Tag: Agricultural Policy

Earlier this month, we reported that Theresa May would try to get her Brexit Deal passed one more time.  Instead, Conservative backbenchers played a key role in calling time on her premiership and she is to resign on 7th June.  This has triggered a Tory leadership context and (at the time of writing) eleven candidates have put their names forward, including the Defra Secretary, Michael Gove.  With the Conservatives’ leadership contest to take place during June and July, a new Prime Minister will be in place by the time we reach 31st October, the UK’s current expected departure date from the EU.

For UK food and farming, a change in PM is likely to bring changes to Ministerial personnel and overall Government direction, irrespective of whether the Defra Secretary emerges victorious or not.  This could, in turn, mean changes to the Agriculture Bill which has already been subject to delays (currently awaiting details of its third reading) in its passage through Parliament due to the paralysis of Brexit.  Although Defra is continuing to develop its thoughts on future agricultural policy, there is still a significant degree of uncertainty surrounding the precise policies that will eventually emerge.

The Change theme is also evident in Brussels following recent European Parliament elections.  The focus is now shifting towards who will lead the next European Parliament and who will lead the European Commission and European Council from 1st November as the presidential roles for both of these institutions are up for renewal.  On 29th May, it was announced that Sabine Weyand (Michel Barnier’s Deputy Chief Negotiator in Brexit) is to become Director General for Trade in the European Commission. No doubt, her Brexit negotiating experience will prove useful in this role and she is likely to feature prominently in any future trade negotiations between the UK and the EU post-Brexit.  She will also play a crucial role in the EU’s trade negotiations with Mercosur, Australia and New Zealand, all of which will have significant implications for European agriculture.

The make-up of the future European Parliament also merits consideration as the Green Parties’ influence has increased.  Again, this could signify challenges ahead with regards to pesticides regulation, the role of GM crops, agricultural emissions and other environmental issues of relevance to agriculture.  Of course, the extent to which this would be applicable to the UK long-term remains to be seen.  However, the policy direction of Britain’s closest neighbours in the world’s largest trading-bloc would still exert a significant influence, no matter what the eventual trading relationship is.

On 14th November, after ‘thousands’ of hours of negotiations, the UK and the EU finally reached an accord over the text on the Irish border enabling them to publish the draft Withdrawal Agreement.  Within hours of its publication, this 585-page legal document (see link below) led to the resignation of two Cabinet Ministers and at one stage, there were even rumours that Michael Gove would resign, having reportedly turned down the offer of becoming Brexit Secretary.  This would have added yet more uncertainty for the UK agri-food industry, particularly in the context of future agricultural policy, but at least the Defra Secretary is staying put for now.

The UK Government’s Chequers proposal (see August Bulletin) has been amended in some key areas.  The idea that, after the Transition period, a technology-based ‘Facilitated Customs Arrangement’ would be put in place to allow seamless trade was rejected by the EU.  Instead the UK will have to remain in a Customs Union with the EU until alternative arrangements are put in place that are acceptable to both sides.  There will be a review in July 2020 and if the EU is not satisfied, then the Transition Period will be extended.  This can only be done once, and the UK Government has stated that it should not be extended beyond 20222 (the date of the next General Election).

The key points of the Withdrawal Agreement include;

• Backstop via a Customs Union – This is to avoid a hard border on the island of Ireland.  It will be achieved by a UK-EU Customs Union (Single Customs Territory) which will avoid the need for customs checks on the Irish Sea.  This Single Customs Territory will be temporary but will apply “unless and until” a mutually-agreed new trading arrangement between the UK and the EU is introduced which, itself, avoids the need for a hard border on the island of Ireland.  However, using a swimming-pool analogy, under this Customs Union arrangement, Great Britain (GB) would be at the shallower end whilst Northern Ireland would be at the deeper end, applying the full “Union Customs Code” and essentially remaining fully aligned with both the Single Market and the Customs Union. To ensure a level playing field, the UK commits to following EU competition rules (including State Aid) and to keeping some existing laws on labour, environment and taxation.  From an agri-food perspective, this would mean that potential policy tools such as deferred taxation arrangements as used in Australia would not be permissible.  Free movement of labour would also end so there would be additional regulatory steps that would need to be adhered to when recruiting from the EU, although visas for short trips would be easily obtainable.  With respect to agri-food trade the following points are also noteworthy;
  • Checks on GB to NI agri-food trade such as live animals (which already takes place today) and products of animal origin would take place on a limited basis.  Some commentators believe that this will involve an online transit declaration which could be submitted in advance of a shipment via a back-office, as well as risk-based checks of goods upon arrival at the destination. However, these provisions have yet to be confirmed. 
  • The UK-EU Customs Union would avoid the need for tariffs, quotas and rules of origin on UK-EU trade.
• Financial Settlement – as previously indicated, the UK would honour all its financial commitments so that there would be no shortfall in the current EU budget as a result of Brexit.  This figure is estimated to be in the region of £39 billion, but some estimates from the National Audit Office indicate that the eventual figure could surpass £50 billion, as some payments (e.g. pensions) could continue to 2064.  However, most contributions would be complete by 2025.
• Citizens’ Rights – existing residence and social security rights would be maintained for the 3 million EU citizens living in the UK and the 1 million British citizens living in the EU.  EU nationals will also be permitted to claim permanent residence in the UK and most family reunion rights would also continue.  Any legal issues would have to pay due regard to the European Court of Justice. This will at least give some certainty to many agri-food workers from the EU working in British agriculture, but getting access to new workers remains a major issue. 
• Transition Period – as previously outlined, there would be a transition period (aka implementation period) until the end of 2020.  But this can be extended for a specified one-off period, subject to mutual agreement.  During the transition, the UK would continue to apply EU regulations in full but would no longer have a formal say or influence on the setting of these regulations.  If the transition extends beyond 2020, then additional UK payments to the EU budget are likely.  This has prompted much talk of ‘vassalage’ from hard-line Brexiteers. 
• Governance – this will be administered via a complex set of arrangements drawing upon dispute resolution mechanisms (similar to the EU’s association agreement with the Ukraine), provisions to ensure that the ECJ has the final say on EU’s laws, and independent arbitration to resolve relevant treaty disputes.

The full version of the report is accessible via: https://ec.europa.eu/commission/sites/beta-political/files/draft_withdrawal_agreement_0.pdf 

Whilst the agreement has been approved by the UK Cabinet, it has led to a series of Ministerial resignations including the Brexit Secretary as alluded to above.  For an agreement such as this, there were always going to be difficult compromises, particularly considering the UK’s relatively weak bargaining power in the process.  It should be remembered that the UK’s population is 66 million versus 450 million in the rest of the EU; the EU’s economy is nearly six-times larger than the UK, and the UK’s exports to the EU are estimated at 13% of its GDP, whilst the EU’s exports to the UK are equivalent to 3% of its GDP.  Nevertheless, although the Article 50 process is heavily weighed in the EU’s favour, it can be argued that the UK has not played its hand particularly well – for example, by invoking Article 50 before it had worked out its negotiating position

Whilst the Deal is undoubtedly unsatisfactory to some (many?), it is certainly better than a No Deal scenario for the agri-food sector.  However, there is considerable doubt as to whether the agreement will ever be enacted, as Teresa May will have significant difficulties getting it through Parliament.  Labour, the Liberal Democrats, the Scottish Nationalists and the DUP have already indicated they would vote against the deal as it stands.  A sizeable portion of the Conservative party is also unlikely to back it.  The Prime Minister seems to have little room for manoeuvre.  Neither the DUP nor the European Research Group of Conservative Brexiteers are willing to cede any further ground and are more likely to call for the Prime Minister’s resignation. Arch-Remainers are unlikely to move either, although the Government might be able to sway some Labour MPs to vote for the Deal.  However, this is still unlikely to be sufficient and will likely necessitate some form of concession to milder-Remainers who might be persuaded to vote for the Deal if there is an option to change course at a later stage (i.e. during the Transition, including the option to re-join the EU).  But all of this is just speculation at this point and it is very difficult to see how the next few days will pan out, let alone the next few months.

All the while, the EU-27 are showing a relatively united front and are making arrangements to hold a special EU summit on 25th November so that Member States can formally agree the deal which would then be subject to votes in both the European and Westminster Parliaments.  Many more twists and turns lay ahead.

Following on from last week’s negotiating proposals supposedly agreed by the Cabinet at Chequers, the UK Government published, on 12th July, its long-awaited White Paper setting out its detailed vision on the future UK-EU relationship.  The 98-page document has received a cautious welcome by the EU-27 who are mindful of the deep divisions within the British Government.

In the White Paper, the UK Government is essentially seeking an ‘association agreement’ with the EU of unprecedented scale and depth so that the UK can achieve a ‘principled and practical Brexit’ which respects the referendum result and simultaneously acknowledges the deep trading relationship between the two parties.  The key points from an agri-food perspective are set out below;

• Frictionless trade for goods: at the border between the UK and the EU.  This encompasses the establishment of a free trade area for goods as a means to protect the deeply integrated supply chains and ‘just-in-time’ processes developed over the past 40-plus years.
• Common Rulebook for goods including agri-food: would seek to avoid customs and regulatory checks at the border but would only cover ‘those rules necessary to provide for frictionless trade at the border’.  The White Paper identifies three broad categories of rules relevant to agri-food and fisheries:
  1. Sanitary and Phytosanitary (SPS) rules – would be included in the common rulebook.  Linked with this, the UK would ‘make an upfront choice to commit by treaty to ongoing harmonisation with the relevant EU rules, with all those rules legislated for by Parliament or the devolved legislatures.’
  2. Rules relating to wider food policy – this would include marketing rules that determine how agri-food products can be described and labelled.  As these do not need to be checked at the border they would not be included in the common rulebook.  Geographical Indicators (GIs) (e.g Stilton cheese and Melton Mowbray Pork Pies) would also be included in this category and the UK will be establishing its own GI scheme after Brexit in accordance with WTO rules.  As part of this, the UK would open its GI scheme to both UK and non-UK applicants.
  3. Agricultural and Fisheries Policies – as previously communicated, the UK will leave both the CAP and the Common Fisheries Policies, thus enabling it to pursue domestic policies which best serve the UK’s interests.  Thus, these rules would not be included in the common rulebook. For fisheries, the UK is proposing annual negotiations with the EU on access to its waters.  Some EU Member States will have significant concerns about this.
• Facilitated Customs Arrangement (FCA): would seek to ‘remove the need for customs checks and controls between the UK and the EU as if they were a combined customs territory’.  The Government claims that it would enable the UK to control its own tariffs for trade with the rest of the world.  For businesses this would mean;
  • where a good reaches the UK border, and the destination can be robustly demonstrated by a trusted trader, it will pay the UK tariff if it is destined for the UK, and the EU tariff if it is destined for the EU.  This is most likely to be relevant to finished goods; and
  • where a good reaches the UK border and the destination cannot be robustly demonstrated at the point of import, it will pay the higher of the UK or EU tariff.  Where the good’s destination is later identified to be a lower tariff jurisdiction, it would be eligible for a repayment from the UK Government equal to the difference between the two tariffs. This is most likely to be relevant to intermediate goods.

The UK Government claims that up to 96% of UK goods trade would be able to pay the correct or no tariff upfront, with the remainder most likely to use the repayment mechanism.  This is in effect combining the Customs Partnership and ‘Max-Fac’ proposals in the last year’s paper, both of which were rejected by the EU.  There was an acknowledgement by the UK that this system would become operational in stages as both sides completed the necessary preparations.  Given where the infrastructure is currently at, this process could take several years.  The UK Government has already stated that it envisages the UK remaining part of the EU Customs Union for a year after the end of the Transition Period.  This may well get extended.  It is unclear what ability the UK will have to strike Free-Trade Agreements (FTAs) with other countries whilst it remains within the Customs Union.

• Rules of Origin: agreement not to impose tariffs, quotas or routine requirements for Rules of Origin on any UK-EU trade in goods.  This would allow EU content to count as local content in UK exports to its FTA partners for Rules of Origin purposes, and UK content to count as local content in EU exports to its FTA partners.  ‘Diagonal cumulation’ would allow UK, EU and FTA partner content to be considered interchangeable in trilateral trade.
• Trade with non-EU countries: the UK’s claims that the FCA will enable it to strike Free Trade Agreements with non-EU countries as the UK will have its own schedule with the WTO.
• Participation in EU agencies: UK would seek continued participation in agencies which facilitate goods being placed on the EU market but conceded that it would not have voting rights.
• State Aid: the UK would continue to apply the EU’s State Aid rules via a common rulebook. Although elsewhere in the document, the Government is seeking to reserve its right to make its own arrangements regarding tax. As highlighted in a recent article, there were questions about whether there would be limits on the UK implementing agricultural policy tools such as tax deposit schemes (e.g. similar to the Australian Farm Management Deposit Scheme) which do not comply with EU State Aid rules. This is an area that will require clarification, potentially via the Agriculture Bill due later in the year. 
• Maintain high standards in environment, employment and consumer protection rules: includes ‘non-regression provisions’ to ensure that current high standards are maintained by the UK.
• Northern Ireland/Ireland: taken together, the UK Government believes that its proposals (including the points set out above) would see the UK and the EU meet their commitments to Northern Ireland and Ireland through the overall future relationship.  It claims that this would preserve the constitutional and economic integrity of the UK, honour the letter and the spirit of the Belfast (‘Good Friday’) Agreement and ensure that the ‘backstop’ solution of the Withdrawal Agreement will not have to be used (i.e. Northern Ireland remaining in the Single Market).  The Irish Government in particular has responded positively to this as it is also seeking to resolve the frictionless border riddle via the overall UK-EU relationship.  However, the UK Government’s proposals are arguably narrower than what was envisaged in the December Joint Report which contained commitments on protecting the all-island economy and North-South cooperation. The latest UK proposals are very much focused on goods trade only (i.e. services are omitted). 
• New Joint Institutional Arrangements: these are required to manage the future relationship in key areas such as the common rulebook, including a clear process to update relevant rules in a manner that respects the UK’s sovereignty and provides Parliamentary scrutiny.  This will include regular dialogues at leader (PM) and Ministerial levels.  There would be a Joint Committee to discuss and interpret regulations as well to resolve disputes which may arise.  At times, such disputes could be resolved via a binding independent arbitration.  These bodies would have oversight by the European Courts of Justice (ECJ) as the interpreter of EU rules, but only the UK courts (whilst giving regard to EU case law) could give judgements on rules which apply to the UK.  Here, the UK is effectively conceding that in areas where it commits to adhering to the common rulebook, the ECJ would (indirectly) hold sway. 
• End to Free Movement: however, the UK proposes introducing new frameworks which would enable ‘UK and EU citizens to continue to travel to each other’s countries and businesses and professionals to provide services’.  In agri-food, the provision of services associated with the supply of input equipment for example, is an important consideration and whilst the UK proposals imply that such arrangements could continue along much the same lines as present, questions remain about the extent to which this will be the case. 
• Mutual recognition of professional qualifications: including for those working in the veterinary and agri-food sectors.  The extent to which this includes low or unskilled workers remains to be seen and is unlikely to be clarified until the Migration Advisory Committee (MAC) publishes its report in September

The white paper is available via: https://www.gov.uk/government/publications/the-future-relationship-between-the-united-kingdom-and-the-european-union

Whilst there has been a polite initial response from the EU, the proposals are likely to raise several objections from their side including:

• Indivisibility of the Single Market:  the EU will fundamentally object to the UK wanting to remain in the Single Market for goods, without accepting the EU’s rules on freedom of capital, services and movement.  This separation, combined with the potential for divergence in areas not covered by the common rulebook, could give the UK competitive advantages in years to come and could undermine the rationale for EU membership by others.  This could potentially include the protection currently afforded by GI designations to EU-27 brands (e.g. Parmesan cheese) sold to the UK if the UK decided not to continue with existing GI legal protections.
• Trade with non-EU countries: whilst the proposals focused heavily on tariff-free access between the UK and the EU, the UK wants to reserve its right to do free trade deals with other countries, potentially including agri-food products.  Whilst the UK’s participation in a common rulebook for agri-food trade would limit the scope for cheap imports, there is still a possibility that such trade could significantly displace EU exports to the UK, if third countries met the standards required.  This would have an onward impact on domestic prices in the EU-27.  The EU is expected to push-back strongly on this to curtail any potential displacement.
• Complexity and cost: the UK’s proposals amount to an elaborate set of mechanisms to replicate its current access to the EU across a wide variety of areas.  To some, it is akin to the arrangements between the EU and Switzerland which Brussels is keen to rationalise.  Therefore, the EU is likely to have serious reservations about the creation of new frameworks adding yet more complexity to what is already and intricate tapestry.  There is little detail in the White Paper as to how much all of this will cost, but one can anticipate that the EU will expect the UK to bear a substantial proportion of any funding involved.

Whilst many questions remain unresolved, the UK Government’s White Paper provides a credible starting point for the substantive negotiations with the EU to take place.  These need to be urgently accelerated as there is a huge amount of ground to cover between now and the autumn.  For the agri-food sector, the commitment to ‘ongoing harmonisation’ via a common rulebook for agri-food trade should provide some welcome reassurance for the industry generally, particularly those which are heavily dependent on EU export markets.  Furthermore, given President Trump’s claim that the UK proposals would likely ‘kill’ the prospect of the US-UK trade deal, this may also be seen as a positive by those concerned with the potential for cheaper imports to undermine UK farming.  That said, a lot of uncertainty remains especially given the principle that ‘nothing is agreed until everything is agreed’.