Brexit and the EU-Blessing or curse

While Brexit is official as for the start of February 2020, the political rollercoaster has left people with dizziness and confusion. Voting results are news of the past, the transition period is our current present but what implications does the UK leave have on the Netherlands and Germany?

The Netherlands

Business relocation

Since the 2016 referendum, the number of UK companies thinking about moving to the Netherlands gained incredible momentum. During last year alone, 397 firms relocated to the windmill country according to the Netherlands Foreign Investment Agency (NFIA), 78 cited Brexit as the reason. From the same organization, we have caught word that other 425 are considering moving or expanding their operations.

Economic landscape

The current negotiations still bring uncertainty on what the future holds. Many companies are waiting for decisions on economic agreements before making a move. Nevertheless, projections by the Netherlands Bureau for Economic Policy Analysis depict negative consequences: costs amounting to 1.2% of Dutch GDP or 10 billion euros, by 2030.

On a positive note, the 78 Brexit-wary firms that moved to the Netherlands last year are expected to invest 64 million euros in the first three years, creating around 1.800 jobs.

VAT consequences

As no clear compromises have been announced, the only speculation possible is that the UK will have its own VAT system. The new UK VAT system may look very similar to the current system but still presenting differences. A higher risk of double taxation or situations of non-taxation may appear.

As Dutch companies frequently trade with the UK, the new UK VAT will entail aggravations on supply chain and e-commerce. If losses in trade-induced innovation are taken into account, the above 1.2% rises to 2% of the Dutch GDP.

Germany

Business relocation

In the period leading to Brexit day, British companies registered as many new jobs in Germany with the federal agency for relocation in 2019 as never before. With 23 new settlements, 680 jobs are to be created - more than in the two previous years combined said the managing director of Germany Trade and Invest (GTAI).

Economic landscape

In the event of a hard Brexit, DIW Berlin calculates that the growth rate of gross domestic product in Germany is likely to be 0.6 percentage points lower in the first year and 0.2 percentage points lower in the second year after the hard Brexit.

The greatest fear in connection with Brexit is that jobs in Germany could be at risk. Around 460,000 jobs in Germany are linked to exports to the UK - a good 60,000 of them in the automotive industry. This emerges from a study by the Nuremberg Institute for Labor Market and Vocational Research (IAB). No other country in the world orders more cars from German plants than Great Britain

On the other hand, according to a study by New Financial, around 40 financial firms are moving from London to Frankfurt am Main, creating new jobs in Germany.

Legal climate

EU budget

The EU budget is used to finance policies across the block, ranging from developing rural areas to security to the promotion of human rights. EU member states face between 60 and 75 billion euro gap because of Brexit. Currently, the European Parliament registers disagreements between member states about how to fill this gap and how to spend the budget for the next 7 years. From one side, there are 15 nations that do not want a smaller budget but on the other hand, there are states, such as the Netherlands and Germany, who believe the EU should cut its budget and allocate more funding to new policy areas, such as technology and climate change.

Employment rights

The UK will, in theory, be free to diverge from EU law. How quickly any such divergence is likely to happen in practice is hard to predict. That will depend partly on the trade deal the UK negotiates with the EU. There is nothing in the Withdrawal Agreement itself that has any direct impact on employment law. Fortunately, there are a few sentences in the non-binding political declaration that commits both the UK and the EU to maintaining “high standards” of employment rights.

Immigration policy

The Withdrawal Agreement between the UK and the EU provides for a transition period until 31 December 2020, during which existing EU free move movement rules will remain in force.  There should be no material change to the right of EU nationals to move, to live and work in the UK during the transition period. UK Government has released a Policy Statement containing details about the new points-based immigration system which will come into force on 1 January 2021. The proposals build largely on the recent recommendations of the Migration Advisory Committee and provide for a unified set of rules to cover EEA and non-EEA nationals alike. Under the points-based system, applicants will require a minimum of 70 points to qualify for permission to work in the UK. The UK Government intends to open the key routes from Autumn 2020 so that migrants can lodge applications ahead of 1 January 2021.

Trade relationships between UK and EU after Brexit

Trade Agreement between the UK and the EU should be covering substantially all trade. There is a proposal for a separate agreement on fisheries that will take back control of UK waters, as its right as an independent coastal state; an agreement on law enforcement and judicial cooperation in criminal matters to help protect the public and bring criminals to justice; and agreements in technical areas covering aviation, energy and civil nuclear cooperation which will help ensure continuity for the UK on its new footing as an independent sovereign nation. Getting a deal on these preliminary proposals will largely determine the commercial-legal relationship between the UK and the EU. There is a high likelihood of imposing import duties on a very large number of goods produced in the EU.

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References

NL

https://www.iamexpat.nl/expat-info/dutch-expat-news/brexit-record-number-foreign-companies-move-netherlands

https://www2.deloitte.com/nl/nl/pages/tax/articles/brexit-a-dutch-perspective.html

DE

https://www.handelsblatt.com/politik/international/brexit-folgen-das-sind-die-brexit-folgen-fuer-grossbritannien-deutschland-und-die-eu/24129260.html

https://www.haufe.de/personal/hr-management/brexit-auswirkungen-auf-den-deutschen-arbeitsmarkt_80_483832.html

https://www.diw.de/de/diw_01.c.704233.de/publikationen/diw_aktuell/2020_0026/nach_dem_brexit_kommt_die_uebergangsphase__deutsche_wirtschaft_leidet_weiter_unter_unsicherheit.html

https://www.t-online.de/finanzen/id_87206958/vor-brexit-britische-unternehmen-schaffen-hunderte-jobs-in-deutschland-.html

Legal climate

https://www.euronews.com/2020/02/13/the-battle-for-the-eu-budget-begins-as-brexit-leaves-15-billion-annual-vacuum

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12019W/TXT(02)

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/866744/CCS0120013106-001_The_UKs_Points-Based_Immigration_System_WEB_ACCESSIBLE.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/868874/The_Future_Relationship_with_the_EU.pdf