- 54% of EU27 business leaders believe they have not been substantively consulted on Brexit and 53% think their views are not well represented
- EU27 business support a Free Trade Agreement with the UK over a Customs Union
- Three quarters of EU companies say the EU should make concessions to the UK to secure a better trading relationship
A survey of 800 EU27 business leaders from six major European markets published today by leading global law firm Baker McKenzie finds nearly half of respondents saying that their company has reduced investment in the UK and they had already seen disruption to their supply chains resulting from the Brexit vote. The percentage was highest in Sweden and Germany.
Over three quarters polled last month said their business would be the same or better off if the UK were to remain in the EU. In Ireland, that percentage jumps to 97%.
Not only are they pessimistic about the future, they feel their voice is not listened to in Brussels with more than half (54%) thinking their views have not been sought and are not well represented in the EU's Brexit negotiations.
Nevertheless, 78% of EU27 businesses have already made changes to their operations or strategy - putting paid to the notion that EU companies are treading water while they await the outcome of negotiations.
Baker McKenzie International, Commercial & Trade partner Ross Denton said: "While Brexit may be prompted by the UK, it will impact businesses in both the UK and the EU dramatically. To ensure Brexit is the success it potentially can be EU businesses need to engage now if they feel unheard or under-prepared, either through their national or European trade associations, or directly with the EU and national governments."
Pragmatism over politics
Three quarters of respondents believe that the EU should make concessions to the UK to secure a better trading relationship for EU27 businesses, with support for concessions in Spain and the Netherlands significantly higher still.
The survey confirmed that a Free Trade Agreement with the UK is more popular within the EU27 business community than a Customs Union, with 67% of respondents deeming a FTA as being important to their business, versus 45% for the Customs Union. This chimes with the UK Government's approach, which has ruled out Customs Union membership post-Brexit.
Despite apparent goodwill toward the UK among EU27 businesses it is clear that, with nine months to go before the UK leaves the EU, Brexit is already having a significant impact.
More than half of the German businesses surveyed have already made decisions regarding trading with the UK, with a structurally weaker Sterling changing the long term business dynamics for an export-driven economy like Germany.
"German products exported to the UK have become relatively more expensive for UK consumers since the referendum," explains Düsseldorf-based trade partner Anahita Thoms. "German companies without a production site in the UK are selling less, leading to a decrease in Anglo-German trade, which is compounded by some scepticism about the future political and regulatory framework in the UK."
Companies in Sweden and France are also feeling the impact, with 57% of French companies saying Brexit has already disrupted their supply chains, while 55% of Swedish respondents have reduced their investment in the UK.
Companies in Spain are most prepared for difficult trade relationships with the UK post-Brexit. 67% of Spanish companies are planning for the potential loss of preferential trade terms, compared to just 55% on average in other markets.
"This is about more than Brexit," says Madrid-based partner Cecilia Pastor. " Spanish companies are among the most agile and prepared when it comes to handling disruptive change - one of the consequences of the 2008 recession was the overhaul of business models to diversify, digitize and find new markets."
However, 45% of all respondents have not yet done any preparation for the potential loss of preferential trade terms with the UK, underlining the difficulty of meaningfully preparing for something that has yet to be defined.
Punishment, but not at any cost
Perhaps because of the premature impact of Brexit on EU27 businesses, there is a clear current of frustration amongst respondents towards the UK for its decision to leave the union.
Over a third of respondents would like to see the UK punished under the terms of any future trade deal, with more hostility in the EU centres of power: 41% of French and 45% of German respondents support some degree of punitive action.
However, when asked which was more important: 'punishing the UK for leaving the EU' or 'continuing to trade with the UK on preferable terms for my business,' respondents overwhelmingly voted in favour of the latter, with 96% of EU27 business leaders confirming that preferential trade with the UK was more important than teaching the UK a lesson.
Mattias Hedwall, Stockholm-based global head of Baker McKenzie's International, Commercial & Trade Group, said: "The negotiators are more interested in finding good solutions for both sides and there is no reason for punishing the UK. Having said that, the negotiators must find a balance between giving the UK a good deal and at the same time showing the EU27 that it is not the same to be outside EU as it is to be part of it."
Finding the positives
Perhaps surprisingly, 45% of respondents also say that Brexit represents an opportunity for their company to attract future business away from the UK, with optimism highest in Sweden and France where more than half of respondents see Brexit as an opportunity. It was lowest in Ireland, where only 30% believe there could be an upside for their business.
French and German respondents feel most consulted. German businesses are however most nervous that Brexit will reduce the movement of people within their company.
"There is no question that most EU businesses see Brexit as a bad mistake," said Paris-based corporate partner Eric Lasry. "But you have to make the best of whatever is in front of you; those businesses feeling unheard must engage with their industry bodies and those feeling particularly unprepared should conduct Brexit impact assessments as a matter of some urgency."