Brexit: a deal in the making

28/10/2016

Determined to reduce its complexities to the mind-numbing simplicity of a binary choice between a big, bad "hard Brexit" and a "soft" opposite, they have been unable to understand that there are more than two options. They have thus failed to realise that May's careful ambiguity has left her more than enough wriggle-room to stay in the Single Market after Brexit, without exposing herself to the charge of duplicity.

This, then, has been very much a question of the media hearing what it wanted to hear. But, when it comes to the car industry, they are being told the same words. Equally obviously, they are hearing something different.

Such is evident from yesterday's announcement by Nissan, conveyed by the Financial Times and others. The company has committed to manufacturing two new car models at its plant at Sunderland, the Qashqai SUV and the X-Trail SUV, currently built in Japan. This is taken to be a "vote of confidence" in the UK following the Brexit referendum, but it is much, much more.

Essentially, with an international supply chain and just-in-time deliveries, the Nissan plant is described as a "European plant based in Britain". It is not conceivable that the company would take such a risk if there was any significant probability of the UK going for the WTO option, otherwise known as the "hard Brexit".

Nissan chief executive Carlos Ghosn – no friend of an independent Britain – is putting his faith in the Prime Minister after receiving "assurances" that the company would be protected from any adverse effects of Brexit.

The UK Government, Ghosn has been told, will ensure that the Sunderland plant remains "competitive", while Mrs May has promised to develop a national industrial strategy, which will secure a stable business environment for car makers.

The assurances have enabled Carlos Ghosn to tell his Sunderland workers that continue with the same trade conditions after Brexit that they enjoy now. But Downing Street denies that any specific promises have been made about tariffs or related matters. Publicly, all the Downing Street spokesman will say is that, "we will get the best possible deal for Britain as we leave the European Union".

According to Reuters, though, the UK government has promised Nissan some more tangible support which, it says, "could prove expensive".

Nissan, the agency reminds us, said in September that it would commit to new UK investment if it got a promise of compensation should Brexit lead to new taxes on car exports. From the UK it is selling vehicles worth £5.3 billion a year, selling 55 percent of it production to other European countries, putting their value at an estimated £2.9 billion.

Should the UK adopt a "hard Brexit", the EU could apply tariffs of 10 percent on passenger vehicles imported from the UK, theoretically adding tariff bill of £290 million to the costs of European buyers. Yet that is probably an exaggeration, as each car is built from components sourced from European plants, for which duty would be recoverable.

However, the idea of compensation is likely to be a hypothetical situation as the UK government has said it is confident of striking a "free trade deal with Europe" after Brexit. In that case, Nissan may face few if any additional tax costs. Thus, Mr May's spokesman has conformed that Britain has not offered a "compensation package" to Nissan.

In fact, it if the UK did pay compensation, it would be seen as a subsidy which could fall foul of WTO subsidy rules, especially as there is no provision made in the EU's schedule of commitments, on which the UK would initially rely.

Should such subsidies distort trade, the EU could invoke the rules and take countervailing measures, which could mean punitive levies on UK produce, in addition to the base ten percent.

However, this is a fiendishly complex subject and it would a brave man who could predict the cost of trading under the "WTO option". But with yesterday's announcement, the possibility of the UK committing economic suicide is receding into oblivion.

The core issue here, though, is not tariffs. Outside the Single Market, the non-tariff barriers affecting exports to Europe would be such that Nissan (and any other vehicle manufacturer) would find it impossible to trade on the basis that it currently enjoys. And these barriers are far more significant and potentially more expense than any tariffs.

By convincing Nissan to invest in a post-Brexit UK, therefore, Mrs May has sent the clearest signal that she intends to keep us in the Single Market.