Japanese Auto Manufacturer Demands Tariff Cost Compensation from UK Government

Concerns Over 10% Additional Tariffs if EU and FTA Negotiations Fail
Withdrawal Also Considered

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Japanese automakers such as Toyota and Nissan have demanded compensation from the UK government for tariff costs amid concerns over a 'no-deal Brexit.' The UK, which is facing difficulties in the final stages of free trade agreement (FTA) negotiations with the European Union (EU), has been asked by these companies to cover the tariff costs that would arise if an FTA with the EU is not concluded. If trade negotiations fail, a new 10% tariff will be imposed on cars exported from the UK to the EU, inevitably causing difficulties for the industry.

According to the Nihon Keizai Shimbun on the 6th, Toyota, Nissan, and Honda have confirmed that they have requested such compensation from the UK government. It is difficult to offset the increased tariff costs solely through cost reductions, and including these costs in car prices could reduce the competitiveness of Japanese cars in the EU market. As of last year, the UK produced about 1.3 million cars, with Japanese cars accounting for about half of that. According to the Society of Motor Manufacturers and Traders (SMMT), if negotiations fail, the additional tariff costs for the automotive industry could reach 4.5 billion pounds (approximately 6.7 trillion won) annually.

Among Japanese automakers, it is known that withdrawal from the UK market is also being considered if the FTA between the UK and the EU collapses. Toyota has reportedly been reviewing the option of withdrawing from the UK market if a 10% tariff is imposed. Honda decided to withdraw in 2021. A senior Nissan executive expressed concern, saying, "(If the FTA negotiations between the UK and the EU fail) the entire business model in Europe will be at risk."

This reaction from the automotive industry was somewhat anticipated since the UK announced it would not rule out a 'no-deal Brexit.' Since the UK's decision to leave the EU last year, the automotive industry has been avoiding investment in the UK. Jaguar Land Rover halted production at its UK plants twice in April and November last year, and even announced plans to produce new cars at its Slovakian plant. Toyota and BMW have also decided to suspend production. The French automotive group PSA announced plans to halt new investments in its UK plants.

The Society of Motor Manufacturers and Traders predicts that if a no-deal Brexit occurs, the UK's car production will drop from 1.3 million units in 2019 to 1.07 million units in 2021.

However, it is uncertain whether the tariff cost compensation demanded by Japanese automakers will be granted. Keisuke Habuta, CEO of Owls Consulting Group, an expert in trade issues, said, "It is unusual for companies to demand tariff cost compensation from the government. Since this would be considered a subsidy, it could favor companies operating in the UK and potentially violate World Trade Organization (WTO) rules."

This content was produced with the assistance of AI translation services.