The government’s rash assurances to Nissan

How can the business secretary make any promises about Brexit?

November 01, 2016
©Owen Humphreys/PA Archive/PA Images
©Owen Humphreys/PA Archive/PA Images

So Brexit may not quite mean Brexit. Nothing else explains the deal the government has offered to Nissan to keep it investing in Sunderland. The city bizarrely voted for Brexit even though it is dependent on the Japanese car company and the export market for thousands of jobs. A decision by Nissan to produce its new models elsewhere would have created an instant crisis for the government.

Under pressure from the media and the opposition, Greg Clark, the business secretary, was forced to reveal that the assurances he has given Nissan will apply to the rest of the automotive sector. That was self-evident, as individual companies are not allowed to benefit from special treatment by governments (though there are whispers this is not quite the case in France or Germany, let alone South Korea or Japan).

The notion that Clark could just stay mum about what exactly he had committed the government to was never sustainable. Other companies in a similar situation would soon be pressing him for the same kind of arrangements. Indeed, Hitachi, which has a factory assembling trains in nearby Newton Aycliffe, will also want a deal to ensure that it can export to Europe without hindrance, even though at present it has no such orders.

Clark said on The Andrew Marr Show on Sunday that “our objective would be to ensure that we would have continued access to the markets in Europe and vice-versa without tariffs and without bureaucratic impediments. That is how we will approach those negotiations.”

Yet how can he make such a promise and how come Nissan swallowed it? Clark appears to be pre-empting negotiations that have not even started and by showing his hand is giving the European Union a key advantage. He seems to accept that promising financial recompense for any tariffs would be illegal. Since it is the EU that bans such state aid, it might be argued that he could get around the rules since we are leaving. Not so. Any company with subsidiaries operating in the EU is banned from receiving such subsidies, and even if a way were found round that, the World Trade Organisation also frowns upon them.

As for Nissan, publicly at least it seems to have accepted that the government could not compensate it directly for any tariffs that the EU would impose. However, for the company to commit to building a new model at the factory suggests there is rather more promised than Clark revealed to Marr.

Much less noticed than the Nissan deal was the announcement by Vauxhall that it expects to lose some $400m this year because of the fall in the pound and is now considering restructuring its European operations as a result. We are prepared to take whatever action is necessary to put Europe on the path,” GM’s finance chief, Chuck Stevens said on 25th October, putting in doubt 4.500 jobs at the company’s Luton and Ellsmere Port plants. Prices of its cars have already been raised by 2.5 per cent because of the higher cost of imported parts.

The Nissan episode shows the complexity of the issues involved around Brexit. There will be lots of running commentaries and this example suggests there will be different approaches for each industry. It is the lawyers who will be laughing all the way to the bank while the rest of us get slowly poorer.