The Brexit Losers

Threatened by Division

According to a report concerning a leaked document on the current debate taking place among EU member countries, fears are growing that Brussels will not be able to take a united stand in its negotiations on the EU's post-Brexit relationship to Great Britain, because of heavily diverging interests among the remaining 27 EU countries. Due to this divergence, Germany is pleading for delaying the formulation of EU positions, as long as possible, the report on the leaked document notes. Berlin is thus demanding that Brussels wait until Great Britain concretizes its suggestions before taking its own position. This could prevent bringing divergences among the 27 EU countries into the open and giving the British side tactical advantages.[1] Berlin's approach, the report notes, threatens to "put the talks on both side's future relationship - already on a tight schedule - under pressure even before negotiations begin."

Losses for the Industry

The divergence of interests among the EU27 regarding the Brexit can, in part, be quantified, for example concerning Germany's interest to preventing trade barriers for the automobile industry or at least to keep them as low as possible. Trade barriers for the automobile industry would hardly affect the EU27 majority. The opposite is true for German companies such as BMW, which has taken over the British traditional brands Rolls Royce and Mini. Both brands are produced in Great Britain and up to 80 percent of the Minis are being exported to the EU27. Inversely, Great Britain is the BMW's fourth largest sales market - close behind Germany. In 2016, the company sold over 250,000 vehicles. More than 180,000 of them had been delivered from the continent. BMW must expect substantial losses from trade barriers. In addition, the company has its motors produced in the vicinity of Birmingham - more than 250,000 motors in 2016, and earlier, occasionally even more than 400,000 - that were subsequently mounted in the vehicles on the continent, therefore having to be imported from Britain. BMW is not the only one. According to reports from the industry, German auto manufacturers and their suppliers maintain nearly 100 production sites in the United Kingdom, whose supply chain extends through several EU countries.[2] According to calculations by the German Chambers of Industry and Commerce (DIHK), a return to WTO regulations, would threaten the German automotive industry, alone, with annual customs costs of "more than €2 billion."[3]

Controversy over the Customs Union

For the automobile industry, other problems arise from the fact that exported vehicles, according to the terms of various EU free trade agreements only enjoy duty-free status, if a certain proportion is produced within the EU. That proportion is 55 percent for exports to South Korea, at 60 percent for exports to Switzerland.[4] If Great Britain exits the EU, it will become more difficult to achieve the relevant percentages, especially if - as in the case of BMW - complete motors are imported from the United Kingdom. Experts estimate that these account for 20 - 25 percent of the vehicle's total value. It is quite conceivable to have future cars "mainly" manufactured in the UK and rely on London's own free trade agreement, it is reported.[5] In fact, Great Britain intends to reach these agreements after leaving the EU - even with such countries as India, with which Brussels has not been able to reach a free trade agreement, due to strong differences among EU member countries. An expert on foreign trade laws has been quoted saying that in light of the difficulties facing Germany's automotive companies, "one solution could be that the British could remain within the customs union," after all, "car manufacturers would ... not be able to relocate their British engine factories throughout the EU from one day to the next."[6] Great Britain's Prime Minister Theresa May has now turned down the prospect of the United Kingdom remaining in the customs union.

The Value of Free Circulation

The interests are very different for several Eastern and Southeastern European EU countries that do not dispose of Germany's industrial wealth - and from where a large number of their citizens have immigrated to Great Britain in search of work. Around one million Poles are living currently in the United Kingdom, the money they send home to their families and friends amounts to 1.5 percent of Poland's GDP. Already during the first seven years following Poland's joining the EU, nearly £ 23 billion - an annual average of £ 3 billion - was sent to Poland. Citizens from other EU27 countries, who had immigrated to Great Britain, provided even higher shares of their home countries GDPs. In the case of Slovakia, it amounted to nearly 3 percent of the GDP; Hungary had long since surpassed the 3 percent threshold. The money that the 200,000 Lithuanians living in Great Britain send home - Lithuania only has a population of 2.9 million - oscillates around 4 percent of Lithuania's GDP. The money sent home to their families and friends that the approximately 100,000 Latvians, living in British Isles - 5 percent of Latvia's population of hardly 2 million - accounts for 6 percent of Latvia's GDP.[7] This explains the interests behind why some of the most anti-migrationist countries of the EU want to insure their citizens' comprehensive freedom of circulation.

Escalating Tensions

Even though diverging interests provide considerable potential for conflict, tensions among the EU27 have already been significantly escalating. Germany's dispute with the Visegrád countries [8] over the admission of refugees is notorious. The conflict with Poland over restrictions on the independence of its judiciary is accentuating. It is similar with Rumania. In addition, Great Britain has been contributing €14 billion in net annual payments to Brussels' budgets, which will be missing in the future. This will likely provoke severe cuts and the accompanying conflicts among the EU27 over how the remaining money should be used. The fact that the Brexit negotiations are being determined at the highest working levels by Germans, is not contributing to a relaxation of tensions. Martin Selmayr, head of cabinet to the President of the European Commission Jean-Claude Juncker, and Sabine Weyand, Deputy Chief Negotiator to Brexit negotiator Michel Barnier are both natives of Germany, as well as Elmar Brok (CDU), the European Parliament's Brexit Sherpa.[9] That they will be taking German interests into consideration can be taken for granted. The same cannot be said for the interests of Eastern and Southeastern EU countries.

[1] Spaltet Großbritannien die EU-Länder? Frankfurter Allgemeine Zeitung 05.02.2018.

[2] Carsten Dierig, Anne Kunz, Andre Tauber, Philipp Vetter: Diese Branche wäre das erste Opfer des Brexits. welt.de 03.04.2017.

[3] Brexit verteuert den bilateralen Handel mit der Insel. dihk.de 04.01.2018.

[4], [5], [6] Carsten Dierig, Anne Kunz, Andre Tauber, Philipp Vetter: Diese Branche wäre das erste Opfer des Brexits. welt.de 03.04.2017.

[7] Sarah O'Connor, Gemma Tetlow, Helen Warrell, Henry Foy, Amy Kazmin: Brexit decision hits migrant workers' wages sent home. ft.com 17.08.2016.

[8] Poland, Czech Republic, Slovakia, Hungary.

[9] See also An Authoritarian Rule.