Post-Brexit Britain, the EU and Japan: The car industry, the aeronautical sector and military cooperation

2. The rise and ‘fall’ of the Japanese car industry in Britain

Japan’s trade surplus was uninterrupted between 1968, when Japan’s GDP surpassed that of (West) Germany and it became the world’s second largest economy, and the end of the Cold War. Exports of textiles, steel, motorcycles, cars, ships and electronics had been flooding the US. Yet, in the late 1960s, Japan was facing increased pressure from the US to pivot towards the EC as its next outlet.¹⁵ Japan had joined the General Agreement on Tariffs and Trade (GATT) in 1955 and the Organisation for Economic Co-operation and Development (OECD) in 1964, but suffered bilateral import restrictions imposed by the European countries. Britain was the first European country to announce its opt-out (GATT Article 35) on Japan and entered into GATT terms by signing the UK–Japan Commercial Treaty in November 1962.¹⁶ Trade and investments were now ‘free’ and equal for the Japanese in Britain and vice versa, providing both countries with national treatment and most-favoured-nation (MFN) rights similar to those in the GATT provisions.¹⁷ The Treaty included a reservation that allowed for the continuance of Commonwealth preferences, as well as a provision for preferential treatment to be given by either party to third countries in customs unions or free trade areas such as an enlarged European Economic Community (EEC).¹⁸

Shortly before Britain joined the EC, the Japanese Ministries – Ministry of Foreign Affairs (MOFA) and MITI – had targeted Britain as a potential exporting base in the EC. Until then Japan had relied on the Germans, who opposed import restrictions on Japanese products at the Council of Ministers.¹⁹ Nevertheless, the sharp and steady increase in Japanese exports necessitated more active solutions. A safeguard clause in the Franco-Japanese trade agreement and a sensible item list included in that with Italy left MITI-guided Japanese multinationals to consider investments in the EC. Britain was at the top of Japan’s list, with a strategy of launching plants and reducing exports with Japanese products made in EC.²⁰ Ireland, Belgium and the Netherlands were also considered as alternatives.²¹ Despite the reservations and opposition raised from all sides in Britain, successive Labour and Conservative governments in the late 1970s gradually welcomed and accommodated Japanese investments. The EC gained competence in relation to external trade in 1970, while Member States maintained competence in relation to investments. Japanese assemblers chose Britain because it would provide tariff-free access to the internal market once it became a Member State and, at the same time, would also accommodate Japanese investments in favourable and non-discriminatory terms under the UK–Japan Commercial Treaty.

The European Commission launched the common commercial policy in January 1970 and entered into negotiations with MOFA. However, these collapsed in 1973 as a result of Member States’ differing positions and Japan’s stubborn opposition to European safeguards.²² The items concerned were Japanese electronics, televisions, cars and automotive components.²³ Japan, therefore, had to make inroads into the EC through bilateral trade with Member States, but such expectations were not met immediately. During the debates on joining the EC, Prime Minister Harold Wilson described the EC as an entity of ‘free trade within the area … but vis-à-vis the outside world … a highly restrictive, discriminating trading bloc. [… The EC] is the sort of bloc … with the right safeguards and assurances … to which the Conservatives could agree and … the Labour Party could support joining’.²⁴ Britain should, in Wilson’s terms, become the leader of a united Europe and make every effort to join the EC at the earliest possible opportunity.²⁵ Japan needed a close partner in order to become an ‘insider’ in the EC and to legally circumvent its trade barriers. Japan partnered with Britain. Wilson was also concerned that the Commonwealth countries were increasingly importing goods from Japan, Germany and the US but not Britain.²⁶ He stressed that ‘the EEC [was] enormously [more] powerful than [Britain]’ and that ‘in some aspects of the race Japan has already passed [Britain]’.²⁷ It made sense to make Japan a stakeholder rather than letting it remain an external economic threat. While an overall trade agreement between the EC and Japan was lacking, the UK–Japan Commercial Treaty of 1962 guaranteed Japanese access – at least in car exports and investments – to Britain (and thus the EC) without discrimination.

British EC membership benefited Japan, not in an immediate way by reducing the trade surplus, but because ‘Japan-friendly’ members arrived in Brussels. Contrary to French and Italian calls to restrict Japanese exports at the EC level, Christopher Soames – Vice President of the European Commission and in charge of external relations – was keen not to discriminate against the Japanese.²⁸ Subsequently, Roy Jenkins became the President of the Commission in 1977 and brought with him more familiarity with Asia-Pacific nations;²⁹ he showed less hostility towards Japan. This was a rarity in those days. The Labour governments of Harold Wilson and James Callaghan were more cautious than their successor Margaret Thatcher and refrained from direct governmental intervention.³⁰ The voluntary restriction agreement on Japanese car exports (VER) was agreed in 1975 between the Society of Motor Manufacturers and Traders (SMMT) and its Japanese counterpart JAMA (Jidousha-kougyou-kai). British imports of Japanese cars were limited to 11 per cent of the British market.³¹ The non-governmental VER was a result of Labour’s hesitation to directly intervene in the market³² but nevertheless put pressure on Japanese assemblers to launch plants in Britain.³³ The way to circumvent VERs, including those of other Member States, was local assembly. It was essential that Japanese plants would be launched in an amicable Member State familiar with car assembly and its exports.

Japanese car manufacturers were, however, still wary of assembling cars in Britain. It was electronics multinationals that opened the frontier. Sony and Panasonic (formerly Matsushita) launched plants in Bridgend and Cardiff respectively during the late 1970s. This was despite opposition from British trade unions, which was underpinned by a widespread public hostility towards the perceived threat of increased unemployment and the nightmare of ‘being forced to work like the Japanese’.³⁴ Both firms signed single union agreements with the Electrical, Electronic, Telecommunications and Plumbing Union (EETPU), allowing only one trade union to organise workers in the plants. The EETPU accepted no-strike agreements in these Japanese plants, which was typical of Japanese trade unionism.³⁵

The largest Japanese investment during this time (and therefore the more contested) was Nissan’s Sunderland deal. In February 1984 the DTI and Nissan signed a gentleman’s agreement – a Memorandum of Understanding – obliging Nissan to source 80 per cent of their components locally and in turn the government to cover a third of Nissan’s initial investment cost.³⁶ What is relatively unknown is the fact that the negotiations were supported by the simultaneous efforts made by British Members of the European Parliament (MEPs) and civil servants in Brussels, who criticised other Member States’ protectionism and proposed that they welcome Japanese foreign direct investment.³⁷ These ideas were injected into the talks on the Single European Act (SEA). Julian Amery and John (Jack) Stuart-Clark, two of the Tory MPs/MEPs involved in these discussions, acted as a bridge between the Confederation of British Industry (CBI), the Thatcher administration and Brussels.³⁸

The CBI rejected its members’ requests to restrict imports from Japan.³⁹ They instead persuaded them to compete with the Japanese in the Pacific through joint ventures.⁴⁰ It was argued that driving them away from Britain and the EC would merely lead to losing markets outside of Europe to the Japanese.⁴¹ Amery and Stuart-Clark echoed such reasoning in Brussels and paved the way for Thatcher’s then trusted man, the European Commissioner Francis Cockfield, to prepare the SEA draft.⁴² Such efforts encouraged Nissan and made it more confident about investing in Britain.⁴³

In accommodating Japanese investments, the Thatcher administration was condemned by France, Italy and Germany as a ‘Trojan horse of Japan’.⁴⁴ British EC membership guaranteed the tariff-free export of Japanese cars made in the UK. There remained a risk of facing non-tariff barriers aimed at restricting such exports, regardless of breaching EC law.⁴⁵ The DTI had promised Nissan (as a part of the gentleman’s agreement) that such measures would be countered at the European Court of Justice.⁴⁶

Toyota and Honda swiftly followed in Nissan’s footsteps and in 1992 they launched their plants in Burnaston and Swindon respectively. They were accompanied by Japanese component and electronic suppliers. As an EU Member State Britain became Japan’s indispensable partner for Japan. Aware of the risks of solely depending on one Member State, Japan made concerted efforts to diversify its multinationals’ supply chain across the European continent in the 1990s. After its success in Britain, Toyota announced that it was launching a plant in France in December 1997 before later turning towards Central and Eastern European countries for joint ventures.⁴⁷ It subsequently launched an assembly plant in the Czech Republic in February 2005.⁴⁸ This was a joint venture with the French PSA group (Peugeot-Citroën), currently assembling Toyota Aygo. Engines and transmissions were supplied from Toyota’s plant in Poland from March 2005. Yet the assembly of Toyota Auris/Corolla – Toyota’s most popular product in the EU – remained in Burnaston.

One can question, however, the extent to which Japanese investments helped growth or created local employment in Britain. FDIs are known not to sink into local soil but remain in their country of origin.⁴⁹ Thatcher made Nissan promise to source 80 per cent of its parts exclusively in Britain; this has fallen to 40 per cent or less, which meets the minimum level for Nissan’s vehicles to be categorised as ‘made in the UK/EU’. Nissan Sunderland employed 6700 workers in 2019. However, in contrast to the Japanese government’s clear warning about the future negative effects of Brexit,⁵⁰ the firm kept silent during the referendum. Japanese multinationals employed nearly 140,000 workers in Britain in 2016 but rarely opposed Brexit in public.⁵¹ This lack of involvement may explain why 65 per cent of Sunderland’s electorate voted to leave in the 2016 referendum. Importantly, Nissan’s reduced contribution to the local economy had also been felt. After Renault’s purchase of Nissan in 1999, British components of Nissan Micra and Primera were replaced by those of Renault and were supplied tariff free from the continent, thanks to the customs union. Carlos Ghosn’s Nissan Revival Plan hit Sunderland harder than Japan. Nissan had asked component suppliers in Japan to cut down costs by 20 per cent within two years. In the UK this was raised to 30 per cent because the pound to euro exchange rate made it more profitable to import components from the eurozone.⁵² Thereafter, 50 per cent of Primera’s components were supplied from the continent, while 65 per cent of Micra’s parts were sourced from outside of the UK.⁵³ The gentleman’s agreement of 1984 had been abandoned. After the chassis of Micra was shared with Renault Clio, 95 per cent of components were common to both products.⁵⁴ Regardless of the depreciation of the pound sterling after the referendum of 2016, which increased the price of components coming from the continent, British component supplies for Sunderland-made Qashqai, Juke and Leaf failed to increase.⁵⁵

The exact terms of Brexit are a concern for Japanese multinationals. Significantly, at least for the British, the Japan–EU EPA provided for the abolition of the 11 per cent tariffs on Japanese cars entering the single market. As was foreseen before its signature, the EPA is being used as a bargaining chip by the EU and its Member States against Britain in their Brexit negotiations.⁵⁶ The EPA would allow Japanese-made cars to enter the single market without tariffs in 2026.⁵⁷ Should the Brexit transition period end in December 2020 without a trade agreement between Britain and the EU, British-made Japanese cars would become subject to tariffs. In this circumstance, the profitability of Japanese plants in Britain would be in question.

Tellingly, in 2019 Honda announced that it intended to close down its Swindon plant by 2021 and replace its British-made Civics with exports from Japan.⁵⁸ A total of 3500 jobs will be lost in Swindon. Honda stated that this decision was not a result of the Brexit referendum but of a global restructuring of its supply chain and branding. Honda suppliers in Britain – UYS (in exhaust systems) and Nichirin UK (in hoses) – followed suit and announced their plant closure in 2019.⁵⁹ Showa and TS Tech, a shock absorber supplier and seat assembler, have started talks with trade unions ahead of plant closures.⁶⁰ However, Honda Motor Europe in Bracknell – the firm’s European headquarters – will remain in business.⁶¹ Furthermore, Honda and Moixa – a battery and electric vehicle (EV)-charging software developer – unveiled a smart EV-charging project with Islington Council in central London.⁶² Both firms will support the Council as they electrify more than 500 vehicles, including waste collection trucks and smaller transport cars. This will cut 1400 tonnes of carbon dioxide emissions every year and help Islington achieve its target of net-zero carbon emissions by 2030.⁶³ Honda’s operations in Britain are moving away from car assembly, which had barely reached half of Swindon’s annual output capacity in recent years, and are shifting more towards R&D. Such projects, which were planned and prepared well before Brexit and are outside the EU’s competence of trade, were accelerated thereafter. Less positively, local employment will suffer as Japanese companies wind down their car assembly and component supplies. Fewer options are left for Nissan, which received subsidy for Sunderland’s launch and expansion thereafter, and therefore is ‘not entitled’ to simply scale down.

In September 2016 Carlos Ghosn, then CEO of Nissan, informed Prime Minister Theresa May that the company would require compensation for the foreseen tariff costs before they made a decision on whether the new X-trail SUVs would be assembled in Sunderland.⁶⁴ In October, Nissan and the May administration agreed that the British government would provide 80 million pounds (11 billion yen) of financial support.⁶⁵ The government feared Nissan’s withdrawal from Britain and therefore promised that its support would continue after Brexit.⁶⁶ Sunderland would increase its output to 600,000 units per annum.⁶⁷ Yet in February 2019 Nissan announced the cancellation of its plans to assemble X-trails in the UK, which will be exported from Japan instead.⁶⁸ Gianluca de Ficchy – Chairman of Nissan Europe – warned that production volumes at Sunderland would fall sharply to 360,000 in 2019, putting some 30,000 jobs at risk.⁶⁹ At the same time, the city of Sunderland has been courting foreign suppliers with a proposal to launch an industrial park (IAMP) next to the Nissan plant.⁷⁰ It is estimated that an investment of 300 million pounds (45 billion yen) would create 5200 jobs in the area.⁷¹ A total of 910 million pounds will be injected into the venture, 42 million of which will be covered by the government for infrastructure.⁷² As was the case with Nissan’s Sunderland plant, tax payers’ money will be used to attract and sustain FDI. Whether this new initiative will pay off or not after Brexit remains to be seen. Article 8.11 of the Japan–EU EPA forbids local content requirements, which exposes British suppliers to competition with rivals on the continent and in Japan.

Toyota is known to have plans to close its plant at Burnaston if Britain fails to reach a trade agreement with the EU after Brexit.⁷³ The unveiling of the next-generation Corolla is scheduled for 2023, which could prove to be the deadline for Toyota to make a decision. Japan’s Foreign Minister Taro Kono warned on 27 June 2019 that Japanese companies in Britain would be threatened by a ‘no-deal Brexit’.⁷⁴ In September 2019 Elizabeth Truss – the British Secretary of State for International Trade – and her Japanese counterpart Minister Toshimitsu Motegi agreed to maintain the Agreement on Mutual Recognition between Japan and the EC.⁷⁵ The goal was to avoid confusion until a new bilateral free trade agreement (FTA) is agreed between both countries.⁷⁶ Truss also expressed an interest in Britain participating in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or, alternatively, TPP11). While Motegi welcomed the proposal in general terms, he carefully stated that a Japan–UK trade deal must come first.⁷⁷ Echoing this sentiment, Yoshihide Suga – Chief Cabinet Secretary – emphasised that Japan and Britain were strategic global partners with shared values such as democracy, freedom, rule of law and human rights, and voiced a desire to reinforce Japan–UK relations.⁷⁸

The questions surrounding a Japan–UK trade agreement – at least from a Japanese perspective – do not hinge upon hindering free trade standards, nor the appropriateness of the so-called ‘copy-and-paste’ or ‘roll-over’ strategy in which the EPA is simply recast (which is what Prime Minister Boris Johnson’s administration is asking for).⁷⁹ Although Prime Minister Shinzo Abe announced Japan’s desire to negotiate an agreement with the UK,⁸⁰ he did so without reference to the contents nor time schedule of such an agreement. The Japan External Trade Organization (JETRO) has indicated that such a negotiation will be tackled under MOFA’s coordination only after a UK–EU agreement is reached.⁸¹ This demonstrates the clear priority Japan has placed on the EPA already in force. Conversely, the British intend to agree on a deal with Japan first and use this as a bargaining chip in their negotiations with the EU.⁸² However, rather than immediately signing a roll-over deal with Britain, it is logical that Japan would first want to consolidate the Japan-EU EPA,⁸³ when the opportunity arises.⁸⁴

The COVID-19 crisis has dramatically changed the scene, forcing both Japan and Britain to jointly show their commitment to global free trade and, in more concrete terms, making strenuous efforts to boost their economies.⁸⁵ Starting in early June 2020, the negotiations were based on the Japan–EU EPA, and by the time both Ministers met in London on 6 and 7 August,⁸⁶ most issues were concluded ‘in near record time’.⁸⁷ Reportedly the final issues were Britain’s immediate abolition of car tariffs and Japanese import quotas of agriculture products.⁸⁸ Minister Motegi’s flight to London became his first foreign visit since the lockdown in early spring.⁸⁹ For Britain the FTA would become its first major trade agreement reached after Brexit.⁹⁰ How much this will add to Britain’s leverage in its talks with the EU and the US remains to be seen. Significantly for Britain, tariffs on Japanese cars and their components will only fade out after a phase identical with the Japan–EU EPA,⁹¹ giving time for British suppliers before such components are imported from Japan.

The automotive industry has long been the symbol of close UK–Japan relations. Its origins lie in the trade conflicts caused by Japan’s flood of exports into Europe. The partnership grew as Japanese multinationals invested heavily in Britain in an attempt to reduce Japanese exports. Instead, cars built in British plants were exported to the single market. In this way, British EC/EU membership was hugely important for the Japanese. This, though, is not the whole story. The aeronautical sector, which is closely related to the arms industry, has also seen joint R&D and potential exports. It is an important but relatively unknown case and deserves attention. It will, therefore, be examined in the next section.

3. UK–Japan collaboration in the aeronautical industry: Rolls-Royce and V2500

In comparison to the much-debated Japanese-European conflict over car exports during the 1970s and the 1980s,⁹² the aeronautical sector has attracted much less attention. Historical evidence shows how the collaboration in the sector was not a new development generated by Brexit but was founded during the 1970s and consolidated thereafter, and where Japan has consistently expected acceleration. The Japanese industry’s interests in this sector have been more in R&D and related investments, in which the EU lacks competence, than exports to the EU.

After nationalisation in 1971 Rolls-Royce struggled in its efforts at rationalisation, and the prestigious car manufacturing business was sold to Vickers in 1973. In his detailed story on Rolls, Peter Pugh referred to the UK–Japan aero engine collaboration only as a marginal case.⁹³ Geoffrey Owen praised the post-war British aeronautical industry as an outstanding success⁹⁴ but neglected to describe the three Japanese partners – Ishikawajima-Harima (after the merging of Nissan’s aeronautical division in 2000, IHI), Kawasaki and Mitsubishi – as significant partners. John Weste has argued that Rolls lacked the will to break into the Pacific (or, in other words, the American) market.⁹⁵ This section explores the relatively unknown history of a UK–Japan collaboration during the 1970s and 1980s. This helped Rolls – which was facing financial difficulty – to restore its aero engine business. The development of the RJ500 engine was a collaboration which began in the mid-1970s with the three Japanese partners mentioned above. Its successor, the successful V2500 engine, equipped Airbus’s A320s and has supplied more than 6000 units to the time of writing, thus helping to bring Rolls back into private ownership.

After 1945, under post-war occupation by the US (and marginally by Britain),⁹⁶ Japan was forbidden to produce or maintain aircraft, either civil or military. The outbreak of the Korean War in 1950 and the rising tensions of the Cold War eased allied restrictions and Japan began producing aeroplanes again in 1952. By this stage Japanese aeronautical engineers had relocated to the automotive industry. Pre-war technological expertise had been lost. What was left of the Japanese aeronautical industry had simply become suppliers for American aircraft factories or were domestic Japanese assemblers of US-licensed products. Developing a domestically built aircraft was a distant (and potentially unachievable) goal.

MITI called together Ishikawajima-Harima, Kawasaki and Mitsubishi in 1957 to develop a mid-range civil and military aircraft. In August 1962 the YS11 was unveiled. Due to a lack of financial resources and the difficulty of acquiring a US type certificate, MITI abandoned R&D on engines and relied on foreign sources. The Rolls-Royce Dart-10 was selected, thus reaffirming the firm’s pre-existing connection with Japan. Kawasaki had previously signed an agreement with Rolls on engine maintenance in 1959.⁹⁷ Test flights of the YS11 proceeded in Nagoya.⁹⁸ However, the YS failed to secure international sales and (with the exception of Japanese territory) vanished from the sky. Contrary to the view that Rolls had lacked the will to break into the Pacific market,⁹⁹ the firm modestly but steadily increased its commitment in Japan.

Back in Europe, the British aeronautical industry was facing stiff competition from the US. The British, German and French sectors proposed to form Airbus in 1966 in order to secure a ‘European’ market comparable in size to that of the US. Yet the refusal to use Rolls-Royce engines in the A300 led Britain to withdraw from the project in 1969. This left Rolls heavily dependent on its immensely costly RB211 engine project and the US market (specifically the Lockheed TriStar). Increasing R&D expenditure cost the firm, and Rolls was nationalised in 1971.¹⁰⁰ Subsequently the DTI sought out new partners and the Japanese emerged as a possibility.

In the aftermath of the YS11’s disappointing failure, Ishikawajima-Harima, Kawasaki and Mitsubishi jointly developed a Japanese aero engine – the FJR. Aware of Japan’s relative inexperience in the sector, MITI wanted the three companies to collaborate with a reliable and experienced partner.¹⁰¹ The Ministry contributed 19.7 billion yen to the FJR project between 1971 and 1981.¹⁰² In April 1972, during discussions between the Ministries about UK–Japan exchanges in science, MITI asked the British to collaborate on aero engine development.¹⁰³ In March 1974 the Heath administration was replaced by Prime Minister Wilson’s government and no agreement was reached at this point. But the engine proposed by MITI was very close to that of the eventual UK–Japan RJ500 engine. This was developed less than a decade later as a partnership between Rolls and the Japanese.

Rolls experienced a series of setbacks in the latter half of the 1970s. In 1977 the joint collaboration on the JT10D engine with Pratt &Whitney (P&W) failed.¹⁰⁴ Rolls was the smallest of the three global engine suppliers and, therefore (at least as the DTI understood it), the most vulnerable.¹⁰⁵ Rolls decided to reduce its workforce,¹⁰⁶ which necessitated purchasing components from foreign sources, including Japan.¹⁰⁷ A new partner who could share the risk, in other words a financial partner, was necessary. The Japanese FJR710 engine had been taken to the National Gas Turbine Establishment (NGTE) for a test in 1977 and performed well.¹⁰⁸ A joint collaboration with the Japanese would bring Rolls back to its ‘home’ Pacific market.¹⁰⁹ Furthermore, the acquisition of Japanese management techniques and production quality proved to be another motive.¹¹⁰ As in the automotive industry,¹¹¹ fears ran high that Britain might lose the Japanese to another (European) partner.¹¹² Such collaborations might transform Japan into a competitive supplier before long, and therefore a partnership became a matter of urgency.¹¹³ In January 1978 Rolls proposed to jointly develop a new engine alongside the Japanese.¹¹⁴

Margaret Thatcher was elected Prime Minister in May 1979 and the following month she travelled to Japan to participate at the G7 Tokyo Summit. She called for UK–Japan industrial cooperation in the aeronautical sector. In December, Rolls and the three Japanese companies signed an agreement to cooperate in the development of the RJ500 (XJB) engine.¹¹⁵ Japan was the only partner available.¹¹⁶ The agreement forbad the Japanese to collaborate with any third party for two decades.¹¹⁷ Japan shouldered 50 per cent of the cost/risk.¹¹⁸ It was ‘happy to oblige’ since this was its first opportunity to participate in an R&D project from scratch.¹¹⁹ In 1980 MITI offered 1.785 billion yen funding for the project.¹²⁰ The first RJ500 was assembled in February 1982.

Besides industrial cooperation, Thatcher was keen to sell British civil and military aircraft to the Japanese. In December 1979 she visited Washington to meet Harold Brown – then Secretary of Defense – and persuaded him that the US should put pressure on Japan to purchase defence equipment from NATO countries.¹²¹ In her view, Japan, unlike Taiwan,¹²² had not shouldered enough of the cost or responsibility for sea lane protection and resource preservation in the Middle East. Japan was, therefore, obliged to contribute more to Britain.¹²³ In September 1982, shortly after the Falklands crisis, Thatcher visited Tokyo. As well as applying pressure on Nissan to make up its mind on the Sunderland project, she unsuccessfully attempted to sell Harrier jump jets to the SDF.¹²⁴ Another attempt to sell BAe146 jets also failed.¹²⁵ Japan had rarely purchased British or European aircraft.¹²⁶ As a consequence, the Thatcher administration had to focus on the RJ500 project.

The RJ500 was a technological success but immediately faced difficulties. Without an American partner – either P&W or General Electric (GE) – the engine (and assembled aircraft) would not find a big enough market in Britain and Japan alone. Thatcher and the DTI agreed on this point,¹²⁷ but Rolls refused to acknowledge the problem.¹²⁸ Failed sales would not only lead to the project being abandoned, but might also negatively impact UK–Japan relations.¹²⁹ Furthermore, if Rolls depended solely on the RB211 engine it would increase its dependence on the US.¹³⁰ This would risk the 1980 agreement between the government and Rolls on the terms of future re-privatisation.¹³¹ The RJ project was seen as Rolls-Royce’s opportunity to reduce its dependency on America¹³² but Rolls hesitated to invite P&W or GE into the partnership.¹³³ The DTI, conversely, understood that for the commercial success of the RJ, secured by its use in the Airbus A320, they still required an American partner.¹³⁴

In order to persuade Rolls, the DTI informally asked its Japanese counterpart (MITI) to persuade the three Japanese stakeholders to convince Rolls to invite in an American partner.¹³⁵ This tactic worked and Rolls began considering whether to choose P&W or GE. P&W intended to pull Mitsubishi out of the RJ collaboration, which put pressure on Rolls to make up its mind.¹³⁶ Rolls doubted P&W’s attempt to gain access to the former’s crucial knowledge via the Japanese partners.¹³⁷ However, P&W worried that Rolls would begin exporting to Libya or China, violating the Coordinating Committee for Multilateral Export Control’s embargo on Comecon countries (COCOM).¹³⁸ The US government also feared the transfer of technological knowledge to the Japanese.¹³⁹ However, the greatest obstacle was the need for US anti-trust law clearance.¹⁴⁰

Rolls and P&W disagreed on the allocation of burden/shares. Each stakeholder would supply components according to its financial burden, and Rolls-Royce and P&W would assemble the engines in the UK and the US respectively. P&W demanded more than 50 per cent, though Rolls refused.¹⁴¹ The three Japanese partners and MITI stipulated a 27 per cent share¹⁴² but this was opposed by P&W and the other European partners aiming to minimise the Japanese presence.¹⁴³ It was agreed that the Japanese would shoulder 19.9 per cent, and 3.1 per cent of production would be provided to Mitsubishi from P&W as compensation.¹⁴⁴ It was feared that MITI would cease subsidising R&D if Japanese voices were neglected.¹⁴⁵ On 11 March 1983 the agreement to jointly develop the V2500 engine – formerly the RJ500 – was signed in Derby by Rolls-Royce, P&W, the German MTU, the Italian Fiat and the three Japanese companies. The burden was shared as to 30 per cent each between Rolls and P&W, the three Japanese 23 per cent, MTU 11 per cent, and Fiat 6 per cent.¹⁴⁶ The five stakeholders founded International Aero Engines (IAE) in Zurich in December 1983. In January 1985 Pan Am ordered 16 A320s equipped with V2500 engines.¹⁴⁷ Other airlines quickly followed suit. In Tokyo, British Ambassador Hugh Cortazzi voiced his belief that the collaboration had reinforced UK–Japanese ties.¹⁴⁸ The A320 was a global success and, besides its assembly centres in Toulouse and Hamburg, it is also built in China.

The V2500 collaboration meant more to the Japanese than to their British partners because it allowed the former to finally develop home-made jet engines. Unlike in the case of cars, it was less an issue of EU competence and exports to the single market and more about R&D and investments. As Japan developed itself as a supplier over the decades, however, the three Japanese firms became more concerned in component exports. As in the case of cars, Britain will be excluded from the Japan–EU EPA if the Brexit transition period expires without a new UK–EU trade agreement being ratified. Both the Japanese government and industry worry that Britain will be forced to negotiate with the EU and Member States to reduce its import tariffs on aeroplane components.¹⁴⁹ This may increase the costs incurred by the Japanese companies when supplying Airbus or, indeed, any of their European partners. However, the UK–Japan collaboration in the aeronautical sector is different from that of the car industry in as much as it is closely associated with defence. Regardless of the cost and risk associated with Brexit, Japan hopes to increase collaboration in this ‘new’ and challenging area.¹⁵⁰ This case is investigated in the following section.

4. Military cooperation and arms industry collaboration

In analyses of UK–Japan relations in the wake of Brexit, attention has generally focused on the automotive industry and its employment. Defence, however, has been neglected in many commentaries despite its relevance to commerce and Britain’s place in the world. Japan’s reliance on Britain’s aeronautical expertise as well as the former’s lack of competitiveness in this sector ties Japan to Britain. This is underwritten by Japanese sympathy for, and a sense of closeness to, Britain.¹⁵¹ Besides collaboration on civilian aircraft engines, which was reviewed in the previous section, possibilities for further collaboration on military aircraft are emerging.¹⁵² In 2014 Japan shifted away from its ban on weapons exports and joint development. Kawasaki’s failure to sell P1 patrol planes to the RAF prompted Japanese companies to explore the possibility of joining the development of Tempest, which will be the successor of Eurofighter Typhoon. At the same time, Britain has shown more interest in pursuing active military cooperation in the Pacific. As discussed below, Typhoon fighter jets and HMS Albion have recently visited Japan. The aim was to display British military presence in the Pacific with an eye on active Chinese and North Korean military expansion. Economic links with China make it difficult for the EU Member States to reach a consensus on whether to counter its military expansions far away in the Pacific, while Britain after Brexit may be more independent. Although such bilateral cooperation might not seem directly related to Brexit, unlike the dependence of Japanese automotive companies on the single market, it nevertheless has the potential for indirect and longer-term effects.

On 17 July 2018 the British government announced its plan to develop the successor to the Typhoon fighter jet – known as Tempest. At the 2018 Farnborough International Airshow, Gavin Williamson MP, then Secretary of State for Defence, announced that the British government would invest 2 billion pounds in the R&D of Tempest by 2025, with the jet entering into operation by 2035. With BAE Systems and Rolls-Royce at the heart of the R&D process, Britain also began to seek out potential partners who could shoulder the investment costs. These included the Japanese.¹⁵³

Japan’s joint R&D on arms only began in April 2014. Shinzo Abe’s administration decided to abandon Japan’s post-war prohibition policy on collaboration and exports in the arms sector. In 1967 Prime Minister Eisaku Sato had announced that Japan would forbid arms exports in a policy known as the Three Principles on Arms (non-)Exports. This included international collaboration in weapons development. Exports and transfers were overseen by MITI/METI through the Foreign Exchange and Foreign Trade Law (Gaitame-hou). In 2014, though, Abe renamed these the Three Principles on Transfer of Defense Equipment and Technology.¹⁵⁴ Previously, Japanese weapons had been produced exclusively for the SDF, while Japanese fighter jets are based on American F15 and F16 jets. These are assembled under licence by Mitsubishi as F15J/JD and F2A/B. The US has maintained a strict policy of not allowing technological transfer to Japan. Yet, as demonstrated in the previous section, Britain, although somewhat unconsciously, proved to be a more ‘flexible’ partner in the civil aeronautical sector. This collaboration allowed Japan to build its technological expertise on jet engines.

The more Japan increases its stake in arms development and exports, which is in sharp contrast to its car exports falling under EU competence, the more Japan is eager to join any British and/or European joint ventures. In searching for an R&D partner in the Tempest project, Britain proposed that the Japanese collaborate on the jet’s electronics and software. The Japanese MOD’s interest in a Japan–UK deal has grown and the co-development of Tempest may provide a successor to F2 fighter jets.¹⁵⁵ If agreed, this will become Japan’s first R&D with a third party other than the US. Such partnerships are being pursued with rising Chinese military power in mind and Britain sits at the top of the list among the European countries.¹⁵⁶ Such an initiative would help Japan to diversify its collaboration partners while also maintaining compatibility with American weapons and systems. Despite such expectations, the MOD announced in March 2020 that it would prioritise the American partners in the F2 project.¹⁵⁷

The failure to sell the Kawasaki P1 patrol planes to the RAF proved to be another motive behind Japan’s willingness to embark on a collaboration with the UK. The P1 was the first home-made patrol plane, equipped with four IHI F7 jet engines. Experience gained during the collaboration on the V2500 engine was invaluable. P1 is replacing the American P3Cs used by the naval SDF. It is capable of both high-speed flight at high altitudes and low-speed flight at low altitudes and has an expensive price tag. The first P1s were delivered to the SDF in March 2013. While searching for the successor to BAE Nimrod, the RAF considered P1, but eventually chose Boeing P8.¹⁵⁸ After failing to reach a deal with Britain, Japan targeted France and Germany for collaborating on patrol planes which would replace P3C and Dassault-Breguet Atlantique 2. Unsuccessful attempts to sell Japanese submarines to Australia added to the Abe administration’s ‘desperateness to sell something’ to any developed country. As such, Japan is actively seeking cooperation with Britain, France, Germany and Italy in defence production.¹⁵⁹

Japan, then, has made little progress in expanding its weapons export and international R&D collaboration. Nevertheless, Britain has sent clear messages that bilateral relations should be reinforced. In particular, military cooperation with the SDF has increased, with the focus clearly being on countering Chinese and North Korean military activities in the Asia-Pacific region. The RAF sent four Typhoon fighter jets to the Misawa base on 22 October 2016 and these took part in joint drills with the SDF until 6 November.¹⁶⁰ The last visit of RAF Typhoons had been in the 1990s. Significantly, this drill was the first instance of the SDF conducting joint drills with a non-American partner in Japanese territory.¹⁶¹ It ‘coincided’ with the first live-fire drill of the Chinese aircraft carrier Liaoning – the former Russian/Ukrainian Varyag –in the Bohai Sea.¹⁶² China’s territorial claims in the Pacific and Spratly have been underlined by its military build-up. Unsurprisingly, this has caught the attention of Japan, the US and NATO. Tellingly, it was announced that the Typhoons were going to fly over the South China Sea before landing in Singapore on their return.¹⁶³

The RAF was not alone in showing the UK’s commitment in the Pacific. In August 2018, the Royal Navy sent HMS Albion – an amphibious warfare ship – to Japan. HMS Albion joined SDF’s minesweeper tender Uraga at Harumi harbour (Tokyo), where they were both opened to the public. On the day, the British Embassy in Tokyo tweeted that HMS Albion did not store Mobile Suit Gundam 0083 – a fighter robot from a Japanese comic, which is stored on a carrier ‘Albion’ – but encouraged the Japanese public to pay a visit on board nonetheless.¹⁶⁴ HMS Albion’s visit was not only a signal that territorial encroachments might be met with military means. It had also been taking part in the enforcement of UN sanctions on North Korea. Furthermore, HMS Albion took part in the American-led Freedom of Navigation Operation (FONOP) designed to ensure free navigation of the seas. Therefore, HMS Albion sailed through the Paracel Islands and arrived in Ho Chi Minh harbour on 3 September 2018.¹⁶⁵ Captain Tim Neild, HMS Albion’s Commanding Officer, stressed the significance of protecting sea lanes alongside Britain’s closest partner Japan.¹⁶⁶ Importantly, Britain’s latest Queen Elizabeth class aircraft carriers – HMS Queen Elizabeth and HMS Prince of Wales – are expected to become operational in 2020 and sent to the Pacific.¹⁶⁷ While condemning Chinese territorial claims and North Korean nuclear armament, the EU is unable to directly counter these rising Asian military powers. Britain is voicing such criticism.

Britain’s willingness to commit itself in Pacific affairs is not, though, free from ‘competition’ with European countries. France has become a much more energetic actor in the Pacific and is positioning itself as the UK’s ‘successor’ and Japan’s closest European partner.¹⁶⁸ With a self-image as a Pacific power, French military presence in the region exceeds that of Britain.¹⁶⁹ Yet the possibility that French weapons might be exported to China is a concern for Japan.¹⁷⁰ Close Franco-Chinese economic relations only add to Japanese unease. In Japanese eyes, France and some Member States had attempted to abandon the weapons embargo on China,¹⁷¹ while Britain (at least when it was still an EU Member State)¹⁷² was expected to counter such attempts. Further display of British military power in the Pacific will not be a by-product of Brexit. Such global operations could have continued if Britain were still an EU Member State. It is also a loss for the EU if Britain withdraws from European security policies.

5. Conclusion

UK–Japan ties in the post-war era have focused on trade and investment and since 1973 Japan has relied on British membership of the EC/EU. From the project’s birth, Sunderland was intended to be Nissan’s gateway into the single market. The aeronautical sector was another example of close UK–Japan ties. This time the cutting edge lay on the British side. Rolls-Royce ‘helped’ the three Japanese firms – Ishikawajima-Harima, Kawasaki and Mitsubishi – in the joint development of jet engines. The Japanese were able to share the cost and burden with Rolls at a level that had never been permitted in their partnerships with Americans. The RJ500/V2500 engine project, which eventually also included the US, Germany and Italy, helped Rolls to increase its turnover and to justify its re-privatisation. After Brexit, Britain faces a reduction in Japanese investments in the automotive industry, which will instead head towards the continent.

However, UK–Japan collaboration in the aeronautical industry could increase as Japan continues to build up its experience in this sector. Furthermore, following their 2014 policy change, the Japanese are keen to promote joint R&D and exports in military equipment. Besides industrial cooperation in aeronautics, rising military tensions in the Pacific have resulted in the RAF and the Royal Navy intensifying exchanges with the SDF. Typhoon fighter jets and HMS Albion have visited Japan, clearly with an eye on Chinese territorial claims and North Korean nuclear armament. France, however, is known to be Britain’s European ‘competitor’ (at least with regard to military presence) in the region. Whether UK–Japan ties could expand will depend on the exact terms of Brexit. The Japan-EU EPA provides both Japan and the EU Member States with a firm and long-lasting basis for trade and investments in the automotive and aeronautical sectors. UK–Japan investments and joint R&D will be affected not only by the UK–Japan trade agreement but also by the exact terms of the UK–EU agreement.