France signals volte-face on ‘Made in Europe’ subsidies for UK car industry

France has given the British car industry a major boost by suggesting that the EU could allow UK-made vehicles to qualify for “Made in Europe” subsidies.

Under current EU proposals, vehicles for corporate fleets and small electric vehicles would have to be assembled within the bloc to be eligible for public procurement and subsidies. Nissan, one of the UK’s biggest automotive employers, said it would shut its flagship Sunderland factory were the policy to take effect. 

France’s trade minister told the FT that his country was now asking Brussels to solve the “problem” of the UK’s exclusion.

“We will have to clarify this problem. They don’t belong to the EU, but they are very close neighbours. Of course, they’re very much integrated, so how do we solve this?” Nicolas Forissier said. “It should be discussed. I think it’s an important issue.”

The stance amounts to a significant change in direction from France, which was a big supporter of restrictive rules of origin in the Industrial Accelerator Act (IAA).

The IAA, which was approved by the European Commission in March, needs to be approved by member states and the European parliament before it becomes law.

Countries including the Netherlands are also pushing for UK inclusion, while German car companies such as BMW are keen to protect their UK operations, including production of their Mini car in Oxfordshire. 

EU officials say industry groups are pushing to have a smaller set of countries that would fully qualify as “Made in Europe” to preserve value chains, which would include the UK and others. But there would be conditions attached.

One diplomat said many member states had yet to adopt a position on the issue ahead of the first official discussion on the draft IAA, at a meeting of ministers on Thursday. 

Some states are concerned that further loosening the geographic scope of the law could weaken its goal of revitalising Europe’s industry, while members of the European parliament are also pushing for a more limited scope. 

The IAA is part of the Commission’s effort to shield strategic industries from imports, particularly from China. The proposal affects corporate fleets, which amount to 60 per cent of the European car market.

It allows countries that have free trade agreements with Brussels, including the UK, to be eligible for public procurement and subsidies in clean tech, heavy industry and parts of the car sector, provided they reciprocate.

But it excludes incentives connected to the greening of corporate fleets and a credit for small electric vehicles.   

The Commission said non-EU countries were excluded from these two policies because “they are not achievable if they do not also translate into growth and manufacturing activity in EU electric vehicle supply chains”.

UK ministers have been lobbying for changes in the Commission’s proposals since March.

One car industry figure said EU manufacturers supported the UK because of the integration of supply chains. According to the UK industry body SMMT, UK-EU automotive trade is worth €80bn a year.

The UK Department for Business and Trade declined to comment.