WEBVTT - DHL Group CEO Talks Geopolitical Risk 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news for watching to see

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<v Speaker 1>how those negotiations may begin over the next twenty four

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<v Speaker 1>hours of the US delegation on their way to Pakistan.

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<v Speaker 1>But one of the concrete consequences of the war has been,

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<v Speaker 1>of course, the disruption to energy markets, and part of

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<v Speaker 1>that leading to higher jet fuel costs that are forcing

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<v Speaker 1>airlines to curtail their schedules. KLM, Luftanza and cath Pacific

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<v Speaker 1>are among the carriers who are pruning their flight timetables

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<v Speaker 1>due to higher costs. That's the passenger side of the business,

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<v Speaker 1>but what does it mean for air freight. Joining us

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<v Speaker 1>now in the Brussels radio studio to discuss is to

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<v Speaker 1>Bias Myer, CEO of the DHL Group. Good morning, great

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<v Speaker 1>to see you with us. Can you talk to us

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<v Speaker 1>about what sort of impact you've seen so far from

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<v Speaker 1>these increases in oil prices and as a result in

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<v Speaker 1>jet fuel.

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<v Speaker 2>Firstly, the crisis obviously indicted a direct operations in the

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<v Speaker 2>Middle East that has now not fully normalized, but at

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<v Speaker 2>least we have much better student I think that's very

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<v Speaker 2>important to us. We have quite a number of colleagues

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<v Speaker 2>in the region, so it's good to see that the

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<v Speaker 2>military activity.

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<v Speaker 3>Has come down.

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<v Speaker 2>Now what hasn't changed, indeed, is that the world is

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<v Speaker 2>lacking ten twelve million barrels of crudel supply every day,

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<v Speaker 2>and also natural gas is needed in many economies in Asia,

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<v Speaker 2>in Europe a critical supply of that also coming through

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<v Speaker 2>that strait. We have seen some impact in Asian airports

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<v Speaker 2>and we also see most concerned about the supply of

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<v Speaker 2>jet fuel in Asia in Europe. So far, our suppliers

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<v Speaker 2>tell us that for the coming weeks, maybe even months,

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<v Speaker 2>there is security of supply, but in each of the

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<v Speaker 2>situations more fragile. You also see this in the prices,

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<v Speaker 2>which I believe is important that in this situation, prices

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<v Speaker 2>need to steer how the shortage is managed. Prices need

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<v Speaker 2>to steer where the supply is going to satisfy essential

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<v Speaker 2>demand that is not crypt leading to crippling effects those

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<v Speaker 2>shortages potential shortages of the global economy.

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<v Speaker 3>So that remains a concern.

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<v Speaker 1>How much visibility do you have. You're talking about there

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<v Speaker 1>being situation being okay in Europe for the next couple

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<v Speaker 1>of weeks, but when do are you starting to worry that?

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<v Speaker 1>You know, if there isn't a resolution and a greater

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<v Speaker 1>resumption to supplies that there will have to be greater

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<v Speaker 1>curtailments to your services.

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<v Speaker 2>Well, there hasn't been, Eddy Kotelman, and we wouldn't expect

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<v Speaker 2>that because what we do is quite essential. We are

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<v Speaker 2>not transporting tourists that might have a greater sensitivity to price.

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<v Speaker 2>Our customers, especially in the express segment, need those goods

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<v Speaker 2>to be shipped, and logistics cost is often only a

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<v Speaker 2>small fraction of the price of goods, and especially the

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<v Speaker 2>price of those goods not being available if you think

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<v Speaker 2>about electronics, if you think about spare parts, so those

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<v Speaker 2>costs are quite high and this is why our willingness,

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<v Speaker 2>our need to pay is there. So we would absolutely

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<v Speaker 2>do the utmost that we can to keep a supply

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<v Speaker 2>of the essential commodity of jet fuel going.

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<v Speaker 3>But it's not always in our hands.

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<v Speaker 2>We do not control refineries, we do not control the

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<v Speaker 2>jet fuel systems in.

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<v Speaker 3>A lot of airports.

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<v Speaker 2>Some airports which are where we have very large operations

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<v Speaker 2>Leipzig or Central European and Global Hub for instance, we

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<v Speaker 2>have our own fuel farm, so there we have greater

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<v Speaker 2>degree of control.

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<v Speaker 3>But that's not the case in all locations. We operate.

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<v Speaker 1>I mean, how much do you have a sense of

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<v Speaker 1>how much pricing power you have? Obviously the costs have

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<v Speaker 1>to go up, and you pointed to the essential nature

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<v Speaker 1>of the deliveries to your customers. I mean, you know

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<v Speaker 1>how I can't freight costs go well.

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<v Speaker 2>I mean we have seen a substantial rise on Asia Europe,

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<v Speaker 2>especially the shortfall of capacity the Middle East and HUP

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<v Speaker 2>carriers not being available and those both having full freighter

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<v Speaker 2>operations that are now part suspended, but also a lot

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<v Speaker 2>of capacity as belly freight on passenger aircraft. That capacity

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<v Speaker 2>has fallen away and that is lacking now and that

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<v Speaker 2>has led ari over the last weeks to very elevated

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<v Speaker 2>freight rates Asia to Europe, India to Europe, Southeast Asia

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<v Speaker 2>to Europe. So we have seen that that spill over

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<v Speaker 2>already now. As it relates to the jet fuel prices,

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<v Speaker 2>that is an important component of intercontinental flying, especially on

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<v Speaker 2>the regional side, it is relevant, but it's not as

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<v Speaker 2>big of a part of the cost structure we have

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<v Speaker 2>seen spikes Stephen in You know, we had all prices

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<v Speaker 2>of one hundred hundred and twenty before, so that is

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<v Speaker 2>not a level that causes a big concern, But I'm

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<v Speaker 2>not sure whether markets are pricing in that even if

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<v Speaker 2>the Strait of Homus reopens partially or completely at some

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<v Speaker 2>point in time, it will take weeks for that crude

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<v Speaker 2>oil to be shipped, for that crude oil to be processed,

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<v Speaker 2>for that those products to arrive where they need it,

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<v Speaker 2>and that is something where it's doubtful whether that is

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<v Speaker 2>really taken to account when it comes to also the

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<v Speaker 2>resiliency measures of governments.

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<v Speaker 1>Wait, I mean, how much do you think is that

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<v Speaker 1>being underprice? What's the potential that's not yet in the price.

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<v Speaker 2>Well, I mean, if you see the extent of shortfall

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<v Speaker 2>ten twelve million barrels on ninety million barrels roughly one

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<v Speaker 2>hundred million of total demand and supply, that is substantial,

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<v Speaker 2>and historically I alluded to that we have seen higher prices.

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<v Speaker 3>I'm not an expert in the trade of crude.

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<v Speaker 2>Oil, but also if you see the reactions of other markets,

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<v Speaker 2>equating markets included, I'm not sure whether markets are well

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<v Speaker 2>prepared psychologically for this on off, which we have seen

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<v Speaker 2>here in the case of Iran, but we've also seen

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<v Speaker 2>it and other situations like the teriffs, where the markets

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<v Speaker 2>are really factoring in what this could entail with a

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<v Speaker 2>certain probability in the mid to long term.

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<v Speaker 1>In terms of your practical operations in the Middle East

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<v Speaker 1>queries your capacity now versus before the war started.

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<v Speaker 2>We are fully operational, and I'm very glad and proud

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<v Speaker 2>I can say that it was the really great work

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<v Speaker 2>of our colleagues in the regions to keep goods moving,

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<v Speaker 2>to keep supply chains running. We couldn't use our hub

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<v Speaker 2>in Bahrain, which has served us well for so many years,

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<v Speaker 2>but we use Riat. We used Musket for air operations.

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<v Speaker 2>We have, or we's had since forty years now, very

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<v Speaker 2>good trucking network across the regions. We've secured additional trucking

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<v Speaker 2>capacity to move ocean freight containers from Oman ports, from

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<v Speaker 2>the Saudi West Side ports, the Red Sea ports across

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<v Speaker 2>to other GCC countries and that has allowed us to

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<v Speaker 2>serve our customers well over the last weeks.

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<v Speaker 1>To some of the matters you're hearing Brussels, to some

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<v Speaker 1>of the matters I suppose focusing in focus for the

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<v Speaker 1>European economy as well. The first of Gene is going

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<v Speaker 1>to see the end of the EU's deminimus threshold for packages,

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<v Speaker 1>so similar moved to what the United States has already done.

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<v Speaker 1>I mean, do you see that having a major impact

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<v Speaker 1>on e commerce and is it something that's going to

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<v Speaker 1>affect you consumers significantly? Yeah.

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<v Speaker 2>First, if you allow me, I would contradict in saying

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<v Speaker 2>it's similar to what the US has done, because the

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<v Speaker 2>US came from a very different situation. We do not

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<v Speaker 2>have a true deminimus in Europe since many years we

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<v Speaker 2>had an import VAT that was also applied for law

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<v Speaker 2>value shipments. Already, there were some rules for really low

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<v Speaker 2>value shipments to make this a little bit simpler, but

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<v Speaker 2>by and large we had import vat already, which the

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<v Speaker 2>US didn't. The US had a true diminimus where neither

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<v Speaker 2>duties nor taxes were applied. So the economic impact, the

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<v Speaker 2>economic change before and after in Europe is more limited.

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<v Speaker 2>What we see more as problematic is a very European theme.

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<v Speaker 2>Again that Europe makes it very bureaucratic, additional data elements

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<v Speaker 2>to be gathered.

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<v Speaker 3>Different types of fees.

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<v Speaker 2>We're not only going to have the minimum duty to

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<v Speaker 2>be applied to every article, but we're also supposed to

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<v Speaker 2>have a handling fee. Then in November, I mean it's

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<v Speaker 2>good that at least we don't have a fragmentation across

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<v Speaker 2>you member states, everybody inventing their own. But you ask yourself,

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<v Speaker 2>why do we need two instruments handling fee and the minimum.

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<v Speaker 3>Duty for every article?

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<v Speaker 2>And why do we need again an extremely bureaucratic solution.

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<v Speaker 1>And if you tell the Europan Commission this, have you

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<v Speaker 1>been engaging with them on the subject.

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<v Speaker 2>Sure, and they have listened to some elements, for instance,

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<v Speaker 2>the election method. The original ideas were entirely decoupled from

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<v Speaker 2>the existing VAT as it leads to who's supposed to

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<v Speaker 2>pay and how the payment is going to happen. So

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<v Speaker 2>some of those procedural elements people have listened. But it

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<v Speaker 2>is still a big problem here in Brussels that people

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<v Speaker 2>make it as bureaucratic as they like.

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<v Speaker 1>No, no, you know, the drive here in Brussels is

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<v Speaker 1>for simplifications, they like to call it. No sign of

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<v Speaker 1>that in this particular side of the business.

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<v Speaker 2>No, I think it's you know, clearly this year will

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<v Speaker 2>add significant bureaucracy in Europe and it is just not

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<v Speaker 2>true if people I mean, it's fair for people to

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<v Speaker 2>share the intent, but we also need to be honest

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<v Speaker 2>what's happening on the ground.

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<v Speaker 1>What's the cost of that.

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<v Speaker 3>Well, there's a whole wave. If it's not only the deminimus.

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<v Speaker 2>If you think about that, the pay gap director for instance,

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<v Speaker 2>extremely bureaucratic. For large companies, extremely.

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<v Speaker 3>Difficult to fulfill.

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<v Speaker 2>This will need to significantly more legal disputes with employees.

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<v Speaker 2>We have a packaging guideline that comes into place, extremely bureaucratic.

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<v Speaker 2>There are other elements also. If you now think about

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<v Speaker 2>the industrial policy again, you know by Europe with proof

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<v Speaker 2>of the entire value chain, extremely bureaucratic. So I think

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<v Speaker 2>people really need to wake up and say, how do

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<v Speaker 2>we make things simpler? This has not happened here in Brussels.