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Nissan – a Brexit benefit?

One of the emerging themes of the UK media’s coverage of the end of the Brexit transition period is the tendency to present problems avoided, such as the absence of queues of lorries at ports (actually caused by a sharp reduction in trade) as a positive “benefit” of Brexit.

The same is happening with the recent (very positive) announcement by Nissan’s COO Ashwani Gupta that the company would not in fact be closing its flagship plant in Sunderland after all (an outcome only ever contemplated because of the UK’s decision to leave the Single Market and the EU Customs Union). In contrast to his previously negative comments about the effects of Brexit, Mr Gupta instead talked of the company benefiting from a “competitive advantage”.

So – has Brexit indeed created a competitive advantage for the UK automotive sector ? The answer is in fact not so straightforward.

Nissan’s decision to commit to maintaining Sunderland is probably a result of 2 key factors.

First, it’s undoubtedly a result of the UK’s undertaking in its Trade and Cooperation Agreement with the EU (TCA) to align with the EU on automotive standards. These standards are in fact set at a UN level (UNECE – WP.27) – although happily there seems to be no protest (yet!) that this somehow infringes UK sovereignty.

This commitment to align with the EU has meant that UK car manufacturers will continue to enjoy many (albeit not all) of the benefits of Single Market and Customs Union membership. There are some additional regulatory and customs costs but for a company the size of Nissan they are manageable.

Another key (and more negative)  consequence of the TCA is that UK and EU producers have to comply with complex Rules of Origin requirements to maintain Tariff and Quota free access to each other’s markets. Put simply, if a company uses too many components from outside the UK and EU then its products become subject to tariffs. The current threshold is currently 40%, rising to 45% from 2023 and to 55% from 2027. This poses a particularly acute problem in the crucial field of electric vehicles where most UK and European car manufacturers currently import their batteries (which often make up over 50% of the value of a car) from the US and East Asia.

In principle this is actually very bad news for the British automotive sector as a whole; a domestic supply chain needs to be created very quickly and at potentially prohibitive cost. As Ralf Speth, CEO of Jaguar Land Rover is quoted as saying in the industry journal AM Online : “If batteries go out of the UK, then automotive production will go out of the UK”.

Nissan however, have been able to leverage their relationship with the battery producer Envision, conveniently based close to Nissan in Sunderland in premises the company previously owned. By sourcing batteries locally Nissan will avoid the Rules of Origin issues the rest of the domestic car industry is likely to face.

In the medium term however, any competitive advantage Nissan currently enjoys will disappear once large scale battery production in the EU commences (and indeed significant plans for this are already in the pipeline).

So, on closer scrutiny, what was claimed to be a Brexit benefit looks likely to be brief, relates specifically to Nissan’s particular circumstances and results to a large extent from the UK’s decision to align with the EU on automotive standards rather than to diverge.

Nevertheless, Nissan’s decision to invest in Sunderland is clearly unalloyed good news and it is  just as well that when the Prime Minster said in his Christmas Eve speech that : “We have taken back control of every jot and tittle of our regulation, in a way that is complete and unfettered” he was clearly talking about a different agreement to the one he had just signed.

This blog post by Jon Esner originally appeared on LinkedIn

Nissan steering wheel