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Brexit Commentary
BREXIT COMMENTARY
28 Sept 2020 by Alexander Kulitz

A fast trade agreement is essential

Boris Johnson has certainly not been short of surprises. The UK has struck its first major post-Brexit trade pact after signing a deal with Japan that aims to boost trade between the countries by about £15bn. The deal may only be of symbolic importance – it would boost UK GDP by a mere 0.07%, though government economists have forecast a 5% loss of GDP from leaving the EU customs union and single market. Boris Johnson’s government has shown it is able to reach a trade agreement with another major partner. But it still needs a deal with the EU. 

For German companies, a fast trade agreement is essential. The German economy will face major problems with the UK’s exit from the EU. Without an agreement, things will get worse. German companies should be prepared for the fact that there may be no agreement at all.  Even if a hard Brexit were to be avoided, it is already clear that there will be changes in many areas. The fact is that it takes a long time to negotiate large commercial contracts. CETA, the EU’s agreement with Canada, took more than seven years to pass. With the British, we would also like to see far more intensive economic relationships due to their geographical proximity. 

The first hurdle is that the changeover to new customs formalities and the processing of customs declarations alone will cost German companies several hundred million euros per year. Moreover, as we have witnessed, Brexit has already made its presence felt in the first half of 2020, with German exports to the UK plummeting by over 20 percent. By way of comparison, German exports to the EU fell significantly less in the same period. 

Furthermore, German companies are already investing less in subsidiaries in the UK. Fifteen percent of German companies are planning to relocate their investments from the UK to the continent due to the fact that they wish to reside in the European domestic market. 

Trade with the UK must be based on fair competitive conditions in the future. One of the main reasons for Brexit was that the UK wanted to “regain” sovereignty. The British fear that they might lose this if they agree to common standards. But we must settle on minimum standards for future trade. So far, the British side is not complying, even though they are pushing to get rid of customs. Of course the EU can only dispense with customs on the grounds of fair competition. Common standards are found in all EU trade agreements with third countries.

What the British must understand is that for about 85% of German companies the EU domestic market has absolute priority. In return, the companies are already willing to accept economic disadvantages in trading with the British. We also know that there will be a customs border between the EU and the UK. German and other European companies have to prepare for queues at the border.

Furthermore, a solution for the Ireland question has to be found. 80% of Irelands supplies travel by road through the UK. The UK would turn into a transit country – the EU should look at the solution of more ferries from Dublin to the EU main land, such as the one that runs from Dublin to Rotterdam.


***

Alexander Kulitz, Member of the German Bundestag (Free Democratic Party)



Resources:

https://www.europarl.europa.eu

https://www.ft.com

https://www.dihk.de


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