Planned racetrack in Wales scuppered by EU state aid law

The circuit's developers had convinced Moto GP's organisers to award it the rights to host the prestigious British round of the world championship. [Corentin Foucaut/Flickr]

The future of a proposed motorsport venue in South Wales has been called into question after the Welsh government concluded that it would be unable to underwrite the site’s construction costs.

The Circuit of Wales is a planned motorsport venue near the town of Ebbw Vale in South Wales, which has promised to bring between 4,000 and 6,000 new jobs over the next decade. However, after conflicting legal advice, the Welsh government’s Minister for Business, Edwina Hart, decided that Cardiff Bay would be unable to underwrite the £357 million investment made by the project’s principle backer, Aviva. Citing an “unacceptable risk” amid concerns that the move could be in breach of EU law on state aid.

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The project’s advocates had pointed to the circuit’s potential to create jobs in an area that has been hard hit by the financial crisis and which is still adapting to the collapse of the steel industry in the area over the last few decades.

In an open letter to the first minister, Carwyn Jones, Hart highlighted that the government has already provided around £9 million to support the development, but that its offer to guarantee 80% of the investment was a non-starter for the Heads of The Valleys Development Company which is behind the project.

It is expected that negotiations will continue with Cardiff Bay and other potential backers.

The circuit had been granted the rights to hold the British round of the Moto GP world championship, motorcycle racing’s premier class of competition, wresting the event away from Silverstone, the so-called “home of British motor racing”. Silverstone will continue to host the race this year and in 2017, although what will happen beyond that remains to be seen.

The announcement of the arrival of Moto GP, which is one of the marquee events on any racetrack’s calendar, second only to Formula One, is thought to be the catalyst behind recent decisions by the Aston Martin and TVR car companies to move parts of their operations to Wales. Although, TVR made a statement yesterday (7 April) that Hart’s decision would not impact on their future plans.

EU state aid laws have been a central issue of the ongoing fight to save the Tata steelworks in Port Talbot and this latest setback to much needed investment in Wales may prove to be a thorn in the side of the pro-EU first minister, Carywn Jones.

The steel industry makes up a significant part of the Welsh economy and failure to find a buyer for the Port Talbot site could lead to thousands of job losses. If no solution can be found, further investment in Wales in other sectors could be jeopardised as well.

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Britain, France and Germany are among the countries to have asked the European Commission to help the steel industry, which is suffering from an import surge from China in particular and collapsing prices.

Some 4,000 British steel jobs were lost in October 2015 alone, equivalent to about a fifth of the sector’s workforce. The head of Britain’s largest steelmaker, Tata Steel Europe, has said it is impossible to compete with China when Beijing intervenes to prop up loss-making plants.

The European Commission announced plans on 16 March to speed up trade defence cases against cheap imports from China, and urged member states to stop blocking measures that could set higher duties against dumped and subsidised products.

One such measure would be the removal of the so-called lesser duty rule, which limits the tariffs that can be imposed on dumped or unfairly subsidised imports.

This has become a sticking point and a matter of division between EU countries. While France, along with other member states, supported the European Commission’s first proposal in 2013 to limit the lesser duty rule, the United Kingdom has argued against it, saying it could harm other parts of the value chain.

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