Tag: Brexit

The UK farming industry will continue to receive protection from cheaper global imports.  This is the result of the new tariff regime announced on the 19th May and represents somewhat of a U-turn from earlier Government policy.

The UK Government has announced its new Most-Favoured Nation (MFN) tariff regime, the UK Global Tariff (UKGT).  This sets the tariffs that have to be paid on imports entering the UK after the end of the Transition Period when it will replace the EU Common External Tariff (CET).  If there is no trade deal in place with the EU by the end of the Transition then these tariffs will also apply to imports from the EU as from  1st January 2021. 

The Government claims that the new tariff regime is tailored to the needs of the UK economy and that the UKGT will be simpler and easier to use in comparison with the EU CET.  Nearly 6,000 tariff lines have been streamlined or simplified, which is claims will reduce the administrative burden on business and ‘nuisance’ tariffs (under 2%) have been removed.

From an agri-food perspective, as the table below illustrates, most of the tariffs under the CET have been maintained at pretty much the same levels, but converted from Euro into Sterling.  In most cases, the currency conversion rate is €1 = £0.83, but there are some variations due to rounding and simplifications.  Effectively, the protection around the UK market will be kept at the same level as it was round the EU Single Market. 

Tariffs for products such as beef carcases continue to have both a percentage (12.0%)  and a fixed component (£147.00 per 100kg).  Whilst still complex on the face of it, this is a response to the needs of industry insofar that if a percentage-only tariff was applied, cheaper imports would have a lower tariff in monetary terms.  That said, meat tariffs are still largely expressed in terms of per 100kg, it would surely have been simpler from a business perspective to have expressed these in per tonne or per kg terms?

For cereals, the tariffs for wheat (changed from €95 per tonne to £79 per tonne) and barley (€93 to €77) remain largely the same and have only changed due to currency conversion.  Maize grain tariffs have been reduced to zero (from €10.40 per tonne).  This might provide extra competition to UK-produced feed grains, notably feed barley.   For wheat flour, the tariff has changed from €172 per tonne to £143.  The tariffs for maize, barley and oat flour have been reduced to zero but these are marginal products.  

Across fruit and vegetables, the main changes are simplifications and rounding.  For instance, the tariff for potatoes has reduced from 14.4% to 14.0%.  However, products such as oranges have seen somewhat more significant changes (e.g. tariff for fresh oranges reduced from 16% to 12%), thus making it cheaper for businesses to import such products which are not normally produced in the UK.

Another noteworthy point is that the UK plans to discontinue the EU’s Meursing table which creates thousands of tariff variations for products such as biscuits, pizzas, confectionary and spreads which complicates the calculation of tariffs for these products.

Commodity Code	Description	EU CET Duty Rate	UK GT Duty Rate	Change
02011000	Fresh/chilled beef carcases	12.80% + 176.80 EUR / 100 kg	12.00% + 147.00 GBP/100kg	Currency conversion
02031110	Fresh/chilled pig carcases	53.60 EUR / 100 kg	44.00 GBP/100kg	Currency conversion
02041000	Fresh/chilled lamb carcases	12.80% + 171.30 EUR / 100 kg	12.00% + 143.00 GBP/100kg	Currency conversion
02071110	Fresh or chilled, plucked and gutted chickens	26.20 EUR / 100 kg	21.00 GBP/100kg	Currency conversion
04051011	Butter	189.60 EUR / 100 kg	158.00 GBP/100kg	Currency conversion
04069021	Cheddar cheese	167.10 EUR / 100 kg	139.00 GBP/100kg	Currency conversion
07011000	Seed potatoes	4.5%	4.0%	Simplification
07101000	Potatoes	14.4%	14.0%	Simplification
08051080	Fresh or dried oranges (excl. fresh sweet oranges)	16.00% (01 JAN-31 MAR, 16 OCT-31 DEC), 12.00% (01 APR-15 OCT)	12.0%	Simplification
1001990050	Common wheat (low quality)	95.00 EUR / tonne	79.00 GBP/1000kg	Currency conversion
10039000	Barley (excl. seed for sowing)	93.00 EUR / tonne	77.00 GBP/1000kg	Currency conversion
10059000	Maize	10.40 EUR / tonne	0.0%	Liberalisation
11010015	Wheat flour	172.00 EUR / tonne	143.00 GBP/1000kg	Currency conversion
17011210	Raw beet sugar	33.90 EUR / 100 kg / std qual	28.00 GBP/100kg std qual	Currency conversion
17011310	Raw cane sugar	33.90 EUR / 100 kg / std qual	28.00 GBP/100kg std qual	Currency conversion
3102309000	Fertiliser (ammonium nitrate) in pellet form	6.5%	6.0%	Simplification

Source: UK Government (Department for International Trade)

Further information is available via: https://www.gov.uk/guidance/uk-tariffs-from-1-january-2021

Overall, the UKGT schedule differs substantially from the substantial reductions previously proposed in March 2019.  On the face of it, this reduces the scope for the competitive pressure to be exerted on farmers, post-Transition.  Simultaneously, it will also serve to focus minds within the EU as the tariffs will be very prohibitive for EU farmers under a No Trade Deal scenario.  It shows that the UK Government is learning that announcing higher level tariffs can be used as an effective bargaining chip in trade negotiations, not just with the EU but other countries as well.

As with all matters pertaining to trade, the devil will be in the detail.  Its announcement did not cover Tariff Rate Quotas (TRQs) – these allow specified volumes of agricultural commodities to be imported either tariff-free or at much lower tariff levels.  This announcement is due to be made later in the year.  Any new TRQs that the UK introduces on a MFN basis will have the potential to cause significant competitive pressures.  For instance, if the UK Government decides to introduce new TRQs for beef similar to the 230,000 tonnes proposed in March 2019, substantial volumes would enter into the UK tariff-free.  As the chart below shows for beef, this would severely undermine the competitiveness of British farmers.  It is only when the UKGT (previously EU CET) is applied, that GB prices are competitive.  Meanwhile for Ireland, whilst its prices were slightly below GB when both countries were part of the EU, the application of the UKGT on its beef would render it uncompetitive in the UK market.

At least the UKGT schedule has given some clarity to businesses on the tariff levels to expect post-Transition, and potentially under a No-Trade Deal Brexit.  With the UK-EU trade negotiations still experiencing difficulties, some influential voices have recently called for a ‘Preparation, Ratification and Engagement Period’ (PREP) of 6-9 months from the end of June to permit the completion of trade negotiations by October and thereafter, to use this time to help business and regulatory authorities to prepare to implement the major legal changes which would ensue.  This call appears to be gaining traction amongst trade policy experts.  Such a period would certainly help, but it would remain a tall order to iron out all of the technical arrangements required to handle the future UK-EU relationship. 

The Brexit saga has (rightly) taken a back seat due to the Covid Crisis, however, with the help of video conferencing technology, negotiations on the future UK-EU relationship resumed last week.  The impasses which hampered the first phase of the Brexit negotiations have re-emerged as the deadline for deciding on whether to extend the Transition Period (30th June) looms on the horizon.

As our recent article noted, the UK Government’s position appears to have hardened on this issue. Previously, it said it would not ask for an extension, leaving open the possibility that if the EU requested one it might take a more conciliatory stance. However, it is now claiming that even if the EU requests an extension, it will reject it also.

The negotiations themselves seem to have been focusing on different interpretations of the Political Declaration which both parties agreed to at the end of last year.  The EU side is insisting that the UK needs to accept the conditions of a level playing field on issues relating to environmental law, State Aid and labour rules.  However, the UK is pushing for a standalone Free Trade Agreement (FTA) similar to the EU-Canada (CETA) FTA with add-on arrangements covering issues such as access to fishing waters, which the UK wants to be negotiated annually.  The UK does not want the future relationship to refer to EU law (i.e. interpretation by the European Court of Justice) when issues arise and cites relationships that the EU has with Canada as examples of how this would be possible.

There are discrepancies in both sides’ arguments.  The Political Declaration did not state the UK as a whole should stay within the EU’s State Aid framework (but Northern Ireland would be subject to EU State Aid provisions for agricultural and industrial goods’ trade).  However, having a tariff-free and quota-free trade deal with the EU, which is what the UK is striving for, has not been granted by the EU to any other major economy in the trade deals it has negotiated to date.  Therefore, some form of close co-alignment with EU rules would be required for such a trade deal to be achieved.

It is difficult to see how much progress could be made on these substantive matters between now and the end of June, when a stock-taking exercise will be conducted before making a decision on whether the Transition Period would be extended, without some high-level political intervention.  Back in October, it was a meeting between the Prime Minister and his Irish counterpart, Leo Varadkar, which broke the impasse on the backstop.  Perhaps, as both the Prime Minister and Michel Barnier have been struck down by the coronavirus in recent weeks, that period of self-isolation would have given them some time for reflection, and to adopt a more constructive approach.

The agri-food sector has enough on its hands to deal with the Covid crisis and the economy as a whole is facing its most difficult slump since the Great Depression.  What needs to be avoided now is another major disruption to supply-chains, which is what a No-Trade-Deal Brexit in December would bring.  The UK is already out of the EU.  It is better to take the time needed to put the frameworks in place to have a stable and secure future trading relationship with its closest neighbours, which as recent weeks have shown, remains very important for future food security.

As with everything else, the Brexit negotiations have been affected by the Covid-19 outbreak.  The EU Commission’s Chief Negotiator Michel Barnier recently tested positive for the virus.  However, there have been some developments over the past month which merit comment.

Firstly, both sides have been focusing on issuing their draft texts for a potential Free-Trade Agreement (FTA) between the UK and the EU-27.  The UK tabled its draft text on 18th March ‘in confidence’ as part of the negotiating process.  The EU also shared its draft with the UK on the same date, but has recently published its draft text (440 pages, accessible via: https://ec.europa.eu/info/sites/info/files/200318-draft-agreement-gen.pdf).

Unsurprisingly, the EU is pushing for the UK to have minimal divergence from EU State Aid rules.  The UK would also have to align closely with EU environmental, labour and quality standards (including sanitary and phytosanitary standards for food).  A ‘Specialised Committee’ on the Level Playing Field would also be set-up to oversee arrangements.  This would encompass 16 sub-committees to address specific issues.  If arbitration was required on the interpretation of EU law, then it would have to defer to the European Court of Justice for a ruling, something which will be hotly disputed by the UK.

From an agricultural perspective, the FTA draft texts would have minimal impact on future support as it is acknowledged that the UK would be free to pursue its own support system, as long as WTO limits were respected.

Both sides remain intent on agreeing a comprehensive future trading partnership which permits tariff-free and quota-free trade between the UK and the EU.  However, non-tariff barrier costs would inevitably increase, particularly in agri-food as sanitary and phytosanitary checks, customs checks and rules of origin would apply.

Although both sides have committed to studying the other party’s text in detail, large portions of the EU draft will be unacceptable to the UK, particularly in terms of the role of the European Court of Justice.  That said, these draft texts are very much the starting point in the trade negotiations and it is fairly standard at this point to have significant differences of opinion between both parties.

Looking ahead, whilst the UK’ had intended not to extend the Transition Period beyond December, with the Covid-19 situation, it is becoming increasingly likely that the negotiations will need to be extended.  Privately, some UK Ministers are already acknowledging this.  However, dealing with the pandemic is rightly at the forefront of both parties’ minds at present. 

The Government has recently (10th February) confirmed that it plans to introduce import controls on EU goods at the border after the Transition Period ends on 31st December.  The Chancellor of the Duchy of Lancaster (Michael Gove) confirmed this in a speech to the Border Delivery Group and was positioned as part of the UK’s commitment to leave the Single Market and the Customs Union in order to take back control of its borders and strike trade deals with the rest of the world.

This means that traders of agricultural produce between the EU and GB will have to submit customs declarations and be liable for regulatory checks (e.g. sanitary and phyto-sanitary controls).  Mr Gove stated that it was important that UK exports and imports are treated equally (the EU has already stated that it will impose checks on UK products entering Europe).  Earlier in the Brexit process, it had been suggested that the UK could unilaterally lower its requirements to ease trade flows.  This is not now going to happen. 

The imposition of border controls will create challenges for Dover port especially, given its volume of trade with Calais.  This would be more manageable if the UK’s standards were aligned with the EU’s.  However, the UK has expressed its intention to reserve its right to diverge which will mean an increase in the amount of regulatory checks required.  As we’ve mentioned previously, the current Transition Period appears to be inadequate for ports and businesses to adjust.

Notably, Northern Ireland (NI) was not mentioned in the speech.  It is trade between GB and NI that the greatest challenges will arise.  As a result of the Withdrawal Agreement NI, as a constituent part of the UK, remains within the UK customs territory; however, it will apply EU customs and regulatory controls.  This means some friction will be created between imports coming into NI from GB, particularly where there is a risk that such products could end up in the EU Single Market (e.g. Republic of Ireland).  Furthermore, although that UK has committed to providing ‘unfettered access’ to the GB market for NI goods, many believe that some form of regulatory controls will also be required for this trade.  This creates the potential for substantial upheaval to GB-NI trade, particularly for companies (e.g. retailers) which bring in a substantial amount of mixed goods loads on a daily basis.  Theoretically, if a load contains lasagnes, pizzas (meat-based and vegetarian) as well as dairy products, then several Export Health Certificates would be required for each load.  This would add a substantial amount of costs and trade would quickly diminish.

Separately, the HMRC has announced that it has extended its deadline for businesses to apply for customs support funding to 3 January 2021.  There is £26 million available in total, which seems relatively small given the scale of the challenge at-hand, but £18.5 million has already been applied for.  So businesses need to act now if they wish to avail of the remaining £7.5 million.  Notably, this funding is only available for GB-EU traders and not NI-GB traders, who are arguably in the greatest need for support.  Further information is available via:

https://www.gov.uk/guidance/grants-for-businesses-that-complete-customs-declarations?utm_source=905b7fb9-f378-41cb-88cc-59b2769ced26&utm_medium=email&utm_campaign=govuk-notifications&utm_content=daily 

Having concluded negotiations with the EU on a revised Brexit Deal last week (see accompanying article), on 22nd October, Boris Johnson attempted to progress his Withdrawal Agreement Bill (WAB) through the remaining stages of the Parliamentary approval process. This involved two key votes;

1. Second Reading Debate: to approve the General Principles of the Bill to enable it to progress to more detailed scrutiny.
2. Programme Motion: which provides a timetable to progress the bill through the Committee, Report and Final Third Reading stages. It is only when the WAB passes the Third Reading (final vote by MPs) that it becomes law.

The Government won the first vote by 329 votes to 299, assisted by several Labour MPs from Leave-voting constituencies.  However, it lost the Programme Motion vote by 308 votes to 322.  The PM reacted by “pausing” the Brexit process to speak with EU leaders to get their thoughts on whether the EU would offer the UK another extension which the PM was forced to seek as a result of the Benn Act.  With the EU yet to formally respond, the Brexit process is now in limbo.  The Government has reiterated its desire to achieve Brexit by 31st October, but that is unlikely.

The EU is likely to offer an extension, but its duration is still being debated.  Some are advising an extension until 31st January 2020 (in accordance with the Benn Act) whilst others, notably the French, are mooting a much shorter (15-day) extension to exert pressure on the UK to make-up its mind.  Taking account of these diverging approaches, the most probable path is that the EU offers another ‘flextension’ which can extend to 31st January but can be brought forward if the WAB is ratified before then.  This would leave plenty of time for a General Election to take place.  Labour is dragging its heels on this, as it claims it wants to remove the threat of a No-Deal Brexit.  In reality, a No-Deal could conceivably take place at the end of a Transition Period (currently end-2020) if there was no agreement on the Future Relationship.

Revised Brexit Deal – Impact Assessment

On 21st October, in conjunction with the WAB, the Government released a 69-page impact assessment.  It indicates a cost of £167.1 million with the bulk of the cost (£145m) relating to the setting up of an Independent Monitoring Agency on citizens’ rights.  What was most notable about this assessment was the extent to which agri-food regulations relating to the Ireland / Northern Ireland Protocol were not costed in the analysis.  With over £5.8 billion in trade between NI and GB, based on 2015 estimates, this seems a rather large omission and calls into question the validity of the assessment.

The document also outlined the maximum extent of regulatory (sanitary and phytosanitary (SPS)) checks for agri-food goods going from GB to Northern Ireland.  Documentary and identity checks will apply to 100% of shipments whilst the maximum level of physical checks would be 20% for red-meat and dairy whilst poultry products would have a 50% check rate.  Live animal physical check rates are estimated at 5.5%.  The extent to which maximum check rates would apply would depend on the extent to which GB diverges from EU regulations in the future and whether a more favourable check rate could be negotiated as part of the future trading relationship negotiations.  Canada, via the CETA accord, enjoys a 10% physical check rate for beef.  That should also be doable for the UK. 

For NI to GB trade, there remains some debate as to whether some customs-related regulation would apply.  Whilst it will be much lower than for GB to NI trade, as SPS checks will not apply, there could still theoretically be a requirement for some form of “exit declarations” to be made.  It may take some time for clarity to emerge on this issue.

From a business perspective, some clarity has emerged this month with respect to the shape that the new Brexit Deal with the EU would take.  The direction of the eventual Future Relationship (comprehensive Free-Trade Agreement) is now becoming clear.  Whilst some might continue to argue that this would leave the UK economy worse-off, the real impediment to business now is the continued deferment of a decision on Brexit.  With the avoidance of a No-Deal Brexit, the next-worst outcome is fast-becoming a ‘No-Decision on Brexit’ which is continuing to stall investment.