What no Brexit deal means for ‘Made in Germany’

Frankfurt – To the business-minded, the thought of a no-deal Brexit conjures up images of trucks queuing for hours, stuck behind closed borders, or production delays because parts cannot move across closed borders in a timely fashion.

But it’s so much more than that, warn German business groups.

Should Britain leave the EU without a deal, it could mean everything from disrupted holidays to questions about fishery rights to the future of international finance.

“A ‘no deal’ does not just mean trade in goods facing customs, but it could bring trade between the EU and Britain to a complete standstill for the time being,” said Dennis Snower, head of the Kiel Institute for the World Economy.

So it’s worrying for German business that a no-deal Brexit is looking more likely now that the British parliament voted down a plan worked up by British Prime Minister Theresa May and the EU, and with only 10 weeks to go.

“Businesses on both this side and the other side of the English Channel continue to be left hanging in mid-air. A chaotic Brexit is drawing dangerously closer,” says Joachim Lang, chief executive of the Federation of German Industries (BDI).

Thousands of regulations governing trade and movement between Britain the European Union could suddenly become invalid after March 29. Here is a run-down of the main sectors affected.

FINANCE

The financial sector would be one area with the largest disruptions. A number of banks have stated their intention to shift jobs from London to other financial centres.

Once Britain has left the EU, banks will no longer be able to conduct their operations from London as at present. The banks will need legally independent units in an EU member state to provide services like deposits and loans.

According to the most recent data from Germany’s BaFin financial supervisor, more than 45 financial institutions are in the process of establishing a presence in Germany or expanding their operations. Most of them have chosen Frankfurt as the location.

Many institutions are planning to dispatch some of their current staff to Frankfurt, but with a disorderly Brexit there could be additional hurdles. Labour lawyers have warned that it is by no means certain that bankers currently based in London will be able to obtain the necessary work permits.

MANUFACTURING

There would also be problems in manufacturing.

Britain is the fifth largest market for machinery produced with the hallmark “Made in Germany” label. Machinery worth some 7.3 billion euros (8.3 billion dollars) was exported to Britain in 2017. Imports from Britain came in at 2.6 billion euros.

Germany’s Mechanical Engineering Association (VDMA) has warned that this key export sector can expect considerable delays in trade in both directions and urged its members to check their supply chains for where they are dependent on British suppliers.

“The time up to March 29 is running out, and Britain must now come up with solutions urgently on how the withdrawal agreement can be concluded after all,” VDMA President Carl Martin Welcker urged.

AUTOMOBILE

Britain is also an extremely important export market for German cars, while German carmakers are major producers in Britain, led by BMW with its Mini and Rolls-Royce brands.

“Without orderly and practicable solutions for goods transport, jobs in the automotive sector, particularly on the British side, are at risk,” Bernhard Mattes, president of the German Association of the Automotive Industry (VDA) said.

BMW has already made its preparations for a hard Brexit. The annual manufacturing shutdown at the Rolls Royce plant in Goodwood is being moved forward to April. And the company plans to shutter its Oxford plant, where the Mini is produced, for around a month after Brexit in order to avoid possible bottlenecks in the supply of components.

Opel says that it has made preparations at its plants in Britain assembling its sister-brand, Vauxhall, without providing details.

PHARMACEUTICALS

Britain is also both a major export market and manufacturing site in the chemicals sector. According to the Germany’s VCI chemicals industry association, some 17,000 workers employed by German firms produce precursors for the sector.

In the event of a disorderly Brexit, the lack of permits could “shut down supply chains at a stroke,” hitting customers in the automotive, consumer goods and construction sectors, the VCI said.

Trade volumes in the sector collapsed by almost 10 per cent to 16 billion euros in 2018. Medical supplies producers fear “medical bottlenecks” in Britain, noting that a billion of packs of medicine currently pass back and forth between Britain and other EU member states every year. While pharmaceutical companies have stockpiled supplies in Britain, whether they will be sufficient remains unclear.

AGRICULTURE

German agriculture is also concerned. German Agriculture Minister Julia Kloeckner points out that German fishermen rely on agreements to fish in British water for some of their most important catches.

“An open market with the United Kingdom remains our highest priority,” said Joachim Rukwied, head of the German farmers association.