Nissan decision highlights UK impact of EU-Japan FTA

Ed Ratcliffe, Head of Advisory

The EU-Japan FTA is a tangible representation of what the UK stands to miss out on post-Brexit – a comprehensive deal with a major economy, on a platter. The UK will benefit from the FTA for a minimum of 57 days should no deal occur, a couple of years if a deal is reached, or potentially permanently if the UK has a much closer relationship.

The entry into force of the FTA on 1 February 2019 gives Japanese car manufacturers access to the EU market. Dubbed the “cars-for-cheese” deal, the moniker implies the deal would not have been that good for the UK – the UK produces Japanese cars for the European market, and cheese (and by implication, other high-end agriculture products) is not as important to the UK as some other EU member states. However, the deal is incredibly far-reaching and it is unlikely that the UK will be able to improve on the high bar the EU has been able to set due to its market size, especially in difficult areas that are crucial to the UK such as services.

In the context of the recent Nissan announcements, the deal was not necessarily supportive of Japanese car manufacturing in the UK. However, given the combination of Brexit – which could cut off the EU market from UK manufacturing bases, and the FTA – which opens up new Japan-EU trade options, it is hardly surprising Nissan is paring-down its commitment to the UK, joining the hundreds of jobs, contracts, companies, headquarters, and unmeasurable growth opportunities.

Certainly the immediate and long-term uncertainty of Brexit is causing companies such as Nissan to reconsider their commitment to the UK, but there are other aspects to consider. The X-Trail is a diesel car – now much less attractive to produce for the European market given the recent war on diesel in the UK and declining tolerance in Europe. As mentioned, the EU-Japan FTA makes it more convenient to import Japanese-made cars to the EU directly, reducing one of the main drivers of having production in the EU anywhere at all, as long as global freight prices remain reasonable. It is also worth mentioning the current internal issues Nissan is facing with the arrest of its Chairman and CEO Carlos Ghosn at the end of last year, events which have unknown consequences on investment decisions.

As usual, the picture is more complex, but Brexit, the FTA, consumer and market dynamics are creating a perfect storm for Nissan in the UK.

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