Brexit assurances secured Toyota investment as CBI warns trade deal by 2019 ‘impossible’

17 July 2017

Brexit assurances secured Toyota investment as CBI warns trade deal by 2019 ‘impossible’

17 July 2017

The British government intervened to secure Toyota’s major £240 million (€273 million) investment to upgrade its UK plant for its next-generation vehicle platform architecture, Reuters has revealed. It follows similar promises to Nissan, as the UK battles for investment since the Brexit vote, with investment forecast to fall precipitously by 75% from two years ago. Meanwhile, the large business lobby group the CBI has painted a stark picture of the UK’s EU negotiations, saying it will be ‘impossible’ for all trade deal details to be in place by ‘Brexit Day’ on 29 March 2019. However, a PwC webinar has outlined key times businesses should look out for in determining how Brexit negotiations are progressing – with the first coming up by the end of the year.

Toyota announced on 16 March this year that it would upgrade its car platform at its Burnaston plant, a decision that had been delayed since December for reasons including Brexit, according to one of Reuters’ two sources. The UK government sent Toyota a letter, following one it sent to fellow Japanese carmaker Nissan last year. This Nissan letter led to the politically-crucial landmark announcement that Nissan would build its next-generation Qashqai – its best-selling crossover in Europe – and X-Trail – the world’s best-selling SUV crossover at its gigantic plant in Sunderland, the largest in the UK and one of the largest in Europe. The EU reviewed the contents of Nissan's letter and has taken no action. Another deal with Volkswagen Group’s Bentley subsidiary has also remained confidential.

The source said: ‘[Toyota] received a similar set of warm words as Nissan on electric vehicles, commitment to further training [to boost the local workforce once immigration is reduced] and to ensure the competitiveness of the UK automotive industry,’ the source said. Toyota’s March statement on the announcement also added the government was providing funding for training and research and development. They also stressed at the time that ‘continued tariff-and-barrier free market access… will be vital for future success.’ It said in January it would have to take steps to boost competitiveness as it looks to keep both car and engine production in the UK. Japanese carmakers Nissan, Toyota and Honda account for around half of Britain’s total car output, with Toyota itself accounting for about 10% of the UK’s annual 1.7 million annual car production.

Britain said in March it would support Toyota’s investment with a £21.3 million (€24.3 million) spend to support skills and training, research and development, and innovation, subject to an independent assessment. Last year, UK business minister Greg Clark said the assurances offered to Nissan were available to all other firms – suggesting the UK investments are spread across the sector. The UK Government has justified not releasing the letters to Toyota and Nissan by saying that they include information ‘both highly commercially sensitive’ and that ‘would be likely to cause harm to the company’s commercial interests if disclosed.’ The contents will be released in due course once commercial sensitivity has elapsed.

The reality that investment this year is expected to fall 75% despite these deals shows the daunting battle the UK Government is under with investment taking flight. The news earlier this month from the head of the influential CBI lobby group, Carlolyn Fairbairn, that it was categorically ‘impossible’ for a fully detailed trade deal to be completed by the day of Brexit in March 2019, adds further to the uncertainty facing businesses.

She said it would be ‘wasteful, difficult and uncertain’ if businesses had to adapt twice – first to the so-called ‘transitional arrangements’ after 2019 being mooted by the government – and then to a final post-Brexit arrangement perhaps two to three years further down the line.

Instead, she called for the ‘common sense’ approach to stay in the EU single market and customs union – which allows for tariff-free trade without customs red tape – until the final trade deal between the UK and EU is finally in place.

She said: ‘The urgency is simply growing. March 2019 is tomorrow for a lot of businesses. They are having to make their plans now.’

Regardless, businesses including the auto sector should be watching the developments of the Brexit negotiations carefully, in order to ascertain how confident they should be about how the negotiations are progressing, and therefore what headwinds they should expect from the UK business environment over the next few years. The PwC webinar ‘Beyond Brexit webcast: seeking certainty in uncertain times’ outlined key dates and a timeline businesses should watch out for to see whether any UK-EU deal is to be completed on time.

A key point from the EU side is that the European Commission says that the UK cannot expect as good a deal as EU members do as this could encourage other countries to leave the union. Therefore, the UK cannot expect ‘frictionless trade’ outside the single market and customs union – so UK goods will take a degree of a permanent hit to competitiveness on EU trade following Brexit.

It has also said that any transitional arrangements after March 2019 will be up to three years maximum in duration – however, this transitional arrangement will only be decided at the very end of the negotiating process.

In terms of the timetable, while in theory a two-year negotiating process, the negotiations themselves actually have to be completed by October 2018 – little more than a year from now – because the EU needs to vote through the agreement and other processes need to be completed in Brussels before the March 2019 deadline, and Brussels is a pretty slow beast.

The first deadline businesses should watch for is in October-December this year, after the German elections, when the first three opening issues need to be resolved before the main bulk of the negotiations can begin. These are the rights of EU citizens in the UK (and vice versa), the Irish border and, most contentiously, the multi-billion ‘exit bill’ for the UK leaving the EU.

If progress is good at the end of this period, businesses may be able to rein back contingency planning for the worst case scenario of the UK failing to reach any deal with the EU.