ANALYSIS & OPINION
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German photonics industry prepares for Brexit consequences

Wenko Süptitz, head of German high-tech industry association, Spectaris discusses what companies in Germany and the UK should consider following the UK’s decision to leave the European Union 

The result of the British referendum came as a surprise for many German photonics companies. The vast majority of German businesses have always welcomed Britain as an integral part of the European Union and it is a matter of regret that the commercial relationship between the two countries may get more complicated from now on. 

Britain has been an important trading partner for the German photonics industry. The country is among the top five export destinations for lasers, optics, fibres and complete optical systems made in Germany. In 2015, 6.2 per cent of German photonic products were sent across the Channel. In particular, medical technology, defence and security, and research are markets where German photonics manufacturers find good customers in the UK. Since Britain – in contrast to Russia - won’t drop out as a trading partner, the German photonics industry does not expect a significant decline in trading volume. 

But considering the implications on a company-by-company basis, the impact of Brexit varies more widely. Some German manufacturers have their key customers and/or production facilities in the UK, while other companies pursue a truly global market approach with Britain just a part of a much bigger picture. German companies with a focus on Britain are now forced to act more globally to reduce risks. Many small to medium sized German photonics companies have already shown that there are attractive opportunities for photonics business outside of Europe.

Accepting the exit vote, most German photonics companies have started to gather information on how to prepare for the new situation. The industry association Spectaris immediately offered a webinar where experts explained in detail the various legal options for the years ahead and what companies should now start to consider.

Spectaris also asked their corporate members about how they will handle the current situation. Most said that they would wait to see how the exit negotiations pan out. Bernhard Lorenz, general manager of Qioptiq Photonics in Germany commented: ‘We’ll wait for the day Britain will actually exit the EU and then react accordingly.’ Many respondents expressed their satisfaction that the EU regulations will be valid for two more years in any case.

But unfortunately, stagnation is death in business: the period of uncertainty might prevent major actions between UK and European partners in terms of investments or acquisitions and mergers, which are important for staying ahead in the global arena.

The hope is that negotiations between the UK and the EU advance quickly so as to prevent a longer deadlock period. As of today, there is a wide range of possible outcomes for Britain’s exit. Future trade relations might vary between almost no barriers – such as with the ‘Norway model’ –on one end, based on the European Economic Area (EEA) and European Free Trade Association (EFTA), and the basic rules of the WTO at the other end, which has numerous tariffs (see text box below).

 

 

Most likely, the outcome will be somewhere in between, and not a replicate of any existing model. A significant risk is that interest groups might inhibit or delay the start of a new framework for an extended period of time. The stalled TTIP negotiations between the EU und the USA serve as a warning.  

So, what should photonics companies be doing right now? First, review all contracts with partners in the UK, but also with overseas suppliers and customers where contract clauses rely on territories and legal framework defined for the European Union. Second, implement some sort of risk-management, considering the UK exit from the single EU market as the worst case scenario. A checklist from law firm White & Case, which lists an extended number of points to consider, can be downloaded from its website1.

There are also specific topics that only apply to certain markets. For example, manufacturers and suppliers selling medical products in the EU are requested to have a so-called ‘notified body’ – an entity accredited by an EU Member State that assesses whether products being sold to the EU market meets certain preordained standards. If the notified body is located in the UK, it will be necessary to appoint a new notified body in an EU-member state. Similarly, non-EU manufacturers of medical devices might need to designate a new European Authorised Representative (EAR) to represent them in the EU, and ensure that any business with the UK complies with the European Directives of the EAR. 

Another typical scenario is the production and distribution of so-called dual-use technologies, i.e. products that can be used for both civil and military applications. If the UK becomes a third-party country, all exports of dual-use products will become subject to authorisation in order to comply with the EU dual-use directive – a time and labour consuming process.

Spectaris is going to work for the extension of the General Authorisation according to appendix II of the EU dual-use directive, which already lists Australia, Canada, Japan, Lichtenstein, New Zealand, Norway, Switzerland, USA, and Israel. As a result, there will be no need for single approvals of dual-use exports if the UK is the country of final destination.  For dual-use sales from the UK into EU, the implementation of a General Authorisation in accordance with the EU directive would simplify the process as well.

In conclusion, the German photonics industry reacts reasonably to the Brexit hype of the last weeks. The implications seem to be manageable and possible action points have already been defined.

References

1Brexit checklist by White & Case

About the author

Wenko Süptitz has been the head of the Photonics Division of the German Industry Association (Spectaris) since 2013. He came to Spectaris with more than 15 years of experience in the German photonics industry, prior holding managing positions at Linos Photonics (now Qioptiq), Jenoptik, Schneider Optical Machines and Direct Photonics. Wenko Süptitz holds a PhD in Laser physics from the Humboldt University Berlin and a Master of Business and Engineering (MBE) from the Steinbeis University Berlin. Contact: sueptitz@spectaris.de

About Spectaris – the German high-tech industry association

Spectaris is the German industry association for the high-tech medium-sized business sector and representative body in the areas of medical technology, optical technologies and analytical, biological, laboratory, and ophthalmic devices.  The association pools the interests of more than 400 member companies located in Germany and adjacent countries. Through its political activities, public relations and industry marketing, the association gives its members a voice, formulates new responsibilities and opens up new markets. This ensures the international competitiveness of German industry in these sectors and thus safeguards locations and jobs. Website: www.spectaris.de

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