USA,” but “thesummits are short in duration and, when it is Japan’s turn to travel to Europe,
they are planned as part of longer trips – reflecting the importance Tokyo
attaches to bilateral relations with some EU Member States as well as to the EU
itself.”42

38 Marie Söderberg, “Introduction: Where is the EU-Japan Relationship Heading?,” in Japan Forum vol.

24, no. 3, 2012, p. 259.
39 Enrico D’Ambrogio, “Japan and prospects for closer EU ties,” European Parliamentary ResearchService (EPRS), October 2017, p. 6.
40 Axel Berkofsky, “The EU-Japan Strategic Partnership Agreement (SPA) – Responding to the Crisis of
the Liberal World Order,” Bertelsmann Stiftung Asia Policy Brief, December 2017, p. 5.
41 Axel Berkofsky, “The EU-Japan Strategic Partnership Agreement (SPA) – Responding to the Crisis of
the Liberal World Order,” Bertelsmann Stiftung Asia Policy Brief, December 2017, p. 4.
42 Enrico D’Ambrogio, “Japan and prospects for closer EU ties,” European Parliamentary ResearchService (EPRS), October 2017, p. 2.

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The appeal of the EU for the Japanese partly lies in the fact that, whilepart of “the West” and closely aligned with the U.S., it exercises power
differently than its transatlantic partner. In the immediate aftermath of the
Brexit referendum, the EU released a Global Strategy for Foreign and Security
Policy,43 the first document of its kind in more than a decade. As stressed by
Nathalie Tocci, senior advisor to the EU High Representative for Foreign and
Security Policy Federica Mogherini, shortly after the release of the EU Global
Strategy, the document took a “’whole of EU’ approach, looking also at trade,development, migration, energy, climate and much more” in addition to thesecurity aspects of the strategy.44 Andrew Moravcsik even went so far as tosuggest that this specific approach to foreign policy makes the EU a superpowerthat can rival and even surpass the U.S. and China:“By most objective measures, [the EU] either rivals or surpasses
the United States and China in its ability to project a full spectrumof global military, economic, and soft power. Europe consistently
deploys military troops within and beyond its immediateneighborhood. It manipulates economic power with a skill andsuccess unmatched by any other country or region. And its ability
to employ ‘soft power’ to persuade other countries to change their
behavior is unique.”45
Another element that may favor international cooperation between the
two actors is the fact that they have humble ambitions with regards to defense.
Neither of them has outsized expectations regarding their individual defense
capabilities or bilateral cooperation in the short to medium term. While the EU
it created a permanent structured cooperation (PESCO) for defense matters lastyear - in part as a response to Brexit – it is cognizant that progress will be slow.
Indeed, an “EU army” is nowhere in sight – nor is there consensus among EU
43 The European External Action Service, “Shared Vision, Common Action: A stronger Europe. A Global

Strategy for the European Union’s Foreign and Security Policy,” June 2016.
http://eeas.europa.eu/archives/docs/top_stories/pdf/eugs_review_web.pdf
44 “Interview with Nathalie Tocci on the Global Strategy for the European Union’s Foreign and Security
Policy,” The International Spectator vol. 51, no. 3, 2016, p. 2.
http://www.iai.it/sites/default/files/tocci.pdf
45 Andrew Moravcsik, “Europe is still a superpower,” Foreign Policy, April 13, 2017.
http://foreignpolicy.com/2017/04/13/europe-is-still-a-superpower/

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member states that there should ever be one. In this sense, NATO Secretary
General Jens Stoltenberg correctly pointed out that “the reality is the European
Union cannot protect Europe by itself” and the U.S. is still key for defending thecontinent.46
In its turn, given the dependence of Japan on the U.S., Tokyo does notwant to antagonize Washington. In addition to the weak competencies the EU
has in defense matters, Japan also prefers NATO or individual EU member
states (primarily the UK and France) because of the U.S. membership or strong
military cooperation as well. In this sense, it is telling that Tokyo is framing its
overtones to defense cooperation with Europe in terms of helping the UnitedStates. This view was most recently expressed by Foreign Minister Taro Kono
at the Munich Security Conference. Incidentally, this was the first time aJapanese Foreign Minister attended this flagship conference on transatlantic
security in four years, and his panel was titled “The Liberal international orderunder threat”:“the United States will continue to play a large role in maintenanceand development of the international order based on the rule oflaw, [and] it is important for the international community overall
to help the United States through burden sharing and cooperation,and that from this perspective cooperation between Japan andEurope is extremely important.” (my emphasis)47

II.3. UK-Japan bilateral cooperation after Brexit

Japanese public and private expressions of concern regarding Brexit senta strong message to the UK that they needed to address this matter.
46 Jim Garamone, “Stoltenberg discusses NATO transatlantic link at Munich security conference,”

Department of Defense (DoD) News, February 21, 2018.
https://www.defense.gov/News/Article/Article/1446630/stoltenberg-discusses-nato-transatlanticlink-at-munich-conference/
47 MOFA, “Extraordinary press conference by Foreign Minister Taro Kono,” Munich, Germany, February
17, 2018. http://www.mofa.go.jp/press/kaiken/kaiken4e_000476.html

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Consequently, the government of Theresa May tried to reassure the Japaneseside through various diplomatic channels and forms of engagement, including
several visits to Tokyo from high level Cabinet officials,48 and of the Prime
Minister49 herself in 2017. The key message of these engagements has beenthat the UK understands Japan’s concerns about Brexit, but that the process
presents both actors with the opportunity to strengthen their ties. As noted
earlier in this paper, the Japanese side does not fully share this understanding.
Despite this fact, it has remained committed to preserving strong ties withperhaps its most important European partner.
When it comes to economic engagement, collaboration between the twosides in the aftermath of Brexit is limited by the fact that the UK cannot legallynegotiate separate FTAs until it is no longer an EU member state.50
Consequently, during Prime Minister May’s visit to Tokyo last year, the UK andJapan signed a Joint Declaration on Prosperity Cooperation51 that stipulates thecreation of a new framework of cooperation on economic matters. This
framework includes enhanced ministerial engagement, the creation of a tradeand investment working group to enhance future trade and investment
relations and improve market access, as well as a series of dialogues on a wide
range of issues including industrial policy, science and technology, nuclear
matters, climate change, health, and even culture. The two parties hope that
this framework of engagement will help accelerate the FTA negotiations after
the UK’s departure from the EU.
It is important to stress here the role of the multilateral FTAs Japan has
negotiated – the EU-Japan EPA and the TPP – for the UK’s post-Brexit future.
With regards to the first, the UK has been a strong supporter in its current
status as EU member state. During her visit to Tokyo last year, Prime Minister
48 Irina Angelescu, “Mr. Johnson goes to Tokyo,” EUObserver, July 31, 2017.
https://euobserver.com/opinion/138647
49 Irina Angelescu, “UK-Japan: Prime Minister May tries to allay Brexit fears with state visit,” The
Diplomat, September 6, 2017. https://thediplomat.com/2017/09/uk-japan-prime-minister-may-triesto-allay-brexit-fears-with-state-visit/
50 As per EU rules, only the European Commission can negotiate free trade agreements with third
parties, upon receiving a mandate for negotiation from all EU member states.
51 UK Government, “Japan-UK Joint Declaration on Prosperity Cooperation,” August 31, 2017.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/641154/JapanUK_Joint_Declaration_on_Prosperity_Cooperation.pdf

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May conveyed the message that it would like to apply the provisions of the EUJapan EPA post-Brexit, until the two sides can negotiate a separate bilateral
FTA. It is unclear at this point to what extent the EPA will benefit the bilateral
UK-Japan economic relations after Brexit since, for example, the UK has aserviced-based economy, a chapter that is not as developed in the EU-Japan
EPA, particularly not with regards to financial services. With regards to thesecond mega-FTA Japan negotiated, the UK has indicated its interest in joining
TPP as an alternative to negotiating separate FTAs with all its parties, Japan
included. These proposals suggest that the UK is becoming increasingly awareof the daunting task of (re)negotiating close to forty separate FTAs and as manyas 1,139 bilateral and multilateral agreements that is now a party to thanks to
its EU membership. As noted by EU experts Guillaume Van der Loo and Steven
Blockmans:“Contrary to what key Brexiteers have claimed, it will be virtually
impossible for the UK to swiftly negotiate and conclude newbilateral agreements with the third parties with which it waspreviously bound through the EU’s international agreements. This
is not just a question of the number of trade negotiators that the
UK can muster. Third states may simply not wish to enter into
trade talks with the UK before knowing whether and under what
conditions goods leaving the UK will be able to enter the Single
Market.”52
The Japanese reaction to the UK proposals has been cautious. It is only inrecent months that Japanese officials have come to embrace the idea ofprovisionally applying the EU-Japan EPA in its relations with the UK after
Brexit. With regards to TPP membership of the UK, Kazuyoshi Umemoto, who
led the negotiations to revive TPP11, said that “it’s too early to talk about it in adefinitive way.”53

52 Guillaume Van der Loo and Steven Blockmans, “The Impact of Brexit on the EU’s international

agreements,” The CSS Blog Network, August 10, 2016. https://isnblog.ethz.ch/internationalrelations/the-impact-of-brexit-on-the-eus-international-agreements
53 Robin Harding, “Japan’s TPP negotiator welcomes UK membership of trading bloc,” Financial Times,
February 20, 2018.

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While the UK’s room of maneuver on economic matters is limited
somewhat by is current EU membership, it has more freedom to engage Japanon political and defense matters. In this sense, the two sides signed a Joint
Declaration on Security Cooperation54 in August 2017, a rich document that
includes references to closer cooperation on various issues. They include joint
training and military exercises, information exchanges, commitment to a free
and open Indo-Pacific, cooperation in support of the non-proliferationagreement, space policy, cybersecurity cooperation in light of the 2019 World
Rugby Cup and 2020 Tokyo Olympics, both hosted by Japan, and capability
building of developing countries. The Japanese sides welcomes additional
political and defense cooperation with its European partner, but Japanesecontacts privately express concern that Brexit will negatively impact the UK’s
financial means to achieve its ambitious defense cooperation goals.

III.

Challenges and opportunities for future cooperation

Could the relationship between the EU and Japan, which scholars
characterized in the past as “lukewarm,” of “mutual neglect,”55 or downright“insignificant”56 – and one that the European Commission itself has describedas “disappointing” in the past -- qualitatively improve as a result of Brexit? A
combination of international and “domestic” factors in both actors seems tosuggest that would be the case. With regards to the first, the current U.S.
administration’s ambivalence towards the liberal international order it helped
created after World War II,57 as well as the rise of China, continue to lead to
54 UK Government, “Japan-UK Joint Declaration on Security Cooperation,” August 31, 2017.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/641155/JapanUK_Joint_Declaration_on_Security_Cooperation.pdf
55 Marie Söderberg, “Introduction: Where is the EU-Japan Relationship Heading?,” in Japan Forum vol.
24, no. 3, 2012, p. 250.
56 Yuichi Hosoya, “The Evolution of EU-Japan Relationship: Towards a ‘Normative Partnership’?,” inJapan Forum vol. 24, no. 3, 2012, p. 319.
57 Richard Haas, “America and the Great Abdication,” The Atlantic, December 28, 2017.
https://www.theatlantic.com/international/archive/2017/12/america-abidcation-trump-foreignpolicy/549296/

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much unease. With regards to the latter, Brexit has provided the impetus forboth the EU and the UK to engage in a series of “domestic” reforms andproactive engagement with third parties – Japan included – to prove they canmake the best of what at least the EU thinks is a regrettable decision.
Brexit has forced the Japanese diplomatic and business communities outof their comfort zone. The way the UK side has handled the negotiations has
stressed an important cultural difference between the Japan and the UK when it
comes to risk-management. The notoriously risk-averse Japan has felt
uncomfortable and frustrated at times with how the UK side has handled its
repeated requests to provide more transparency and certainty in Brexit
negotiations. As a result of how these negotiations have unfolded – together
with the Japan-EU EPA negotiations – have made some Japanese think of the EU
as a more stable partner in the current context. They see the EU-Japan EPA in
particular a concrete trust-building exercise during which the Japanese side
gained much respect for the very seasoned and skilled EU negotiators.
While Japan is unlikely to alter its commitment towards closer relations
with the UK, Brexit also provides it with a historic opportunity to engage the EU
in a novel way, without the UK serving as an informal intermediary. The firstchallenge to closer EU-Japan relations it the fact that their cooperation islimited by competencies. It would be fair to describe both actors are “economic
giants and military dwarfs” and, for reasons related to competencies andtraditions, it is fair to expect the economic field to be the most prolific forcooperation. The fact that the EU-Japan EPA is based on fundamental
principles provides an added-value by comparison to the type of engagement
Europe has with China, for example. At the same time, however, it should be
noted that previous bilateral EU-Japan forms of cooperation (1991 Hague
Declaration, 2001 Action Plan) were similarly drafted in the name ofcooperation based on similar values, such as democracy, rule of law and thedefense of human rights, but proved to be limited in actual implementation. 58

58 Axel Berkofsky, “EU-Japan Relations from 2001 to Today: Achievements, Failures and Prospects,” inJapan Forum vol. 24, no. 3, 2012, pp. 266-288-.

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It is clear that the relationship between the EU and Japan will grow in the
shadow of their larger partner and ally, the U.S. Talks about the triangular
relationship between the U.S.-Japan-Europe date back to the end of the Cold
War, but the Europe-Japan link has always been the weakest one.59 In thissense, the U.S. welcomes additional cooperation of some of its closest allies,
provided it doesn’t undermine overall U.S. strategic interests. In particular,
joint training and cooperation to address newer threats like cybersecurity or
disinformation could prove to be mutually beneficial. The U.S. should also
welcome in principle the closer economic ties between the EU and Japan as ameans to promote free trade worldwide. While too early to specifically assess,the EU-Japan data protection agreement and certain provisions in the EU-Japan
EPA such as Geographic Indicators (GIs) for agricultural products could
negatively affect U.S. interests. With regards to the latter, for example, the U.S.
has long opposed such regulations, arguing that they prevent U.S. food anddrink makers selling their own products into third markets.
To conclude, while the current situation presents favorable conditions
for closer EU-Japan cooperation, the two sides have to be careful not to put too
much on the plate from the very beginning. A more modest agenda ofcooperation – especially in political and defense matters – will help build thetrust and understanding necessary for more substantive engagement in the
future. The key to success if perseverance and patience because, as former EU
chief negotiator of the SPA said, “ambitions like the ones [the EU and Japan] are
pursuing with the [EPA and the SPA] cannot be fulfilled in a day.” 60 Or, as Axel
Berkofsky put it more bluntly, “the longer the list becomes, the less the EU andJapan arguably present themselves as credible foreign and security policy
partners.”61

59 Marie Söderberg, “Introduction: Where is the EU-Japan Relationship Heading?,” in Japan Forum vol.

24, no. 3, 2012, p. 251.

60 Gerhard Sabathil, “Making the Strategic Partnership between Japan and Europe Work,” in Asia-Pacific

Review vol. 22, no. 2, 2015, p. 80.
61 Axel Berkofsky, “EU-Japan Relations from 2001 to Today: Achievements, Failures and Prospects,” inJapan Forum vol. 24, no. 3, 2012, p. 277.

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