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  • Trade Deal ‘Essential’ for UK Car Manufacturing

    26 Jul 2017

    Britain must ‘rush’ towards a trade agreement similar to the one being hammered out between Europe and Japan or face having the immensely lucrative £72bn a year car industry dismantled, a major trade lawyer has warned.

    The statement comes from Hosuk Lee-Makiyama, a former diplomat who has represented the EU at the World Trade Organisation, and is the co-author of the sustainability impact assessment on the EU-Japan deal.

    That deal will give Japanese companies tariff-free access to European markets, whilst Europe’s farmers will gain access to the Japanese market. It’s been called the “cheese for cars” deal, and will ensure that Japanese car companies will enjoy a significant boost to European trade.

    The EU-Japan deal could be agreed in just 6 months, and come into force before the UK leaves the EU in 2019. Once in place, it could make Japan’s UK manufacturing plants less competitive than other factories in Europe.

    “In the case of a hard Brexit, there could be a tariff between the UK and the single market, whereas there will be none between Japan and the EU,” said Mr Lee-Makiyama.

    “That has considerable consequences for the car plants at Sunderland and Swindon, because if you look at the supply chains of those plants they source a lot of parts from the single market, as well as Japan.”

    Plants like Nissan’s Sunderland plant are amongst the largest in the UK, responsible for almost a third of all the cars that rolled off the production line, with other Japanese manufacturers like Toyota and Honda building cars too.

    “The cost of manufacturing [in the UK] goes up – the parts, technology and the people,” added Mr Lee-Makiyama. “The Japanese car industry flies a lot of experts and engineers back and forth and if all that is facilitated by the EU-Japan free trade agreement, it seems much easier just to move the manufacturing capacity currently based in the UK to the single market in the case of a hard Brexit.”

    That, of course, would be devastating to the UK’s manufacturing industry, which is largely supported by the strength of car manufacturing. It would also have a large secondary effect for companies who supply products like hose fittings and pre-moulded plastics to the industry, effectively causing a great impact than one might naturally assume.

    Mr Lee-Makiyama added that he would “be very surprised if Japanese industry is not already making plans” to relocate work within the single market should the UK leave.

    Phillip Hammond, the Chancellor, has spoken openly about his belief that the UK should seek “associate membership” of the customs union, at least during an undefined “transition period”. This would allow the UK to push for external deals in vital areas like services, but would cede the right to have a say in trade deals on goods. Nevertheless, it would ensure that the UK wouldn’t lose instant access to the free market.

    Mr Lee-Makiyama said that this was “the only approach that makes sense”, but other experts cast doubt on its viability, like Matthew Weiniger QC, head of international arbitration at Linklaters, who said that “Associate membership of the customs union would not survive any brush with reality,” he said. “If you have no ability to trade your goods, to negotiate on tariffs, why on earth would they start negotiating on services? It’s what Brexiteers would call a ‘stitch-up’.”

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