Spain’s Brexit fears: fewer tourists and dwindling exports

A recent social media message from Volkswagen UK illustrates how Brexit could soon start having a very real effect on the consumer’s pocket. “Get peace of mind with Volkswagen Price Protection – we guarantee we won’t pass on post-Brexit tariffs to you when you order your new Volkswagen before 5.30pm on 31 December 2020,” reads the Twitter message sent out by the German automaker.

It is a reminder that the price of sovereignty will be measured in euros and pounds starting on January 1. If there is no post-Brexit deal, trade relations between the United Kingdom and the European Union will fall under the rules of the World Trade Organization (WTO), involving average tariffs of around 7%. But regardless of whether there is a deal or not, Spain will be more exposed to the British economy’s ups and downs than many other European countries, according to the Bank of Spain.

In a report released earlier this month, the central bank said that Spain’s trade exposure to the UK is “significant,” noting that Spanish exports of goods and services to Britain accounted for 9.6% of total exports in 2019, representing 3.4% of Spain’s gross domestic product (GDP). This figure is higher than in Germany, France or Italy.

Once the transition period ends at midnight on December 31, the implications for Spanish businesses will be negative, deal or no deal

Employer association CEOE

The report also underscored the importance of British tourism to Spain: the UK is the country of origin of a majority of tourists, accounting for 21% of all arrivals and 19% of tourist spending in 2019. It also noted that British nationals are the main foreign buyers of homes in Spain, representing 14% of all purchases by non-residents last year.

According to the Bank of Spain, the Spanish regions that would be most intensely affected in a tariffs scenario are Murcia, Valencia, Galicia and Aragón, due to the significant weight of the British market in their exports.

But the Spanish employer organization CEOE warns that even a post-Brexit deal will not solve everything. According to this group, even if deal talks are successful, the contents of the resulting agreement are likely to be “modest or low-quality, compared with other trade agreements signed by the EU, sometimes with more faraway countries.”

The CEOE is concerned about matters that go beyond tariffs, such as public procurement, getting professional degrees recognized (for engineers and architects, for instance), technical barriers to trade, food safety, or intellectual property, among others. “Once the transition period ends at midnight on December 31, the implications for Spanish businesses will be negative, deal or no deal,” said the CEOE.

More expensive cars

The auto sector, which is already struggling with the coronavirus pandemic and technological change, may now have to deal will a third blow. Every year, Spain sends around 350,000 vehicles to Britain, representing 14.2% (worth €4.6 billion) of all car exports, just behind exports to Germany and France, according to the employer group Anfac,

In a no-deal scenario, according to WTO rules there would be a 10% tariff on passenger cars and 22% on commercial and industrial vehicles. This means that a car that used to cost €20,000 could now cost a less competitive €22,000. “According to our estimates, a no-deal Brexit could have an economic impact of €370 million a year on the Spanish auto industry due to tariffs and problems involving administrative paperwork at customs,” said Aranzazu Mur, director of Anfac’s economy and logistics department.

Even if there is a deal, eliminating the threat of tariffs, Britain’s exit from the single market and customs union still poses challenges. Deal or no deal, Spain must work to make the customs experience as smooth as possible to avoid additional costs from delays and added administration, said Mur.

Blow to tourism

Brexit has already weakened the value of the pound, reducing Britons’ purchasing power. And if the UK crashes out of the EU, it could have an even bigger impact on its currency. This, coupled with potential issues regarding air links between Britain and Europe, could hurt tourism. And Spain has a lot to lose on this front. British nationals accounted for 21% of all arrivals and 19% of spending in 2019. Over 18 million British travelers visited Spain last year.

Fear in the food industry

When the Bank of Spain said that Murcia could be highly vulnerable to Brexit, it was thinking of the Mediterranean region’s powerful fruit and vegetable industry. According to the central bank’s study, Murcia’s exports to the UK accounted for over 3% of the region’s GDP. According to the Spanish Federation of Fruit and Vegetable Producers and Exporters (Fepex), the British market ranks third after Germany and France. Last year, 1.5 million tons of produce were exported to the UK, including red berries, clementines and tomatoes. Meanwhile, 88 Spanish fishing boats employing around 2,150 crewmembers and working in British waters are anxiously awaiting the outcome of talks.

English version by Susana Urra.