There has been some talk of whether Japanese companies who invested in the UK might seek compensation from the UK government, should the UK leave the EU in such a way as to materially damage their investments.
To understand the basis for such a claim, we need to travel back to the early 1970s to understand what lay behind Japanese manufacturing investment in the UK, and what promises were made. Japan had recovered from the devastation of WWII to become a successful economy and trading nation.
The oil crisis of 1973 revealed, however, that Japan was a nation that had to keep pedalling to stay on the bicycle. Over 90% of its oil was imported and 70% of its energy needs depended on oil. Exports were a means to buy this essential import, but agressive exporting had led to trade friction with western Europe and the USA.
Investing in manufacturing bases abroad was one way to mitigate this friction and the USA, Asia and Latin America were the main beneficiaries of this from the 1950s, with western Europe joining rather later.
The UK had just become a member of the European Economic Community, and the British government was looking at ways to give regional support to areas in the North East where coal, steel, shipbuilding and heavy engineering were in decline. The North of England Development Council opened one of the first UK regional offices in Japan in 1975 to attract inward investment.
NSK – one of the first Japanese manufacturers to invest in the UK
The first major automotive related manufacturing investment in the UK was by NSK (Nippon Seiko Kaisha), Japan’s leading ball bearings and steering column manufacturer, in 1974. NSK had begun a feasibility study of European production in 1971 and considered other locations such as Ireland and the Netherlands, all of whom offered generous aid and grants. In the end the UK was chosen because of proximity of supply industries, cultural similarities, moderate industrial relations and the view that sterling would be weak over the long term.
Although NSK’s investment in the UK was supported by the Minister for Industrial Development, Chris Chataway, the UK bearing industry sought assurances regarding the threat posed by Japanese competition. The joint communique promoted reciprocal investment in Britain and Japan, although there is no record of British ball bearing investment in Japan happening since. Instead NSK ended up acquiring the main British competitor, United Precision Industries in 1990, in addition to establishing a £7 million factory in Peterlee, County Durham, employing 220 people, which began production in 1976.
The 1974 deal was that NSK should invest in an assisted area, and at least one half of the output should exported, with one half of the value of the product to be added in Britain, and that there should be considerable substitution of the current Japanese imports of bearings. Chataway pointed out that it was “better for Britain that we should have investment in the UK serving the European market, rather than investment in Europe, from where the goods would be exported to Britain”.
The official reasons for choosing Peterlee were given by NSK as being the availability of skilled labour and a good factory site and a good communications network and local amenities. Government grants and loans of £1.4 million were also provided.
46 years later, NSK has to stockpile
Rolling on 46 years, NSK Bearings Europe now employs over 900 people in factories in Peterlee and Newark. It acts as a contract manufacturer to NSK Europe Ltd, with a turnover of over 1 billion euros, which sells 14% of its production to the UK and 70% to the EU, to the automotive and industrial sectors. NSK has had anti-dumping duties imposed on it by the EC but an EC investigation into it found that less than 60% of imported parts were used in its finished bearings, so it was cleared of being a “screwdriver” operation. So NSK has kept its side of the bargain.
NSK acquired Amatsuji in Japan (AKS Precision Ball in the UK) and expanded further in Europe – with factories in Poland and Germany as well as sales subsidiaries across the Continent. It has stockpiled on the assumption that there will be a no deal Brexit. If there is a no deal Brexit, the standard third country tariff on bearings is 8%.
So, although NSK’s investment deal was done over 40 years’ ago, a no deal Brexit would mean that the UK government has chosen to put a large obstacle in the way to NSK fulfilling the promise of that investment deal to export more than half of its UK production. It would be understandable if NSK felt this invalidated its commitment to invest in the UK. Presumably this kind of issue is why Japan has asked for some kind of investor state dispute mechanism to be put in place between Japan and the UK.
This post draws heavily on ‘Japan and the North East of England: From 1862 to the Present Day’, Marie Conte-Helm, The Athlone Press, 1989 and ‘Japanese Manufacturing Investment in Europe: Its impact on the UK Economy’, Roger Strange, Routledge, 1993.
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