Speaking out German business fears no-deal Brexit will cost €9 billion

Automakers will be worst hit, but bottlenecks threaten pharma and other critical industries. German CEOs are sounding the alarm.

The British parliament’s resounding rejection of the Brexit agreement Prime Minister Theresa May reached with the EU 27 has heightened fears that the UK will crash out of the bloc in a disorderly Brexit on March 29, disrupting trade and critical supply chains.

Around 1,300 German businesses surveyed by the Munich Ifo institute last week put the likelihood of a hard Brexit at 43 percent. Were the survey conducted now, following May’s humiliation and the fresh political confusion it has caused in Britain, the percentage would doubtless be higher.

A chaotic Brexit could cost the German economy €9 billion ($10.3 billion), according to Oliver Wyman, a strategic consultant. The auto industry would be worst affected with costs of €3 billion, followed by the chemicals, food and consumer goods industries which would take a combined €4 billion hit.

That said, British firms would suffer far more with likely costs running to €32 billion, the analysts said.

All 2,500 German businesses with operations in Britain stand to be seriously affected. British port operators have warned that a no-deal departure will cause kilometers of tailbacks due to the reinstatement of customs controls — even if they take just a few minutes per truck.

Some 11,000 trucks pass through the port of Dover each day. The boss of logistics group Kühne + Nagel, Detlef Trefzger, this week estimated that controls would mean that every truck at Dover would take 30 to 40 minutes to process without a deal. “That means a massive obstruction of the flow of goods between continental Europe and the United Kingdom,” he warned.

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Importers on both sides of the channel have been increasing their stocks in preparation, though warehousing is tight. “All capacities are fully booked,” Ulrich Hoppe, managing director of the German British Chamber of Industry and Commerce, told Handelsblatt.

Two approval procedures

The auto industry will bear the brunt because cars and components form 30 percent of Germany’s €84.4 billion ($96.3 billion) of exports to the UK. It’s particularly vulnerable to disruption because many firms run just-in-time production, meaning components are fitted as soon as they’re delivered. Around 1,100 European trucks enter the UK each day just to provide auto firms with components for their just-in-time systems, according to the Brussels-based Association of European Carmakers (ACEA). A hard Brexit will confront the industry with a major challenge.

“Rejecting the exit deal without having a concrete alternative for another viable option is politically reckless,” said Bernhard Mattes, president of the VDA German Association of the Automotive Industry.

Germany’s chemicals and pharma industry is concerned that products may face two approval procedures in future, for the British and the European markets.

A hard Brexit would render drugs licenses null and void and German pharma companies warn that healthcare could suffer both in Britain and the EU. A quarter of all medicines available in the bloc have a British license that applies for the entire EU.

Brexit would mean they could no longer be sold in the remaining 27 countries, meaning makers would have to reapply for licenses. That could take months because health authorities would be inundated with applications.

Governments urged to stockpile drugs

The German Medicine Manufacturers’ Association (BAH) urged governments to stockpile medicines. “People with serious diseases in particular must be able to continue taking the drugs they rely on — in the remaining EU countries and Great Britain,” it said.

However, shortages are mainly likely to affect patients in Britain, said the German Association of Research-Based Pharmaceutical Companies.

The VCI Chemical Industry Association estimates that customs duties alone will reach an annual €200 million based on export volumes of €11.2 billion. The sector stands to take an even bigger hit if British regulations for products like pesticides diverge from EU rules in future. Like with drugs, many chemicals and plastics have EU-wide licenses issued by Britain and could no longer be sold in the EU27 if no transitional arrangements are agreed.

It’s even possible that air traffic between Britain and continental Europe would be disrupted.

Germany’s small and medium-sized businesses, the Mittelstand, are confident that many industrial firms will be able to continue selling their goods in the UK even after a hard Brexit because they tend to make niche products that are hard to get from other suppliers. However, they’re deeply worried about bureaucratic bottlenecks in the form of new licensing procedures and customs controls as well as transport delays. The cost of changing export procedures would be huge — but would likely be passed on to British consumers.

So as the prospect of a disorderly Brexit sinks in, German CEOs are voicing their opinions with less restraint. The head of industrial giant Siemens, Joe Kaeser, said: “Brexit and its implementation are a blow to the European idea and to the European economic union that Europe won’t recover from for a long time to come.”

Several Handelsblatt correspondents contributed to this article, including logistics reporter Christoph Schlautmann, Munich-based reporter Axel Höpner, and London correspondents Kerstin Leitel and Carsten Volkery. David Crossland adapted this story into English. To reach the authors: [email protected], [email protected], [email protected] and [email protected]