EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

Europaudvalget 2016-17
EUU Alm.del Bilag 507
Offentligt

Potential impact of

Brexit

The perspective of Danish businesses

March 2017

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

The possible impact of Brexit on Danish

businesses

The Danish business community views the prospect of the United King-

dom leaving the European Union with a mixture of regret and apprehen-

sion about how it will affect the close and long-standing economic rela-

tionship between the two countries. In 2015, Danish companies exported

goods and services worth almost €10 billion to the UK, making it Den-

mark’s fifth-largest export market. Additionally, 53,000 Danish jobs are

connected to UK-bound exports. Meanwhile, the more than 700 Danish

subsidiaries in the UK employ close to 90,000 people in the country.

These figures paint the broad picture of why the United Kingdom’s de-

parture from the world’s largest and most integrated free trade area wor-

ries Danish businesses. Therefore, the first and most important priority

for the upcoming negotiations should be the achievement of a deal that

secures an orderly British exit with as little market disruption as possi-

ble.

However, a solid separation agreement and some sort of transitional ar-

rangement – difficult as they may be to achieve – will do relatively little

to alleviate the business community’s long-term concerns and to eradi-

cate the prevalent feeling of uncertainty. Accomplishing these elusive

objectives will require a detailed deal between the UK and the EU27 that

takes into consideration the intricate issues of importance for the future

bilateral trade and investment partnership.

The complexity of this process cannot be underestimated. The negotia-

tors’ task is firmly in the realm of uncharted territory. First, contrary to

traditional free trade negotiations, the two parties begin talks at a

higher

level of market integration and will work towards a

lower

level than the

status quo. Second, a traditional, symmetrical trade deal that satisfies

both parties will be difficult to achieve. For instance, single market ac-

cess for British financial services cannot simply be reciprocated with a

similar access to the British market for EU banks. The final deal will need

to be either asymmetrical with a significant degree of issue linkage, or it

will be a very narrow, symmetrical arrangement dictated by the lowest

common denominator. From the perspective of Danish businesses, the

latter alternative would be completely undesirable.

This problematic asymmetry touches upon one of the most significant

challenges regarding the Brexit negotiations: the many different Euro-

pean sectors with significant exports to and investments in the UK. The

Danish case provides a clear example of this diversity, with the Danish

exports to the UK spanning a very wide range of sectors and enterprises:

From agricultural and food products, over mechanical and electronic de-

vices in the energy, environmental and medical industries, to services in

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

construction, transportation and IT sectors. Furthermore, the common

rules and standards of the Single Market have enabled not just large

Danish corporations, but also countless of small and medium-sized en-

terprises to sell their products on the British market.

Danish goods exports to the UK, 2015

Food and agricultural products

Machinery, mechanical and electic appliances

Products of the chemical or allied industries

Mineral products

Textiles and textile articles

Other goods

10% 15% 20% 25% 30% 35%

Danish services exports to the UK, 2015

Transport services

Construction services

Other business services

Telecomunnications and computer services

Travel services

Other services

10%

20%

30%

40%

Sources: Statistics Denmark, Eurostat

The vast bulk of these exporting companies with stakes in the UK market

are members of the Confederation of Danish Industry (DI). With over

10,000 member companies, 80 pct. of which have fewer than 250 em-

ployees, spanning numerous sectors, DI represents the broad and di-

verse interests of the Danish business community. Due to this wide-

spanning base, DI is well poised to provide balanced and concrete input

regarding the concerns of the exporting Danish enterprises that make up

the backbone of the small, open and trade-oriented economy of Den-

mark.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

Indeed, the purpose of this paper is to emphasize a number of issues

and worries related to Brexit, as expressed by both large and especially

small and medium-sized Danish enterprises.

Market Access

Danish businesses across sectors and sizes are concerned about the pro-

spect of reduced access to the British market.

The most obvious barriers in the forms of tariffs could materialize once

the UK leaves the EU’s Customs Union. Barring an acceptable conclusion

to the article 50 negotiations, the imposition of WTO most favoured na-

tion tariffs would result in a significant and tangible increase in the cost

of trading with the UK.

Additionally, Danish companies in all sectors are particularly concerned

about the very real possibility of increased non-tariff barriers to trade.

The deep integration of the Single Market has enabled a large degree of

regulative harmonisation and the adherence to common standards re-

garding a large variety of products. If the UK embarks on a path of reg-

ulative divergence on areas such as energy consumption, food safety or

environmental standards, such new laws would constitute considerable

barriers to trade. Even if the current British government pledges to

maintain common standards, Danish companies are worried about en-

forcement and access to recourse if – at a later point in time – this course

is abandoned.

It is important to underline that the issue of market access is of particu-

lar concern for smaller Danish enterprises that at present benefit greatly

from common standards and easy access to the British market. Their

limited capacity to deal with new and different requirements would pre-

sent considerable obstacles regarding trade with and operations in the

UK.

Level playing field

Another category of concerns that DI’s member companies have voiced

regards the maintenance of a level playing field. In this regard, the EU

has adopted and enforces common rules on competition policy, state aid,

public procurement, and work environment – to name a few. These com-

mon rules benefit agile and innovative companies and allows them to

compete relatively seamlessly across borders to the benefits of consum-

ers and associated businesses.

There is a significant risk that these benefits could be jeopardized once

the UK leaves the Single Market. If the UK government decides to em-

ploy state aid, restrictive public procurement tenders, UK-specific pro-

fessional certifications or local content requirements in order to benefit

domestic companies, the condition of free and fair competition would be

compromised. Danish companies with interests and investments in the

British market are worried about such prospects.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

Ideally, the final agreement between the UK and the EU27 will therefore

include mutual commitment to a level playing field.

Administrative burdens

Aside from restricted market access and a skewed playing field, Danish

enterprises are concerned that British exit from the Single Market will

result in increased administrative burdens across sectors. When the UK

leaves the Customs Union, the result is not just potential tariffs and non-

tariff trade barriers. It also implies new bureaucratic procedures regard-

ing rules of origin, forms and certifications. These administrative bur-

dens require additional time and resources, which again results in a dis-

proportionate detrimental impact on small and medium sized enter-

prises.

The prospect for additional compliance requirements and restrictions

also holds true for services. Whether the service in question is the proper

installation and maintenance of a machine, or of an architect’s real es-

tate project, the possible new hindrances are many. Examples include

work permits, additional certifications, and outright restrictions on the

deployment of employees. This is a concern for many Danish companies

with frequent activity in the UK – or with existing investment projects

in the country.

Market access, a level playing field, and potential administrative bur-

dens constitute some of the main, overarching, horizontal issues that

DI’s member companies have voiced in discussions on the potential im-

pact of Brexit on their business. In the sections below, a select number

of major Danish industries with significant exports to and investments

in the UK provide a more concrete and contextualized description of

some of these major concerns in addition to underlining some more sec-

tor-specific, vertical issues.

All in all, Danish businesses are interested in a future relationship be-

tween the EU and the UK that rests upon the following, crucial pillars:



Maintenance of as close and frictionless economic ties as possible

between the EU and the UK;

Mitigation of the adverse impact of Brexit for companies and con-

sumers;

Establishment of legal certainty as soon as possible regarding the fu-

ture partnership between the two parties as well as predictability

about the negotiation and transition processes.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

The implications of Brexit for Danish en-

ergy companies

The United Kingdom is the third-largest export market for Danish en-

ergy technology and related services. In 2015, Denmark exported energy

technology goods amounting to €552 million to the UK. Similarly, the

UK is a very significant market for foreign direct investment in energy

supply and infrastructure. The stock of Danish investments in the UK’s

supply sector amounted to €5.5 billion in 2014, representing 77 pct. of

total energy utility-related investments abroad.

Danish energy utility-related investments abroad,

2014

Other

23%

77%

Source: Central Bank of Denmark

Danish energy companies are very competitive in a number of high-de-

mand areas in in the UK. Wind technology is the most important of

these, accounting for €269 million of the goods exports and €121 million

of the services exports in 2015. Other important export categories in-

clude control and integration of renewable energy sources, biomass and

waste-to-energy power plants, district heating solutions, as well as sus-

tainable and energy efficient machinery and components for the building

industry.

Areas of concern for the Danish energy sector

3.1 Market Access

Danish energy companies have benefited greatly from the relatively free

access to the British market. The absence of tariffs and non-tariff barri-

ers in particular significantly improve the conditions for the export of

energy, energy technology as well as knowledge and services within the

field.

However, the Danish energy sector is concerned about the potential pro-

spect of increasingly restricted market access. Certain non-tariff barriers

to trade are already a reality in the UK. Examples include local content

or local production requirements in public procurement tenders for off-

shore wind and other energy-related projects. Should the number and

scope of such non-tariff barriers to trade increase, it would naturally

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

make it harder for the Danish energy industry to compete on the British

market.

In a similar vein, maintaining aligned environmental and safety stand-

ards as well as close regulatory cooperation between the UK and the EU

will contribute to the continued attractiveness of Britain as an important

market for energy-related exports and investments.

3.2 Protection of investments

As illustrated above, the UK energy market has attracted significant

amounts of FDI from Danish companies.

One important driver for this increase in investments has been the stra-

tegic and stable energy and climate policy course set in London. Another

significant factor has been the UK’s participation in the European energy

framework and the availability of financing from institutions such as the

Connecting Europe Facility and the European Investment Bank. Fur-

thermore, Danish investors in the UK’s energy sector have benefited

from a clear and predictable framework for investment protection and

dispute settlement, as well as effective and efficient enforcement of such

rules.

It is in the Danish energy industry’s interest that these pillars for invest-

ment confidence remain in place, ensuring the viability of existing pro-

jects and attracting future ventures.

It should be noted that energy investments in the UK not only benefit

the investors and the British economy. The development of the North

Sea energy infrastructure is of great strategic importance to Denmark

and other neighbouring countries. Continued cooperation with the UK

will be especially crucial for obtaining the maximum benefits from off-

shore wind energy in the region.

3.3 Access for skilled employees

Free, flexible and frictionless deployment of employees on all levels is of

utmost importance for the highly specialized companies in the energy

sector. The efficient composition of cost-effective project teams regard-

ing e.g. offshore wind, biomass, waste-to-energy and district heating

ventures is contingent on freedom of movement.

Maintaining as free movement of labour as possible is important in both

directions. It will enable more cost-effective Danish energy projects in

the UK, just as it will allow for UK experts and workers to contribute to

energy projects in Denmark – and elsewhere in Europe. Unnecessary bu-

reaucratic barriers to movement would increase cost, lower productivity

and slow down development of energy projects of common interest.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

The implications of Brexit for Danish

food companies

The United Kingdom is the third-largest export market for Danish food

companies. In 2016, Denmark exported food, agricultural products and

ingredients amounting to €1.6 billion to the UK. The main export goods

from the Danish food sector to the UK are meat, mostly pork meat prod-

ucts, fish and fish products, and compound foods.

Danish goods exports to the UK, 2016

(million euros)

Food sector; 1,594

Other; 3,863

Source: Statistics Denmark and DI-calculations

Similarly, the UK is a significant market for foreign direct investment for

the Danish food companies. The stock of Danish food companies’ invest-

ments in the UK amounted to €1 billion in 2015, representing approxi-

mately 5 pct. of the total foreign direct investments originating from the

Danish food sector.

Areas of concern for the Danish food sector

3.1 Tariffs

The risk of reduced market access is the greatest concern for Danish food

industry. Danish food companies have hitherto benefited greatly from

the free access to the British market. The UK market has historically

been one of the most important export markets for Danish food prod-

ucts. The absence of tariffs and non-tariff barriers in particular has sig-

nificantly improved the conditions for Danish exports to the UK.

Unless the EU and the UK agree on a trade deal that allows continued

tariff-free trade, trade tariffs on agricultural and food products will be

imposed, as the UK will have to apply the same tariffs to all WTO mem-

bers. Hence, giving tariff-free access to e.g. Danish pork will also mean

that the UK will have to give tariff free access to pork from the U.S.,

Brazil etc.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

This risk is connected with of the prospect of British farmers losing ac-

cess to funding from the Common Agricultural Policy (CAP). Should the

UK choose to raise tariffs in order to compensate for the lost funding and

to protect British farmers and British food products against foreign com-

petition, Danish food companies would see their business opportunities

significantly diminished.

3.2 Non-tariff barriers

There is also a risk that new non-tariff barriers to trade will be applied

in the sector. The resulting non-tariff trade costs between the UK and

the EU may be just as great as or even greater than increased food prod-

uct tariffs.

Transaction costs will increase once the UK leaves the EU. For instance,

under the CAP, import licenses are required in order to import certain

agricultural products originating from outside the EU. This is the case

for example with products such as beef and veal, pork, poultry, cereals,

seeds, milk and other dairy products and sugar. Depending on the final

trade deal between the EU and the UK, such rules may also apply in the

UK following Brexit.

Other trading costs may be associated with the re-introduction of cus-

toms controls, such as rules of origin checks, documentation and physi-

cal border checks, as well as the potential costs of complying with two

different regulatory regimes.

It is important for the Danish food industry that the UK continues to

mirror EU regulation on food safety and food quality, food ingredient

labelling, animal health and welfare protection as well as other relevant

regulations.

3.3 Market access and sourcing for Danish seafood industry

The Danish seafood industry is very much hoping for a pragmatic polit-

ical solution regarding the shared fishing policy.

Landing of fish caught in British waters in Danish harbours is an im-

portant source of supply for the Danish seafood industry, including the

Danish herring industry. It is expected that trade conditions in regards

to fishing policy are joined with the question of access to national waters

in the upcoming negotiations. From a Danish perspective, the optimal

framework for mutual trade will include a custom-free supply of com-

modities no matter how the fishing rights themselves are divided.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

The implications of Brexit for design

products

Intellectual property plays an important role for a number of Danish in-

dustries. As a response to comparatively high production costs, many

Danish companies in e.g. the furniture sector have specialized in high-

quality products with distinct and unique design features. Examples in-

clude Arne Jacobsen’s iconic “Egg” chair and Poul Henningsen’s lamps.

Growth of Danish furniture exports

Index: 2011 = 100

160

150

140

130

120

110

100

2011

2012

Total

2013

Sweden

2014

Germany

2015

Source: The Association of Danish Wood and Furniture Industries

This design-centred business model has contributed to the steady

growth of Danish furniture exports in recent years. In 2015, exports of

such goods amounted to almost €2 billion. In the period 2011-2015, the

UK has been the fastest growing European market for Danish furniture,

reaching €164 million in 2015.

The value of such design goods – and thus the profitability of the busi-

ness – is invariably tied to the given company’s intellectual property

rights (IPR).

The furniture sector is merely one concrete example of the diverse, IPR-

intensive, export-driven Danish economy. A recent study demonstrated

that the contribution from IPR-intensive sectors to Danish GDP and em-

ployment is well above the EU-average

The same study also revealed that Danish companies make more use of

unitary intellectual protection rights than the EU average. These include

the EU Trade Mark Regulation, The EU Design Regulation and the Plant

Variety Regulation.

Intellectual property rights intensive industries: Contribution to economic perfor-

mance and employment in the European Union,

European Patent Office and Office for

harmonization in the Internal Market, 2013

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

Areas of concern for Danish IPR-intensive industries

3.1 IPR protection

Danish companies make extensive use of EU unitary rights, thus forgo-

ing IPR registration on a country-by-country basis. The benefits are

clear: reduced costs, fewer administrative procedures and burdens as

well as a lower degree of uncertainty.

Since the British market is so important, many Danish companies are

concerned about the potential prospect of unitary coverage no longer ap-

plying to the UK. For most Danish companies this will have severe im-

plications:

First, it will affect future registrations of IP rights, as Danish companies

will need go through separate parallel registration processes in the UK

in addition to registering their unitary rights.

Second, and more importantly, it will have immediate implications re-

garding all existing registered unitary rights, including commercial con-

tracts and agreements concerning such rights, or where IP rights are in-

tegrated elements. Potentially, it could also mean that a unitary right,

which has been used solely, or primarily, in the UK, is vulnerable to rev-

ocation.

3.2 Enforcement

Another related area of concern is enforcement. One advantage of uni-

tary rights is that an injunction in one country applies on pan-European

basis. The prospect of British exit from the EU means that such pre-ex-

isting injunctions will no longer extend to the UK. This would necessitate

new applications for injunctions in instances where IP rights are in-

fringed in both the EU and the UK.

3.3 Harmonised rules

For IPR-intensive industries, such as Danish design furniture producers,

availability of cheap replicas is a serious challenge. Such copies decrease

demand for the high-end original products, and if sold overseas, such

“replica hubs” can potentially affect more than one market. The UK, for

instance, used to offer far more limited copyright protection for design

products than most EU countries, which led to proliferation of replicas

within and from the UK.

Recently, however, UK lawmakers brought the country’s copyright laws

into line with its European partners, to the benefit of IPR-dependent

companies in Denmark and elsewhere.

The value of such harmonized laws is vast, and it is a concern for Danish

IPR-intensive sectors if regulation should diverge in the future.

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

The Implications of Brexit for Danish

Manufacturers of Construction Products

The UK is the fourth-largest export market for Danish manufacturers of

construction products. In 2016, Denmark exported products mainly

used in construction amounting to €430 million to the British market.

Further, a significant number of Danish companies in the sector have set

up production in the UK. An area of particular Danish expertise include

the production of high-quality materials for better energy efficiency in

buildings and housing. This includes but is not limited to insulation so-

lutions, energy efficient windows and climate controls.

Danish construction products trade with the UK,

2016

(million euros)

500

400

300

200

100

Import

Export

Areas of concern for Danish manufacturers of construction

products

3.1 Market Access

Danish manufacturers of construction products have benefited greatly

from the relatively free access to the UK market. Manufacturers have

also benefited significantly from the common approach to evaluation

and declaration of product characteristics enabling them to market their

products in a fair and transparent way on the British market.

However, Danish manufacturers of construction products are concerned

about the possibility of restricted market access once the UK leaves the

EU’s single market.

A major concern is non-tariff barriers such as UK-only requirements to

declaration and performance testing. Such requirements would increase

the costs of operating in and entering the British market significantly. It

is therefore in the interest of Danish companies that the UK continues

EUU, Alm.del - 2016-17 - Bilag 507: Henvendelser af 22/3-17 fra Dansk Industri og Dansk Arbejdsgiverforening om konsekvenserne af Brexit

to accepting CE-marking and common standards and methodologies ra-

ther than developing new standards for e.g. fire and acoustic perfor-

mance.

The prospect of tariffs is another concern for businesses. Many Danish

companies in the construction sector have established production facil-

ities in the UK. Were import duties to be imposed on products from the

EU, production costs at Danish subsidiaries in the UK could rise signifi-

cantly – especially for raw materials for which there is none or limited

indigenous supply.

It is worth noticing that the internal market for construction products in

Europe is also in the interest of the UK. British companies exported con-

struction products worth €170 million to Denmark in 2016. A continued

cooperation with the UK will thus be beneficial to both the UK and Den-

mark.

3.2 Protection of Investments

As mentioned, the British market has attracted a number of Danish com-

panies to set up production in the UK. An important driver for this in-

crease has been an ambitious UK effort to speed up the transition to a

more energy efficient building sector and the prioritization of energy ef-

ficient housing.

Danish companies in the construction sector are interested in continuing

this positive development and in increasing their investments in the UK.

As such, the industry hopes that the UK will carry on its ambitious course

regarding energy efficiency. Examples of concrete policies includes pro-

jects such as the Welsh Government’s Warm Homes scheme, which pres-

ently relies on EU funding. A stable policy framework would increase

predictability of the market and increase the confidence of Danish inves-

tors.

In addition to a continuation of these energy efficiency and housing pol-

icy commitments, Danish companies in the sector are also interested in

a well-functioning framework for investment protection and dispute set-

tlement. Naturally, this would make it much easier for Danish businesses

to continue carrying out large-scale investments in the construction sec-

tor.

The Confederation of Danish Industry (DI) is a private or-

ganisation funded, owned and managed entirely by 10,000

companies within manufacturing, trade and services.

DI is also a dedicated member of BusinessEurope, which

represents all-sized enterprises across 34 European coun-

tries.

DI’s identification number in the EU Transparency Regi-

ster: 5749958415-41