Is Toyota putting pressure on the UK government to move more quickly on a transitional deal for UK-EU trade?

Is Toyota putting pressure on the UK government to move more quickly on a 'transitional' deal for UK-EU trade?

Toyota plans to build the next generation of its Auris car at its UK plant (Burnaston) but has yet to make a final decision, according to a Reuters report.

Reuters reported that the decision rests on the assumption that the UK government will secure a so-called 'transitional' Brexit deal and cited anonymous sources familiar with the matter.

The report also said a final decision is due to be made by the end of the year.

In a statement, Toyota said that there are 'no imminent decisions to take on our UK manufacturing businesses' but also stressed the importance for competitiveness of continued tariff and barrier free market access between the UK and Europe.

The statement said: "Toyota announced investment upgrades for its vehicle plant at Burnaston some time ago, which shows we are doing all we can to ensure our UK operations are as competitive as possible. The company's position on Brexit has remained consistent since the UK referendum – that a competitive environment for the UK automotive sector must be maintained in the future. This means continued tariff and barrier-free market access between the UK and Europe that is predictable and uncomplicated.

"There are no imminent investment decisions to take on our UK manufacturing businesses. With regard to specific models, Toyota has never commented on future production plans as a matter of course."

Toyota's Burnaston plant makes the Auris and Avensis models and made some 180,425 units in 2016 (with around 75% of output accounted for by Auris and some 85% of all output exported, mainly to Europe). Toyota also makes vehicles for the European market at a plant in Turkey.

The investment in a new Auris would keep the UK plant going and secure thousands of British jobs - not only at Toyota's UK manufacturing facilities (which include an engine plant) but also in the UK supplier industry. The current UK-made Auris model is due to finish within the next few years (the next-gen Auris replacement for Japan is due in 2018), so a final decision on the investment required is becoming more urgent - and appears to have already been delayed amid Brexit uncertainties.

The UK auto industry's representative trade association, the SMMT, has called for an early agreement on post-March 2019 transitional arrangements for UK-EU trade in order to help businesses with investment plans and reduce uncertainty over trade costs.

Under the Brexit timetable, the UK will leave the EU at the end of March 2019. However, there is concern that the timetable is not long enough to negotiate a comprehensive UK-EU trade deal and that a transition of up to two years needs to be agreed if the UK is to avoid the immediate 'cliff edge' of relying on WTO trade rules. WTO rules would likely mean tariffs on goods exported from the UK to the EU (a 10% common external tariff - or CET - applies to cars imported from non-EU countries that don't have an EU free trade deal in place). A transitional period would likely not exceed two years from March 2019. In theory, the two-year period (it could be longer in practice) is used to negotiate a comprehensive trade deal between the UK and the EU and gives UK businesses continued free access to the EU's market when the UK formally exits the EU, with little change from current arrangements.

However, the EU maintains that 'transition' means continuing existing customs arrangements rather than embarking on a newly negotiated arrangement. But staying in the EU customs area would make it difficult for the UK to strike free trade deals with other countries around the world. It could therefore be a cause of further disagreement, not only between London and Brussels, but within the UK government itself, which is already seeing sharp political divisions over the position the UK should be adopting in its Brexit negotiations with Brussels (which have yet to even start on the subject of future trade arrangements).