Landmark Japan-EU trade deal puts UK under 'strong pressure' to protect British car industry, analysts suggest

The UK will be under pressure to replicate the European Union's trade deal with Japan if it wants to protect thousands of jobs at car companies like Nissan and Honda, analysts have suggested.

Fears those Japanese firms may pull out of the UK if Brexit creates barriers to trade saw Theresa May hold a summit with company bosses in February. Then she was warned by Japan’s ambassador Koji Tsuruoka that “if there is no profitability of continuing operation in [the] UK ... no private company can continue operations”.

Her government may even have to make extra concessions in negotiating a separate free trade agreement, experts believe, due to potential disruption caused by the UK's exit from the EU.

Japanese prime minister Shinzo Abe and Jean-Claude Juncker, president of the European Commission, signed the comprehensive trade pact. If ratified before Britain leaves next March it is expected to apply in the UK during the transition period, granting some breathing room to negotiators.

Japan and the EU account for about a third of global GDP and their trade relationship has room to grow, according to European officials who expect the deal to boost the EU economy by 0.8 per cent and Japan's by 0.3 per cent in the long term.

But Hosuk Lee-Makiyama, a former EU trade official, warned that Britain would likely have to hew closely to the terms of the bloc’s deal if it wanted to retain Japanese investment and avoid the “really likely scenario that the EU and Japan would be better integrated than the EU and UK”.

He told the Financial Times: “Under such a scenario, we can easily assume that the Japanese investments currently going to the UK would flow to the single market or Turkey instead.”

Ross Denton, from law firm Baker McKenzie, agreed, telling Sky News: ”There will of course be strong pressure on the UK to replicate the EU’s agreement with Japan as part of its own web of new bilateral trade agreements.”

The European Commission believes that, by slashing tariffs on cars and parts between the bloc and Japan, production and jobs in Japanese factories inside the EU could rise. Currently Japanese car makers have 16 research and development centres, and 14 factories, inside the EU employing 34,000 people directly and supporting another 127,000 jobs.

But the car companies’ operations across national borders within the bloc could be hampered by Brexit, another expert said.

“As a result, I think there’s a strong possibility that Japan, as well as other countries who have an free trade with the EU, could seek further concessions” from Britain, Peter Holmes, an economist from the University of Sussex, told the Japan Times.

He added: “If they are getting a worse deal from Britain than before, they could say, ‘We want compensation on some other aspects of trade otherwise we will pull our investments out of the country'.”

Japan has been looking “closely” at how Brexit may affect car manufacturing in the UK, its chief negotiator warned earlier this year.

Trade envoy Yoichi Suzuki said: “Japan is taking a close look at Brexit and future relations between Britain and the EU because many of its car makers serve the European market from British bases and rely on free and frictionless trade between Britain and the continent.”

Additional reporting by agencies