Japan warns Brexit may drive banks, pharma investment to EU

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In a 15-page report published on the eve of a summit of the Group of 20 big economies in China, a Japanese government task force formed to respond to "Brexit" also warned of a possible outflow of drug research and development investment from Britain, though it said it expected the British government to handle its exit from the bloc smoothly.

Recent economic data suggests the economic impact of Britain's vote to leave the EU has not been as severe as some predicted, although British Prime Minister Theresa May said on Sunday its economy will suffer as a result of the decision.

The Japanese report, published on the Foreign Ministry's website on Friday, cites numerous concerns including that Japanese financial institutions may have to apply for corporate status in the EU if Brexit means they lose the 'single passport' - the right to operate across the bloc. It also raises worries over ease of access to unskilled labor, tariff protection, and London's status as a clearing center for euro transactions.

Formed in July shortly after Britain voted to leave the EU, the task force was headed by Deputy Chief Cabinet Secretary Koichi Hagiuda and comprises senior officials from the Prime Minister’s Office, the foreign, finance, trade and agriculture ministries and the Financial Services Agency.

"Since the inception of the task force, three meetings were held and we've compiled the message, taking into account concerns from the private sector," a Foreign Ministry official told Reuters on the sidelines of the G20 summit in Hangzhou, China.

"As a next step, we would like to relay this message to EU and UK leaders, taking advantage of a various diplomatic opportunities that are coming up including a G20 and UN high-level week," he said, declining to be identified.

END TO UNFETTERED ACCESS?

London will set out in the coming week how it plans to shape its relationship with the European Union upon leaving the bloc, Prime Minister Theresa May said in an interview broadcast on Sunday.

Many Japanese financial institutions and other companies, such as Nissan Motor Co (7201.T), count Britain as their European headquarters. Nearly half of Japan's EU investment last year flowed to Britain, the report noted.

These Japanese companies have counted on unfettered access to the giant EU market in their investment decisions that the report says have created 440,000 jobs in Europe.

A British official said such reports were welcome.

"It's not unhelpful to also have some of our trading partners setting out some of the issues they are looking at and the types of concerns or issues that they would want to be addressed," the official said on condition of anonymity.

"This is all more information that helps to inform our thinking on what is the right deal for Britain."

As for pharmaceuticals, the task force warns that if the European Medicines Agency were to move to the continent, "the appeal of London as an environment for the development of pharmaceuticals would be lost...

this could force Japanese companies to reconsider their business activities."

The report also said that Japan "has no doubt that the UK and the EU will overcome such difficulties and lay the foundations for the creation of a new Europe."

(Additional reporting by Kiyoshi Takenaka and William James in Hangzhou, China; Writing by William Mallard; Editing by Raissa Kasolowsky)