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MDA Technologies 3/2016

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MDA Technologies 3/2016

could put British

could put British production sites at risk. The German auto industry alone has 100 production sites in Britain including suppliers. If there were a trade conflict between Britain and the European Union, the damage would be enormous. It would be a serious setback for the industry and would surely result in some production sites relocating. What are Britain’s alternatives to continue trade with the EU? As an EU member, UK companies are able to trade with the EU on a tariff free and quota free basis. By deciding to leave the EU, first of all Britain will have to negotiate new trade deals with EU. During these negotiations for a new trade deal, there is nothing to stop Brussels seeking to impose a higher tariff on all UK exports coming into the EU. The UK can, of course, threaten tit-for-tat tariffs on EU made products say for example German automobiles and components, but it means consumers on both sides suffer. There is also the risk that the EU will impose quotas, which limit the amount of goods and services that can be sold into Europe. With Britain’s withdrawal from full membership of the EU, there would be a number of potential options for managing its trading relationships: n Membership of the European Economic Area like Norway n A customs union, similar to the one the EU has with Turkey n A bunch of bilateral agreements like the ones between Switzerland and the EU n A free trade agreement such as the ones EU has with countries like South Korea and South Africa n Trade with the EU under WTO rules 1. The Norway option: If Britain joined the European Economic Area (EEA), British firms would have access to EU’s single market and would continue to benefit from its trade deals with other countries. But Britain would have no say over EU’s trade policy, and it would still have to abide by EU regulations while enjoying very little input into the drafting of those regulations. In fact, the UK could face increasing regulatory costs and administrative costs due to lack of representation. 2. The Turkey option: A customs union of the kind that Turkey has with the EU, this arrangement is not really a ‘union’, as tariffs are decided by Brussels. Here as well, the UK would have no input into EU trade policy but would have to comply with it. And British-based manufacturers would have to comply with EU product standards and regulations anyways. 3. Swiss-style: A relationship based on bilateral negotiations and agreements would be inherently more palatable for the British. Switzerland’s relationship with the EU rests on a series of bilateral sectoral agreements. Switzerland has free trade in goods, but it has no agreement with the EU on services. Swiss access is limited to those parts of the EU services market for which they have brokered sectoral agreements with the EU. The UK’s financial services industry would face a serious challenge as its Swiss counterpart; The UK would be free to negotiate bilateral trade agreements with non-EU countries, but these could prove less of a benefit than they appear. 4. A free trade agreement: The UK could leave the EU and sign a free trade agreement with it. There is a good chance that the tariffs levied by the EU on British manufactured goods would be zero. However, the deeper the trade agreement, the more EU regulation the UK would have to abide by. British manufacturers would certainly have to continue to comply with EU product standards and technical specifications in order to sell their goods to other EU countries. But at best that would only give Britain the same level of access that it currently enjoys. 5. Trade with the EU under WTO rule: The UK would not have to comply with EU regulations, but it would face the EU’s Common External Tariff (CET). For example, food imports are subject to an average EU tariff of 15 %, while car imports face a 10 % tariff, and car Concerns about Brexit SHORT-TERM CONCERNS: n Slump in sales, n Increase in costs due to tariffs, n Increased time from factory to market due to heavy regulations and certifications, n Withdrawal of companies and investments n Years of negotiations on how both sides will proceed leading to uncertainty LONG-TERM CONCERNS: n Deterioration of Europe as an industrial and investment location n Risk of EU disintegration n Pressure on the Eurozone components, 5 %. Under this scenario, manufacturing and exports could be hit hard. Restrictions on free movement of engineers and scientific researchers There are great concerns about the effect of Brexit on the engineering industry, also in regard to free movement of engineers and scientific research funding. Already there is an engineering skills shortage in Europe and Brexit would further limit the number of professional engineers that could come and contribute to UK’s economy, this would surely affect the wellbeing of UK’s engineering industry. Even the research sector will take a big hit. Science is an area where the relationship between the UK and the EU was particularly beneficial. Not just because scientists won billions of Euros of research funding but free movement of people in the EU made it easy for scientists to travel, collaborate and share ideas with the best in Europe and for companies and universities to access top talent from Europe. Affecting the trans-Atlantic trade relations as well Britain’s next step is starting the long process of setting up new trade agreements, worldwide and with the EU. Trade agreements being negotiated, like TTIP with the US, are now more complicated. The Transatlantic Trade and Investment Partnership - or TTIP - currently under negotiation between the EU and United States will create the biggest free trade area the world has ever seen. Quitting the EU means the UK would not be part of TTIP. It would have to negotiate its own trade deal with the US. Affecting the overall investment climate VDMA, the German mechanical engineering federation is concerned that a ‘Brexit’ would cause further deterioration in the investment climate in Europe. The Brexit will cost Europe as an industrial location a great deal of confidence among investors. Markets were given a small taste of this in the hours following the ‘Brexit’ announcement. The Deutsche Boerse in Frankfurt, the biggest financial market in the Eurozone, saw its DAX index fall by 9.98 % as markets opened. Other stock indices plummeted, and the pound fell below the 1.35-dollar level for the first time since 1985. German companies, their associations and banks are worried as talks about incalculable consequences continue. The EU must now contain the damage and keep the period of uncertainty as short as possible. z Photograph: Dirk Schaar MDA Technologies 3/2016

Turkish Machinery once again on the way up In Turkey, the mechanical engineering sector contributes considerably to the development of the country. Over the last ten years, exports have increased 2.5 times thus driving the global competitive capacity forward. However, in Turkey they are aware that especially in the current climate, requirements are higher and trade relations are more sensitive than ever before. On the evening of July 15, 2016, there was an attempted coup in Turkey by part of the military. During this attempt, people who were demonstrating peacefully in the streets against the coup were shot, while the Turkish government building and other buildings in Ankara were bombed. The Union of Turkish Mechanical Exporters (Turkish Machinery) has condemned this violence and sees it as an attack against democracy. The Turkish Central Bank and Ministry of Finance immediately implemented corresponding fiscal and monetary control measures to counteract any potential negative effects on the financial market and to continue to guarantee a solid macro-economic foundation. The Turkish banks are stable and the exchange rate has remained within usual tolerance ranges. However, what effect will this have on the Turkish mechanical engineering sector, will it affect exports and how will the union position itself in this market situation? Investment plans continue to be positive Following a very successful year in 2015, the scope of foreign investments in Turkey has continued to develop positively during the first two quarters of this year. It is, for example, worth noting that a foreign consortium of investors has already implemented a strategic investment package worth USD 526 million in Turkey directly after the most recent events. In addition, particularly German companies such as Bosch, Metro and Siemens have once again reaffirmed that they will continue with their strategic investment projects in Turkey. Although the latest developments do cast a shadow over the economic success of Turkey, the economic climate within the mechanical engineering sector has remained positive. In line with overall production in the mechanical engineering sector, which recorded an increase of close to 3.0% in the first quarter of 2016, exports in the first half of the year increased by 4.0% to a total of USD 6.8 billion. Germany, the USA and Great Britain are the main export countries for Turkish mechanical engineers. Compared to the previous year, exports to Germany increased by 6.3% and by 9.9% to the USA. Economic planning and cooperation projects remain stable In the past the Turkish economy has proven to be very robust during times of global and national turmoil. The decision makers for the Turkish economy have reiterated that all measures (medium-term economic planning for Turkey) agreed before the latest events will continue to be implemented without any changes and that further investment and support packages will also be developed. The provision of our supply chains, starting with raw materials right through to the delivery of finished products, is safeguarded in future and will continue to be maintained as usual. As the main contact in Germany, Turkish Machinery, will in future also continue to focus on investing in the German/Turkish collaboration, generating cooperations, promoting the transfer of technology and joint projects in the research and development sector. The union will continue to develop and intensify existing, comprehensive relationships with German federations, organizations, associations and companies. The German/Turkish collaboration in the mechanical engineering sector should encompass more than just trade – globalization and technological development also require close cooperation. In this regard, Turkish Machinery sees itself as a partner on the way to developing potentials. Interested parties have been invited to exchange ideas and attend detailed negotiations in Turkey. Author: Adnan Dalgakiran, Präsident, Turkish Machinery, Ankara Turkey, Nicole Steinicke, Editor, Automation Technologies, Vereinigte Fachverlage, Mainz, Germany NEWS AND MARKETS