“Ein sehr harter Brexit” – a very hard Brexit?

United Kingdom

The Federation of German Industries (BDI), the largest organisation representing German industry, has advised German businesses to prepare for a “very hard Brexit”. According to Reuters, BDI Managing Director Joachim Lang told reporters that “German companies with a presence in Britain and Northern Ireland must now make provisions for the serious case of a very hard exit. Anything else would be naïve.”

 

A Brexit Task Force, set up by the BDI in early summer, includes major companies such as Airbus, Siemens, and Deutsche Bank. Its ten project groups are working on identifying “potential and acute risk arising from Britain’s departure and to present constructive proposals for solutions”. The BDI is concerned that, currently, there is no guarantee for even a single transition provision, let alone any agreement setting out the future relationship between the EU and the UK. It is not hopeful that trade negotiations will be part of the EU-UK Brexit negotiations any time soon.

 

According to German trade magazine Handelsblatt, the BDI believes that most of the British proposals are not very helpful. The BDI notes that the British government is ignoring questions relating to the finance industry, offers relating to European citizens are not sufficient, and the proposals relating to the Northern Irish border are not practicable. The proposals relating to customs administration are subject to a disproportionate administrative burden. The German Chamber for Trade and Industry has calculated that, following the UK’s exit from the single market, customs administration alone is likely to cost German businesses €500m. It expects similar costs for UK business.

 

The Brexit Task Force is expected to present its conclusions in December. These conclusions could help to shape the next German government’s position on Brexit. Says Lang, “German industry wants to keep a very close relationship with Britain. But have no doubt: we prioritise the further development of the EU.”

 

“The ball now lies in Britain’s court. The speech by the British prime minister in Florence two weeks ago by no means brought the clarity that had been hoped for.”

 

Because of the uncertainty around Brexit and concerns about future restrictions on trade with the UK, many German companies have already started quietly changing their trading strategies. A recent article in Die Zeit reported that lorries transporting goods between Germany and the UK used to be at full capacity both ways, but that many returning from the UK are now at 33% capacity or even less. This has led to some companies changing their routes and no longer serving the UK altogether, despite the low British pound.

 

Many German companies are not prepared to wait for the uncertainty around Brexit and a potential free trade agreement to be resolved. German companies are expecting the introduction of additional customs administration and trade barriers for the future, and are therefore already looking for new options which may replace the UK. German manufacturers in particular do not want to risk having to stop production just because the lorry carrying a vital component is stuck in customs.

 

According to Die Zeit, German exports to the UK declined by 3% in the first half of 2017 – in comparison, German exports to other EU countries increased by 6% during the same period. The German Chamber for Trade and Industry has recorder a decline of 3.5% since the referendum last year.

 

German industry overwhelmingly supports the unity of the EU and the single market. A report published in March said that 87% of German businesses would rather suffer losses with regard to trade with the UK than risk implications for free trade within the EU and the single market.

 

As that report showed, the priorities for German companies are free movement of trade, a low level of administration and the quick implementation of any Brexit agreement.

 

Brexit is due in March 2019, and there is no guarantee as to what the situation will be after that. Any separation agreement must be finalised by next autumn in time to be approved by the EU27, as well as by the EU and UK parliaments. The timing of any trade deal is unknown. Business cannot be blamed for making contingency plans now. Will trade and business create a new order by default, with the political negotiations following behind them?