Q&A: why Brexit is so important to Nissan (and Britain)

How will a hard Brexit dent Nissan? What can be done to smoothe the journey? Find out here …

Workers leave the Nissan car plant.

Workers leave the Nissan car plant after finishing their shift in Sunderland, north-east England.
Photograph: Scott Heppell/AFP/Getty Images

How could Brexit hurt Nissan?

The Japanese carmaker’s British arm, Nissan Motor Manufacturing (UK), sold 481,000 cars in the year to the end of March 2015, racking up sales of nearly £5.3bn. About 55% of those sales were exports to Europe, meaning annual sales to the EU bloc in that year totalled £2.9bn .

The EU applies a 10% tariff to cars imported from outside the single market, meaning Nissan could face a £290m annual Brexit bill if no free trade deal is struck. It could also face extra customs and VAT costs.

What can the UK offer Nissan?

The prime minister could seek a special free trade deal with the EU for the automotive sector, on the basis that the UK is a very big destination for European car sales and that tariffs could harm EU manufacturers more. But if Theresa May has made promises to Nissan based on winning that argument, it is a very big gamble indeed.

That implies some other form of support has been agreed for Nissan. The EU has rules curbing the use of state aid, to prevent countries propping up companies and industries to the disadvantage of competitors from fellow member states. However, there are exemptions available.

One exemption applies to companies who operate in so-called assisted areas – regions deemed in need of economic support. This permits investment in areas such as training and job creation – two pledges rumoured to have been made to Nissan.

Nissan’s Sunderland plant is bang in the middle of one of those assisted areas, meaning it can get grants of 10% of the value of an investment project.

Other exemptions apply, including for research and development, investment in energy efficiency and relief from environmental taxes.

So what’s the problem?

For a start, if Nissan really does expect a £300m hit, it’s unlikely that existing exemptions could offset that, even if they were all applied at the maximum rate.

“My feeling is that if it was within one of the exemptions, the government and/or Nissan would have said that,” said one state aid lawyer.

Another problem is that it is not just Nissan that wants help. While Nissan owns the largest car plant in the UK, it isn’t the only carmaker here and the others will want similar guarantees and assistance.

Other major sites include Vauxhall’s plants in Luton and Ellesmere Port, Jaguar Land Rover’s facilities in the West Midlands and Cheshire and Toyota’s plant at Burnaston, Derbyshire. All of those fall within assisted areas too, meaning they have a good case for demanding their own pay-to-stay packages.

Why do EU rules matter if we’re leaving?

If the UK isn’t in the single market – so-called “hard Brexit” – then World Trade Organisation rules on state aid would apply. These prohibit subsidies designed to boost exports, but are generally less stringent than the EU regime, which might indicate May would have a freer hand.

But Caroline Ramsay, a state aid expert with law firm Pinsent Masons, says it is not that simple.

“WTO would make it easier to give state aid, but we’re still going to have to negotiate a trade deal with the EU,” she said.

“The UK’s ability to do that will be severely impacted if it is not applying state aid rules of a similar nature to the EU.”

So what is May up to?

One state aid lawyer, who asked not to be named, said the opacity around the promises made to Nissan suggest May has decided to improvise, without offering concrete terms.

“Perhaps as part of the Brexit fever they’ve just decided they won’t follow the rule book,” he suggested. But he warned: “That would be unwise. The EU won’t engage with us if we’re subsidising our businesses.”

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