Blair tries to keep Britain big in Japan

The PM will tell Tokyo that the door to Europe is still open, write Richard Lloyd Parry and Stephen Castle

Tony Blair's visit to Tokyo this week will be sold in Japan along familiarly bland lines, as a touching symbol of the enduring friendship between two like-minded nations - island-dwelling, tea-drinking monarchies, both former imperial powers, perched on the edge of historically troubled continents with which they have ambivalent relations.

When Mr Blair arrives on Thursday, he will have two meetings with his Japanese counterpart, Ryutaro Hashimoto. The second one will be a joint summit with Jacques Santer, the European Commission president, because Britain holds the European presidency. The Prime Minister will launch a festival of British arts and science - UK98 - which will put Stephenson's Rocket on show outside Britain for the first time. And Mr Blair will look forward to a visit to Britain from the Japanese Emperor Akihito in May.

In diplomatic eyes the relationship between Britain and Japan could scarcely be better, but beneath the surface there is anxiety. The economies of the Far East have turned decidedly sour. Inward investment from Japan and its neighbours looks more shaky than ever, and the perennial issue of compensation for former prisoners-of-war is certain to raise its ugly head.

For Blair-watchers the visit will be intriguing, largely because of what it tells us about his view of the erstwhile Far Eastern economic "miracle" and its consequent fallout. Before the general election it was the Conservatives who used the challenge posed by the tiger economies as an ideological weapon. Only the Tories, argued John Major, could provide the flexible economy and low costs which would allow Britain to compete in the 21st century. The UK, meanwhile, attracted more than a third of Japanese direct investment.

New Labour appeared to be drawing different conclusions. On a visit to Singapore Mr Blair outlined his vision of a "stakeholding" society, in which employees were seen as having a stake in their firm's success. That sounded as if it owed something to the legendary paternalism of big Japanese employers, but the truth was that Europe was the preoccupation of party political debate on foreign policy. Mr Blair's political models were drawn from the English-speaking world: President Clinton's Democrats and Australia's Labor Party.

In fact, the Prime Minister's trip has as much to do with relations between Britain and France as Britain and Japan, and marks the latest round in a European struggle for the biggest share of the world's second largest economy. The festival of British culture will run throughout 1998, but this year sees a similarly ambitious French festival in Japan.

Two factors are threatening Britain's supremacy as Japan's gateway to Europe. In heavy industries like car manufacture, the country is close to being saturated with investment. As a launch pad for European manufacturing, Britain has served well. But Nissan and Toyota are looking to central and eastern Europe, where Korean rivals have established a bridgehead.

The other, more serious obstacle is EMU, and Britain's failure to take part in its launch. The complexities of EU politics are not of much interest in Japan, except with regard to EMU, which has the potential to simplify the art of European business. Big Japanese manufacturers construct their factories to service a continent, not a country.

A plant in post-EMU France will be able to sell euro-priced vehicles in Berlin and Milan as easily as Paris. Cars or parts built in Britain will be vulnerable to exchange rate changes. Britain retains its advantages - during his visit Mr Blair is expected to announce a pounds 240m investment by Toyota in its Deeside plant in north Wales. But, as Toyota's president, Hiroshi Okuda, hinted, self-exclusion from EMU is a competitive disadvantage.

The unease of companies like Toyota was presented by Labour as evidence of the failure of Tory policy. But now Mr Blair is having to sell his own lukewarm policy towards the euro. As one source put it: "What is crucial to Japan is full access to the European market, so they do watch Britain's policy with interest." Mr Blair will stress that his Government has left the door open to joining monetary union after the next election while highlighting the flexibility of the British labour market.