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The effects of Brexit on the Brandenburg economy

Great Britain is one of the most important trading partners of the state of Brandenburg. British companies are among the most important foreign investors. How could the UK's exit from the European Union (EU) affect the Brandenburg economy? An intermediate result.

On June 23, 2016, the citizens of the United Kingdom voted in a referendum with 51.9 percent to leave the European Union (EU) - the so-called Brexit. Originally, the UK's membership in the EU was supposed to end on March 29, 2019. The deadline was initially postponed to April 12, 2019 and then to October 31, 2019. The heads of state and government of the EU-27 agreed with the United Kingdom in October 2019 to postpone Brexit until January 31, 2020.

After intensive negotiations, the European Council and the British government initially agreed on a withdrawal agreement and a political declaration on the framework for future relations in November 2018. This did not find a majority in the British Parliament. Votes on other Brexit models also failed to find a majority in the British House of Commons.

Prime Minister Johnson negotiated an amended exit agreement in October 2019. The question of how the border between Ireland and Northern Ireland can remain open after Brexit has been clarified again. In addition, it was agreed in a political declaration that there should be a free trade agreement between the EU and the UK by the end of 2020. The British Parliament voted in principle for the domestic implementation law (so-called Withdrawal Agreement Bill) on October 22, 2019, but rejected the associated timetable. After the parliamentary elections on December 12, 2019, in which Prime Minister Johnson's Conservatives were able to record an election victory, the withdrawal agreement was reintroduced into parliament on December 20, 2019 and approved. After the current ratification of the Withdrawal Agreement, the United Kingdom has left.

The exit agreement provides for a transition period until December 31, 2020, which can be extended once for up to two years until June 30, 2020. However, UK transposing law provides that no extension will be requested.

A trade agreement is to be negotiated during the transition period, during which the UK is still bound by EU rules. The content of a trade agreement is determined by the mandate given to the EU Commission by the Council for future relations. On December 13, 2019, the Council asked the EU Commission to submit a draft of a comprehensive mandate for future relations with the United Kingdom to the Council immediately after the United Kingdom left. The mandate will be based on the content of the political declaration. According to this, a free trade agreement ("comprehensive and balanced free trade agreement") should form the basis of future economic relations. Due to the geographical proximity and the close economic ties, robust and extensive agreements should be made, in particular to ensure fair competitive conditions (“level playing field”). Orientation should be provided by the high EU standards applicable upon exit in the areas of state aid, competition, social and employment standards, environmental protection, climate change and tax issues.

Long-term economic impact

The long-term economic effects of an exit are currently difficult to assess. They depend to a large extent on the shape of future economic relations between the EU and the United Kingdom. The ifo Institute carried out an in-depth analysis of the economic effects of Brexit on behalf of the BMWi. The results of the study show that in the scenario of a comprehensive and ambitious free trade agreement, real gross domestic product (GDP) would be 0.6 percent lower in the UK and 0.1 percent lower in each of Germany and the EU.

In the absence of a bilateral agreement and a relapse to most-favored-nation tariff rates under the World Trade Organization (WTO), the effect on UK GDP would be long-term -1.7 percent, in Germany -0,2 and in the EU27 average at -0.3 percent. With a view to the economic sectors in Germany, the largest relative losses in value creation would be recorded in pharmaceutical products, as well as in the automotive and mechanical engineering sectors.

Effects on the Brandenburg economy

The United Kingdom is traditionally one of the ten most important trading partners of the state of Brandenburg. In addition, British companies are among the most important foreign investors in Brandenburg and have created many jobs in the state. In 2019, the United Kingdom had a Brandenburg export of just under 586 million euros 7th place in the ranking of the most important Brandenburg export destinations (1st place: Poland with 2.3 billion euros). In terms of Brandenburg imports, the United Kingdom had a value of 957 million euros even in 5th place (1st place: Russia due to high imports of crude oil and natural gas with 3.8 billion euros).

Brandenburg's foreign trade with the United Kingdom has remained stable at roughly the same level in recent years. In 2019, however, there was an increase in Brandenburg exports to the United Kingdom of 25 %. This can be attributed to a sharp increase in exports in the aircraft sector. In this area, however, there are always strong fluctuations from year to year. Brandenburg imports from the United Kingdom are down over the same period 6,4 % sunk.

Most important Brandenburg export products in the United Kingdom in 2019 aircraft (17.2%) were chassis, engines and other parts for motor vehicles (12.1%), paper and cardboard (9.3%) and pharmaceutical products (6.7%).

Most important Brandenburg import products from the United Kingdom in 2019 were aircraft (59.4%), measurement and control products (5.1%), pharmaceutical products (2.6%) and coffee (2.2%).

The effects of Brexit on Brandenburg's trade with the United Kingdom are currently difficult to predict, as the basis for future trade relations is still open. A relapse to WTO rules would become an obvious one for companies with foreign trade relations with the United Kingdom extra effort to lead. For small and medium-sized companies that otherwise only trade within the EU, there will be a need to acquire know-how in the field for the first time Customs clearance to acquire.

 

Information and help for businesses

• EU Commission: Preparatory communications

• IHK Ostbrandenburg: Information and checklist for companies

• IHK Südbrandenburg: Information and checklist for companies

• DIHK - German Chamber of Industry and Commerce e.V .: Brexitcheck / Brexit checklist

• Federation of German Industries (BDI): Brexit guidelines

Information for British citizens in Brandenburg

• Ministry of the Interior, Building and Home Affairs: Information for British nationals and their family members on the right of residence under the Withdrawal Agreement

 

Further links on Brexit

• Federal Ministry for Economic Affairs and Energy: Frequently asked questions about Brexit

• European Commission: Preparing for Brexit

and action plan for the emergency as well as notifications on individual areas

• DIHK - German Chamber of Industry and Commerce e.V .: Brexit

• Federation of German Industries (BDI): Brexit

• Germany Trade and Invest (GTAI): Brexit