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Fear of a hard Brexit: The upcoming exit from the EU is putting significant strain on British industry. Holger Kunze on the chances of a last-minute deal and the risks of the cliff edge.

By Holger Paul

Brexit is increasingly on the mind of British industry. EURIS, a task force that brings together various British industrial associations from the mechanical engineering and electrical industries, is looking for solutions and closer cooperation with other European associations. Holger Kunze, Head of the VDMA office in Brussels, recently attended a conference organized by EURIS in London. He shares his thoughts with us.

Mr. Kunze, what is the current mood in British industry regarding Brexit?
It is noticeable that nobody is talking about whether Brexit can be reversed any more. That option seems to be totally off the table. British industry has a very clear line that "the decision has been made, so let's make the best of it." But everyone is also very concerned that the Brexit process will go wrong.

What exactly are they worried about?
In the EURIS business associations, there is a fear that companies will not come out of it unscathed. The British mechanical engineering and electrical industries certainly do not feel as though their concerns are being listened to. When the British government talks about industry, they essentially just mean the automotive industry. And of course, everyone is worried about a hard Brexit, with economic relations between Europe and the United Kingdom falling off a cliff edge. It is noticeable that British industry has finally understood that they need to take their fate into their own hands and do something. That is why they now want to work much more closely with the EU than ever before.

But what does this mean in practice? After all, the rules will depend on the future Brexit regime...
To start with, British industry is focusing on building cooperations with their European partners, so that they can help shape the Brexit process. They want to help develop a free trade agreement that damages both sides as little as possible. There is now also much more interest in contributing to Orgalime, the European Engineering Industries Association.

Fraternization in the face of the oncoming crisis...
It is interesting to see the semantic problems that British industry runs into when they talk about the 27 other EU member states. They used to always call us Europeans, but they avoid doing that now, as they want to be part of that group after all. But they don't want to say "continental Europeans" either, as it sounds very separative. One representative therefore kept calling us "Central Europeans", but I found that a little strange, as did the Portuguese and Swedish representatives on the panel. What it does is demonstrate that British business now has a great need to be part of things again.

Is British industry making any impression on their own government here?
From what they say, it seems as though they do not feel they are being heard at a political level. On the other hand, staff from the British ministries who were also there were keen to stress that this was the first time such a widely supported event has been held on specific issues facing an industrial sector in relation to Brexit.

Are people talking about the worst-case scenario of a hard Brexit at all?
No, the British are very keen to emphasize the importance of not unsettling all the companies. Instead, they say that resources should be invested in cooperating with the Europeans in order to ensure that a good deal is ultimately reached.

What would be a good deal in the eyes of British industry? Is it even possible without the customs union?
Unfortunately, discussions on this are very vague. The customs union was barely mentioned at the conference. British industry is certainly in favor of a customs union, but they are wary of voicing their view on this highly political issue too publicly. The political climate surrounding this question is just too toxic, so it is probably a good idea not to dig too deeply. When it comes to what a free trade agreement might look like, however, the British unfortunately remain very vague. There was intense discussion on our proposal to develop a mechanical engineering chapter for such an agreement to prevent the technical rules from diverging. Ultimately, British industry needs support. It simply does not have the wherewithal to develop all this on its own. Also, our British colleagues are well aware that, without political support from European industry, a free trade agreement will not get off the ground.

And the clock is ticking...
Everyone knows that! And they know that everything will be decided at the last minute. Behind closed doors, government representatives even admit that they do not know how to solve the problem of the Irish border. The technical solution the British are proposing for border checks simply does not exist.

A very messy situation...
We have repeatedly heard criticism from the British side that the EU is stubbornly refusing to think creatively in the entire process. They argue that Brussels is just not willing to accept British ideas...

So the EU is sticking stubbornly to its principles, the British are not giving way, and there will be no solution in last-minute negotiations the night before Brexit - are we heading for a head-on collision?
I wouldn't rule it out. However, I think that the European Commission’s tough stance is primarily a negotiating position. And the British now appear much more willing to play an active role in guiding negotiations. Ultimately, the whole thing hinges on the political situation in the UK - whether Theresa May manages to hold the two wings of her party together and commit them to a single line. If she can't do that, it all falls apart.

How deep is the Brexit divide in the UK?
You definitely notice it when you talk to people. The country is divided, even some families are in crisis because they cannot agree on Brexit. But there is increasingly a sense that the decision has been made and the most important thing now is to make the best of it. However, the British overestimate their importance to the rest of Europe. Brexit is the top issue in the UK, and is also very important to us Germans, the Dutch and the Swedes - but there are many EU member states who are not really interested in Brexit at all.

What should mechanical engineering companies in Germany and other EU member states be preparing for?
We can only advise our companies to prepare for the worst. They need to analyze their supply chains and think about what a hard Brexit would mean for them and what countermeasures they can take. There is no way around it. But it is also important not to panic. There is still a chance that a good Brexit deal will be reached.

Further Information

VDMA European Office   |   VDMAimpulse 02-2018: "Trade after Brexit: A matter of cake and cherries"

Holger Kunze, Director VDMA European Office.

Interview with Holger Kunze: "The clock is ticking - Brexit looms"