Post-Election Update and its impact on Brexit and UK-Japan Business
06 January 2020
The Conservative Party has won the 2019 UK General election and parliament has begun the process of approving the Government’s Brexit bill. We take a look at the story so far, and what we can expect to happen in 2020, including its impact on the UK-Japan relationship.
Why there was General Election?
Since the 2017 general election, the lack of a working majority for the governing Conservative party meant that the formation of a credible Brexit policy, for the UK to leave the European Union (EU), was left largely unresolved.
One of the main points of disagreement on Brexit policy was the Irish backstop, a solution which had been proposed to avoid border checks so that a hard border between Northern Ireland and the Republic of Ireland would not be necessary after Brexit. The backstop would have kept the UK in a very close relationship with the EU until a trade deal, permanently avoiding the need for checks, was agreed. Many conservative MPs would not agree to this legislation because they had concerns about being permanently kept in a close relationship with the EU.
After Mr Boris Johnson became the leader of The Conservatives and Prime Minister, he agreed a revised Brexit deal with the EU. Mr Johnson’s deal took the previous deal which had been negotiated by Theresa May and removed the Irish backstop and replaced it with a new border arrangement. In this proposed customs protocol, Northern Ireland would obey EU rules for the regulation of goods instead of complying with UK rules. There would be a customs border between the island of Ireland and Great Britain where customs checks would be made as imports arrived in Northern Ireland.
However, at the time, the UK Parliament could not achieve any consensus on a UK-EU Brexit deal, and after the Prime Minister was obliged to request an extension to the previous Brexit deadline of 31st October 2019, MPs voted in favour of holding a December 2019 general election as a means to clear the deadlock in Parliament.
How did the main parties position themselves?
Based on their published election manifestos, here is a summary of the main parties’ positions at the election.
Results of the 2019 General Election
The result of the 2019 General Election was a Conservative victory, although there was increased support for nationalist parties in Scotland and Northern Ireland. The Conservative party won 365 seats (an increase of 48 seats compared to the 2017 election). The Labour party took 202 seats (down by 59 seats). The SNP took 48 seats (up by 13). The Liberal Democrats won 11 seats (down by 1), Plaid Cymru won four seats (no change), and the DUP took 8 seats (down by 2).
Based on the figures in the “House of Commons Briefing Paper 19 December 2019: General Election 2019: results and analysis”
With the result, the UK has ended its political gridlock and it is more likely that Brexit will happen on the 31st January 2020.
What does the election result mean for the Brexit process?
Prime Minister Johnson’s majority enabled the Government to easily introduce the EU Withdrawal Agreement Bill, which sets out the arrangements for the United Kingdom’s withdrawal from the EU. It is expected that this legislation will become law in January which will allow the UK to begin the process of exiting the EU on 31st January 2020.
Following the UK exit on 31st January 2020, a transition period will begin which will last until 31st December 2020. During the transition period the UK will continue to be bound by EU laws and regulations, but it will be excluded from EU parliament and other EU political decision making.
During the transition period the EU and the UK can start to negotiate the details of their future relationship. This must be completed by the 31st December 2020 if the UK wishes to leave the EU with a trade agreement, and so the timely completion of discussions is critical. The EU will not ratify its negotiating mandate with its member countries until 1st March 2020, which dictates the earliest possible start of UK-EU discussions, and so the whole of the UK-EU negotiation must be finalised in a matter of months.
Because of the lack of the negotiation time, UK industry associations such as the British Chamber of Commerce have expressed their concerns of the possibility of a “No deal” Brexit, although the government is confident in concluding a deal in time.
Reactions from Japanese companies so far
Many Japanese companies based in the UK seem to have done their preparations as much as they can. Some moved all or a part of their operations to the European continent but many companies still keep their European H.Q. (or even Global H.Q) function in the UK. They told us that the UK still holds important skills and resources and it is easier to do business in the UK than in other European countries due to the language (English), business practice and regulations. Similar industrial strategies and collaboration between the two countries have encouraged business in/ with the UK.
However, there are strong concerns about the impact on the UK-EU supply-chain and human resources for European citizens, and how these will be influenced by negotiations during the transition period.
We also have observed that Japanese companies’ interests in investing UK companies (including M&As) have stayed strong. For start-ups and small companies, London remains attractive for its availability of funding / investment.
How is future trade with Japan affected?
As a member of the EU, the UK currently benefits from the EU-Japan Economic Partnership Agreement (EPA) which limits trade tariffs on goods. The UK will continue to enjoy these arrangements until the end of the transition period on 31st December 2020, at which point the UK must have either negotiated its own trade agreement with Japan or aligned itself with the EU-Japan EPA under the terms of the UK-EU future relationship agreement. Based on the most recent communication between the UK and Japan Prime Ministers, on the 21st December 2019, in a phone call both leaders agreed to strengthen cooperation on security and defence and work towards and a Japan-UK trade agreement based on the EU-Japan Economic Partnership Agreement.
Prime Minister Abe already welcomed the UK to join the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), signed by 11 countries and effective in December 2018, therefore, this may be also included into the agenda.
At OBM, we continue to monitor progress on Brexit and its impact on the UK- Japan relationship and business.