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BERLIN (Reuters) - Britain's departure from the European Union will significantly hurt German firms' business with the country and investment will decline strongly in the long term, Germany's DIHK Chambers of Commerce said on Tuesday.
A day before British Prime Minister Theresa May triggers divorce proceedings with the EU, the DIHK published a survey of around 1,300 German firms showing that expectations of higher costs due to customs duties, taxes and increased bureaucracy would hurt business for both Britain and Germany.
DIHK said looming Brexit was already taking its toll, with German exports to Britain falling by more than 3.5 percent in 2016, largely due to a drop in the second half of the year after Britons voted in June to leave the EU.
"We should expect further declines in trade in the coming months," DIHK President Eric Schweitzer said, adding that four in 10 companies that participated in the survey conducted in February expected business to weaken.
Britain was Germany's fifth most important trading partner in 2016, with goods worth 121.6 billion euros being traded between them last year, Federal Statistics Office data shows.
Almost one in 10 companies are already planning to withdraw investment from Britain and put it elsewhere even though the terms of Britain's departure are not yet known, he said.
Germany's VDMA engineering industry association said Britain would remain an important trade and investment partner for European companies even after Brexit.
VDMA Managing Director Thilo Brodtmann called for quick and transparent Brexit negotiations, predicting there would be "significant upheavals" in bilateral trade if Britain and the EU fail to reach a deal within the two-year negotiating period.
"But it's clear that maintaining the single market in the long term is more important for industry than short-term trade facilitation with Britain so an agreement with the EU should not be more attractive than EU membership," Brodtmann said.
May has made clear Britain will not remain in the single market or customs union after Brexit.
Berlin is worried that the two-year negotiation period will not suffice to conclude a new free trade deal and that would entail "significant" risks for financial markets, a German newspaper reported on Monday.
KfW state development bank said Germany could cope with a 'hard Brexit' - in which Britain quits without a free trade deal with the EU - even if some companies with a strong focus on business with Britain suffered.
The DIHK survey found that maintaining free movement of goods was the top priority for German companies in the Brexit talks. Some 88 percent said avoiding customs duties and import taxes between the two countries was the most important issue.
Reporting by Gernot Heller and Rene Wagner; Writing by Michelle Martin; Editing by Madeline Chambers and Gareth Jones