Flag symbolizes Brexit; Source: istockphoto.com/melis82

© istockphoto.com/melis82

Overview

On 29 March 2017, the UK government formally notified the European Union of its intention to withdraw from the EU.

On 19 June 2017, the United Kingdom and the European Commission took up negotiations on the United Kingdom’s withdrawal from the European Union and, after intensive negotiations, agreed in November 2018 on a Withdrawal Agreement and a political declaration setting out the framework for the future relationship. On 17 October 2019, the chief negotiators of both sides agreed on a slightly modified package, which was endorsed by the Heads of State and Government at the European Council (Article 50 TEU) on 17 October 2019.

Essential elements of the withdrawal agreement are grandfathering arrangements for the rights of EU citizens (in German) living in the UK and British citizens living in the EU and the fulfilment of the UK’s financial obligations under the current Multiannual Financial Framework. A transition period until the end of 2020 is also planned. This period can be extended once by a maximum of two years by virtue of a joint decision of the EU and the United Kingdom. During this period, EU law will continue to apply to the United Kingdom in principle, but without the UK being represented in the EU institutions. The UK would also remain a member of the EU internal market and customs union during this period. The agreement also contains governance rules to ensure effective implementation and enforcement of the agreement. According to the revised Protocol on Ireland/Northern Ireland included in the Withdrawal Agreement, Northern Ireland shall be part of the customs territory of the United Kingdom after the transition period, while having a special customs partnership with the EU where the EU customs code will basically be applied. Furthermore, all relevant EU internal market rules will continue to apply in Northern Ireland. The necessary controls will take place and customs duties will be levied at the entry points of the island of Ireland in Northern Ireland. This solution is to guarantee both peace on the island of Ireland and the integrity of the EU internal market.

You can find an overview of the contents of the Withdrawal Agreement here (PDF: 2 MB) (in German).

The revised Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom provides for an economic partnership and a security partnership. As regards the economic partnership, the aim is to conclude a comprehensive Free Trade Agreement. In view of the geographic proximity and the close ties between the EU and the UK, robust and comprehensive arrangements are to be adopted in order to guarantee a level playing field. As regards the security partnership, the aim is comprehensive and close cooperation on internal and external security based on reciprocity. The details of the future relationship will be negotiated after the United Kingdom’s withdrawal from the EU.

What are the next steps?

For the withdrawal agreement to enter into force, it must be approved by the European Parliament and formally ratified by the British Parliament.

On the European side, the Withdrawal Agreement was forwarded to the European Parliament for approval. The European Parliament declared that it intends to wait until the UK has successfully concluded the ratification procedure before it opens the approval procedure.

On 22 October 2019, the UK Parliament basically adopted the Withdrawal Agreement Bill, while rejecting the related timetable. The approval procedure cannot be resumed before the general election on 12 December 2019. The details are not yet clear.

On 28 October 2019, the European Union therefore unanimously decided to extend the withdrawal period in accordance with Art. 50 TEU upon the UK’s request until 31 January 2020. The aim is to give UK policymakers more time to create clarity on important questions concerning the adoption of the Withdrawal Agreement and the nature of the future relationship.

During the extension of the so-called Art. 50 deadline, negotiations on the future relationship cannot be taken up yet.

Finally, the European Council underlined its clear expectation that the United Kingdom adhere to the principle of loyal cooperation and, in particular, that it does not impede the EU’s further development.

The EU has thus done all it can to support an orderly withdrawal. However, the risk of a no-deal Brexit on 31 January 2020 still remains.

Brexit preparations by the Federal Government

Since the summer of 2016, the German Federal Government has been working hard to prepare for the United Kingdom's withdrawal from the EU and is taking precautions for all conceivable scenarios:

The Federal Government continues to advocate an orderly withdrawal of the United Kingdom from the EU. In view of the transition period provided for in the Withdrawal Agreement, a Transitional Brexit Act (in German) has been adopted.

At the same time, the Federal Government is continuing to prepare for a no-deal Brexit. In this case, the EU rules would no longer apply to the United Kingdom as of 1 February 2020. This would have far-reaching consequences for citizens, business and the administration.

In order to cushion the consequences of a no-deal Brexit, the Federal Government has taken a number of legal measures and measures below the level of legislation. These include the Act on transitional arrangements in the areas of employment, education, health, social affairs and citizenship (in German). The Brexit Tax Accompanying Act (Brexit-StBG) (in German) is to ensure that Brexit itself does not trigger undesired consequences for taxation even though all the main tax measures will have already been adopted before the departure. Also, the act will include provisions on financial services which aim to avoid undesirable effects due to a no-deal departure. The Fourth Act to Amend the Transformation Act (in German), which entered into force in January, extends the possibilities to organise an orderly switch from a “limited” to a German corporate structure. Further to this, the Federal Government has initiated other measures below the level of legislation, e.g. relating to residency and labour market issues, the staffing of the customs service and various licensing bodies.

FAQs on the consequences that a disorderly Brexit will have for companies can be found here.

EU preparations for Brexit

As it prepares for Brexit, the Federal Government is closely coordinating its actions with its European partners and the European Commission. The European Commission is also working intensively to prepare for the UK’s withdrawal from the EU. In July 2018, it presented a Communication (in German) explaining various possible exit scenarios and providing specific advice for various fields of action. The Communication is addressed to all EU citizens and companies that could be affected by Brexit. In November 2018, the European Commission published a second Communication (in German) outlining the measures to be taken by the EU in the event of a disorderly departure of the United Kingdom. In December 2018, the European Commission issued a third Communication (in German) outlining specific emergency measures to be taken at European level in the event of a hard Brexit. In April and June 2019, the European Commission presented in a fourth and fifth communication the measures which have been taken by the EU in case of the UK leaves the EU without a deal. In its sixth communication dated 4 September 2019, the European Commission announced that the preparations for a departure from the United Kingdom have been completed on the EU side. The periods in which specific emergency measures are in place are to be extended. In this communication, the Commission calls on all economic operators also to make the necessary preparations and provides a checklist for companies.

Companies in particular are called upon to actively prepare for legal changes. As the United Kingdom will becoms a third country, this can lead to drastic changes depending on whether follow-up arrangements are made for the future relationship and on what these are. These changes may affect, for example, trade in goods and the provision of services. Therefore, the European Commission has published more than 90 notices (Preparedness notices/European Commission) which outline the impact of Brexit in various fields that are important to the economy and which include necessary preparatory measures. The European Commission has also published an up-to-date Brexit checklist (in German) and a customs guide.

Further information on the preparations for Brexit can be found on the website of the Federal Foreign Office (in German). A catalogue with questions and answers is also available on the website of the Federal Government (in German).

Associations and other organisations are also offering comprehensive information on their websites about the impact of and preparations for Brexit:

Background information

The United Kingdom in the European Union

The United Kingdom joined the European Union on 1 January 1973, together with Denmark and Ireland. This brought the number of Member States to nine. The United Kingdom comprises Great Britain (England, Wales and Scotland)
and Northern Ireland. With around 65 million inhabitants, the UK accounts for 12.8 per cent of the total EU population. On 23 June 2016, UK citizens voted in a referendum to leave the European Union.

Current economic relations with the United Kingdom

The United Kingdom is Germany’s sixth most important trading partner (trade volume in 2018: €119.03 billion). For Germany, the UK ranks fifth in terms of exports and eleventh in terms of imports. In 2018, the volume of German
exports to the United Kingdom totalled €82.09 billion. UK imports amounted to €36.94 billion.

Around 2,300 German enterprises employing approx. 433,000 people were doing business in the United Kingdom in 2017 (source: Deutsche Bundesbank). German investors in the United Kingdom include Siemens, Bosch, BMW, VW, Daimler, RWE, E.ON, Deutsche Post, Deutsche Bank, Deutsche Bahn, Linde, Lidl, Aldi, Bayer, BASF and Heidelberg Zement. In 2017, German direct and indirect investment in the United Kingdom totalled roughly €145 billion.

More than 1,500 UK firms employing a total of around 286,000 members of staff were operating in Germany in 2017 (source: Deutsche Bundesbank). In 2017, UK direct and indirect investment in Germany totalled €38.1 billion, focussing on the manufacturing industry, the chemical sector and the oil industry (including BP, Shell, GKN, Rolls Royce).

Possible impact of the withdrawal on the German and European economies

Brexit will have economic repercussions for the EU Member States and especially for the United Kingdom. The extent of this impact will much depend on the shape of future relations between the EU and the UK.

A study by the ifo Institute commissioned by the Federal Ministry for Economic Affairs and Energy contains an initial assessment of the economic impact on the German and European economies. The findings of the study show that even in the most unfavourable scenario, the impact of Brexit on the EU economy, and the German economy in particular, ought to be manageable in the long term. That said, there may well be some sectors that are hit harder by these developments. You can find the study (in German) here (PDF, 1 MB).