Negotiations between the European Union and Great Britain

VCI Position Paper on the Impact of Brexit on the Chemical-Pharmaceutical Industry

In this position paper VCI gives a first overview of the most important fields for the chemical-pharmaceutical industry which are impacted by Brexit. Where this is already possible, recommendations for positions are derived for the second negotiating phase. Our goal is to actively accompany the negotiations in the coming years, update our positions according to the state of the negotiations, describe the impact on our industry to politicians, and contribute potential starting points for solutions to the debate.

In the forefront of the second phase of the negotiations between the European Union and Great Britain, VCI has stated the sector's position on the brexit and illustrated its impact on the German chemical-pharmaceutical industry. - Photo: © vchalup/stock.adobe.com
In the forefront of the second phase of the negotiations between the European Union and Great Britain, VCI has stated the sector's position on the brexit and illustrated its impact on the German chemical-pharmaceutical industry. - Photo: © vchalup/stock.adobe.com

In a Nutshell

Cohesion in the EU while maintaining the fundamental freedoms has high priority for the chemical-pharmaceutical industry in the Brexit negotiations. At the same time, the economic damage to both sides should be kept as low as possible. Finally, the impact of Brexit on German chemical companies will depend on the concrete shape of future trade relations.

Beside the possibility of tariff payments of 200 million euros annually, even higher burdens can be expected should regulation take different paths in the future in the EU-27 and the United Kingdom (UK), respectively – e.g. regarding the European chemicals regulation REACH or the authorisation of biocidal and plant protection products. The high standards in the protection of human health and environment, as achieved by EU legislation, should be kept up in harmonised form in the EU-27 and the UK also in the future. In order to ensure this, the EU should strive in the exit negotiations for a comprehensive partnership, investment and trade agreement with the UK.

Background

In mid-2016 the voters in the UK decided by a small majority for leaving the EU. Consequently, on 29 March 2017 the British government formally notified the European Council of its intention to withdraw from the European Union, according to Article 50 of the EU Treaty. The UK and the EU have only two years to agree on the exit modalities and the form and content of their future relations. The Commission represents the EU in the negotiations which, as wanted by the Commission, are structured in two separate phases. The prerequisite for starting the second negotiating phase on the shaping of future trade relations was a unanimous European Council decision at the summit on 14/15 December 2017. This decision was taken, and thus, the second negotiating phase can go ahead.

The Position of VCI

Already before the official start of the exit negotiations the German chemical industry association VCI emphasised that the achievements of European unification must not be put at stake in the Brexit negotiations. Cohesion in the EU while maintaining the fundamental freedoms has high priority for the chemical-pharmaceutical industry. At the same time, the economic damage to both sides should be kept as low as possible. In order to ensure this, the EU should strive in the exit negotiations for a comprehensive partnership, investment and trade agreement with the UK.

Impact on the Chemical-Pharmaceutical Industry

Finally, the impact of Brexit on German chemical companies will depend on the concrete shape of future trade relations. For example, should the British government introduce chemical and pharmaceutical tariffs equal to the existing external tariffs of the EU, tariff payments of ca. 200 million euros annually would become due for Germany’s third largest industry. Presumably even higher burdens could be expected should regulation take different paths in the future in the EU-27 and the UK, respectively – e.g. regarding the European chemicals regulation REACH or the authorisation of biocidal and plant protection products.

The UK is an important trading partner and one of the largest markets in the EU for the German chemical-pharmaceutical industry. In 2016 the industry sold goods worth just under 12 billion euros to the UK (6.7 percent of German chemical exports). Specialty chemicals and pharmaceuticals accounted for the largest share. In the same year, German chemical companies imported products worth over 6.4 billion euros from the United Kingdom. This corresponds to 5.2 percent of German chemical imports and includes mainly pharmaceutical inputs and petrochemicals. The German-British foreign trade balance in chemical products is highly positive. Over the past five years, exports to the UK rose considerably while imports fell.

The UK also has an important role as a production and distribution location for German chemical companies – even though this importance dropped somewhat in 2015 when the UK ranked only 10th among the major foreign locations. The stock of direct investments of German chemical companies in the UK amounted to roughly 1 billion euros. In 2015 there were 40 UK subsidiaries of German chemical companies, employing around 8,000 staff and achieving sales of 3.9 billion euros. The commitment of British investors to German chemistry was clearly higher, with direct investments exceeding 2.6 billion euros.

Content of VCI's Position Paper

VCI takes a closer look on the following issues und shows the perspectives and the position of the chemical-pharmaceutical industry for each of these issues:

  • Aspects of trade policy and customs legislation
  • Chemical safety and environmental legislation
  • Intellectual Property Rights
  • Competition law
  • Energy and climate policy
  • Further topics

Please find VCI's complete position paper with a size of 8 pages in the download section at the top of this page. (so-called "Langfassung")

For questions or suggestions, please feel free to contact us.

Contacts

Attila Gerhäuser

E-Mail: gerhaeuser@bruessel.vci.de