Tag: EU

UK-EU Relationship Under Labour

Following Labour’s election victory on 4th July, there has been a renewed focus on the UK-EU trading relationship and how it might evolve under the new Government. Whilst Labour has ruled out the UK rejoining the EU’s Single Market and Customs Union, below are a number of areas where, from an agri-food perspective, the UK-EU trading relationship could be improved.

  • Veterinary/SPS Agreement: since 2021, UK agri-food exports to the EU have faced stringent regulatory controls and checks, while similar checks on imports into the UK from the EU are gradually being implemented.  These controls, such as export health certificates and identity checks, are costly.  Labour has expressed a desire to pursue a Veterinary Agreement with the EU for over a year.  The impact of this agreement on reducing the regulatory burden depends on its nature.  If the UK dynamically aligns with EU legislation, most checks could be removed, but the UK would have no formal vote on the rules.  If the UK opts for equivalence, similar to New Zealand, checks would be reduced but still significant, and the UK would maintain control over its rules.  Importantly, a Veterinary Agreement would only cover a limited aspect of the wider Sanitary and Phytosanitary (SPS) requirements; issues such as plant health rules and phytosanitary requirements would not be included and would represent significant hurdles to trade.  Therefore, Labour is increasingly talking about a wider SPS Agreement with the EU, which has merit and should be pursued.  Again, there will be a trade-off between the degree of access to the EU Single Market and the control that the UK would have on the rules that apply to UK trade.  The EU will also have its own perspective and will be keen to avoid the UK ‘cherry-picking’ the parts of the EU Single Market that it would like unfettered access to.  An SPS deal would also benefit agri-food goods moving from GB to Northern Ireland.  Whilst a deal is achievable, its comprehensiveness and the extent of regulatory burden removal remain uncertain.
  • Mutual Recognition of Conformity Assessment: currently, UK products being exported to the EU (e.g. machinery) need EU-based certification to enter EU markets.  This can no longer be done by UK-based laboratories, and therefore, adds costs and complexity.  The UK could seek an agreement similar to those the EU has with countries like Australia and Canada, easing this burden.
  • Safety & Security Declarations:  post-Brexit, UK exporters must submit new export summary declarations to the EU to verify that such products do not pose risks.  The UK could negotiate an agreement to remove these requirements, similar to deals the EU has with Switzerland and Norway.  Again, this would require some alignment with EU rules and regulations.
  • Temporary Labour and Youth Mobility: new arrangements could allow UK performers and artists to work temporarily across the EU without complex visa requirements, addressing current bilateral challenges, but importantly, it would not be Freedom of Movement.  The UK could also establish reciprocal youth mobility agreements with EU countries, enabling young people to work temporarily in each other’s territories.  The EU had previously made labour mobility proposals but these were rejected by the Conservative Government.
  • Mutual Recognition of Professional Qualifications (MRPQs):  the UK and EU could encourage mutual recognition of professional qualifications, easing the movement of professionals between regions.  There will be difficulties here though as, within the EU, the competence for granting such recognition partly rests with Member States, so negotiations would be complex.
  • Linking Emissions Trading Schemes (ETS):  aligning the UK and EU’s carbon pricing systems could streamline processes and mitigate issues like the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional requirements on UK exports of carbon-intensive goods.  Whilst CBAM does not yet extend to agricultural goods, this could change in the future and from 2026, there is the potential to have charges levied on exports of certain industrial goods (e.g. fertiliser, steel and cement) to the EU.
  • Joining the PEM Convention:  the Pan-Euro-Mediterranean (PEM) Convention on preferential Rules of Origin (RoO) aims at establishing common RoO amongst member countries which currently include the EU, Turkey, the Ukraine and EFTA Member States.  This would allow the UK to consider inputs from other PEM members as ‘local’ for meeting RoO requirements in trade agreements, potentially simplifying trade processes.  However, there are difficulties as the UK-EU Trade and Cooperation Agreement (TCA) rules are different to the PEM Convention in some instances and these would require aligning.

Significant improvements to the UK-EU relationship are possible, but there will still be a trade-off between access to the EU Single Market and the UK’s control over its own rules.  Even with new arrangements, agri-food trade will face more friction than if the UK rejoined the EU Single Market and Customs Union, as some advocate.  Sir Keir Starmer is known for seeking incremental improvements and only considering radical changes if gradual measures fail.  Therefore, the Labour Government is likely to focus on the areas mentioned, leveraging the UK’s strengths in security and defence in negotiations with the EU.  A deal is achievable, though its comprehensiveness and alignment with EU regulations remain uncertain.

EU-NZ Trade Deal

On 9th July, the EU and New Zealand (NZ) reached an agreement on a Free Trade Agreement (FTA).  From an agricultural perspective its key provisions include:

  • Elimination of all duties on EU agri-food exports to New Zealand: will be effective upon entry into force.  This also includes wine, confectionary and dairy products including speciality cheeses.
  • NZ access to the EU: greater access has been achieved for its agricultural exports to the EU, including for;
    • Beef: a new tariff rate quota (TRQ) for 10,000 tonnes (t) with a reduced duty of 7.5%.  This volume will be gradually phased in over 7 years from entry into force of the agreement.
    • Sheepmeat: a new 38,000t TRQ to be imported duty-free. Again, this volume will be gradually phased in over 7 years.
    • Milk powder: a 15,000t TRQ with a 20% import duty, to be phased in over 7 years.
    • Butter: for the pre-existing TRQ of 41,177t which currently attracts a 38% import duty, for 21,000t of this TRQ, the duty will gradually be reduced to 5%. There will also be a new butter TRQ of 15,000t which will also see in-quota duty rates gradually fall to 5%. This means the NZ TRQ access will increase to 56,177t, with 36,000t of this seeing duties gradually fall to 5%.
    • Cheese: a new TRQ of 25,000t to be imported duty-free. This will gradually be phased in over 7 years. NZ’s existing TRQs of 6,031t allocated under the EU’s WTO schedule will see tariffs eventually reduced to 0%.
    • High-protein whey: new 3,500t TRQ to be phased in over 7 years at 0% duty.
    • Other TRQs: for sweetcorn (800t) and ethanol (4,000t) will also be eventually at zero duty.
  • Sustainability: both sides claim that the dedicated Chapter on Sustainable Food Systems and Animal Welfare makes significant advances on the provisions of most existing trade deals and that the parties will work together on animal welfare, food, pesticides and fertilisers.
  • Geographic Indicators (GIs): the EU claims that 163 of its most renowned food GI’s will be protected in NZ as well as the full list of GIs for EU wines.  GIs for 23 NZ wines will also be protected in the EU market.

The agreement will draw inevitable comparisons with the UK-NZ trade deal.  Certainly, NZ’s access to the EU market is much more curtailed for beef, sheepmeat and dairy products in comparison to the relatively more generous access that the UK has granted.  Therefore, the competitive pressures exerted on EU producers as a result of this deal will be much less pronounced.  Over the longer term, for EU Member States such as Ireland, the UK-NZ trade deal could end up being more influential on its animal product sales as NZ exports to the UK could displace notable volumes of Irish beef exports to the UK.

Both the EU and NZ will now begin the ratification processes for this deal. Therefore, the entry into force of this FTA is still some time away. 

Brexit Update

Last week marked the two-year anniversary of the historic Brexit vote and this week’s June European Council will be the culmination of a turbulent month for the UK’s Brexit journey.  Below is an overview of the key developments.

Withdrawal Bill Passes Parliament

After much wrangling and Tory-party infighting, the European Union (Withdrawal) Bill was finally passed by both Houses on 20th June and now awaits the final stage of Royal Assent when the Bill will become an Act of Parliament.  Royal Assent has yet to be scheduled.

At the heart of the debate was a proposed amendment by Dominic Grieve to guarantee that Parliament would have a ‘meaningful vote’ at the end of the Brexit talks – which the Government was opposed to.  At the last minute, Mr. Grieve backed down after receiving assurances that that MPs would be given Parliamentary time for a debate in the event that Mrs May’s exit talks break down.  In the end, the Government won by 319 votes to 303, a majority of 16, despite six Conservative MPs voting against the Government.

The Government’s assurances would provide Parliamentary time for MPs to ‘table motions and debate matters of concern’.  Whilst this stops well short of the legal assurance Mr Grieve had initially sought, he claims that it is sufficient for MPs to have a say and that the PM could not ignore the will of the Commons. However, like so many of the compromises struck by the Government in recent weeks, there is room for differing interpretations by both sides of the Conservative party.  In effect, there has been another fudge and the can has been kicked down the road once more, thus delaying the crunch point which will eventually come.

UK Edging Towards a Softer Brexit?

Some believe that the crunch point could arrive as early as July when the Customs Bill is due before Parliament.  Again, there are likely to be Tory rebellions as attempts are made to keep Britain within an EU Customs Union.  The Labour Party’s stance is that the UK should form a customs union with the EU and to strike a deal on retaining access to the Single Market but not as part of the European Economic Area (EEA) which requires the free movement of people.  There is also emerging evidence that Downing Street is pursuing a similar trajectory, although the PM continues to play a delicate balancing act to keep all wings of her party on-board.

In recent days, several business organisations (e.g. Airbus, BMW, Honda and Society of Motor Manufacturers and Traders) have warned about the damaging implications of a hard Brexit and the potential for plant closures.  Some have stated that the UK needs to continue to be part of a customs union with the EU as a minimum and that a deal should be struck to enable the UK to retain Single Market benefits.  Mrs May has promised that the Government will ‘always’ listen to the voice of business. Meanwhile, the Chancellor has been warning that there will be no money for defence and other public services if the economy does not grow.  Presumably, the promised increase in NHS funding falls outside of this warning.

There are also rumblings that other business groups are privately conveying similar messages to Government including several agri-food organisations.  This suggests that the PM is veering towards a softer form of Brexit.  It is expected that the Government White Paper scheduled for publication after the Chequers Brexit meeting next week should provide some more clarity.  However, based on previous form, another fudge which permits multiple interpretations of what the proposals might mean, remains the likelier outcome.

EU Exerts More Pressure

As the Westminster wranglings continue, the real negotiation between the UK Government and the EU is taking a back-seat based on British media coverage.  Brexit is a core focus of the European Council taking place on 27th-28th June.  European leaders are likely to issue stark warnings about the possibility of negotiations breaking down meaning that the transition period – considered vital for stability – might be in danger.  Whilst the EU is keen for the Withdrawal Agreement to be finalised ahead of the October European Council, some are expecting that this timeline will slip.  The possibility of a special November Council has been mooted or similar to the Phase I negotiations last year, it may be December before an agreement is reached.

As part of the Withdrawal Agreement, the UK is pushing for the framework for the future relationship to be set-out in as much detail as possible.  In the negotiating time that remains, this is increasingly difficult to achieve, especially given what the UK Government has proposed thus far has been largely rejected by the EU.  The more likely outcome is that a general statement on the framework of the future relationship will be outlined in vague terms with the detail to be decided during the transition period.

Given the lack of progress in Phase II of the negotiations, the possibility of the Article 50 process itself being extended by a few months cannot be ruled out.  This would require unanimous agreement by both the EU-27 and the UK.  That said, the appetite on both sides for a significant extension is limited.  This scenario would only come to pass if there was sufficient evidence that the negotiations on a Withdrawal Agreement were nearing a successful conclusion and that there was enough visibility of what the future UK-EU relationship might look like.

What Should a Brexit Landing-Zone Encompass?

As previous articles have mentioned, it is crucial that the UK and the EU gets Brexit right so that any upheaval is minimised.  If this requires a short extension to the timelines so be it.  It is high-time that the main negotiations with Brussels takes centre stage.  Given the UK’s commitments on maintaining a frictionless border between Northern Ireland and Ireland and business needs for stable trading relationship with the EU, a customs-union type arrangement with the EU and a regulatory equivalence agreement that delivers most of the benefits (and obligations) of the Single Market should be the way forward.  This could potentially be catered for under an Association Agreement between the UK and the EU as has been suggested by both European and UK Parliamentary Committees in recent months.  For UK agriculture, this would be the best means to secure continued access to its largest export market whilst safeguarding British farmers, to a large extent, from cheaper third-country imports.

Admittedly, this will require UK compromises in terms of free-trade agreements with non-EU countries, particularly for goods.  However, it must be remembered that the EU has made major progress in agreeing trade deals with Japan and Canada recently whilst talks with Mercosur, Australia and New Zealand are continuing.  If UK goods manufacturers could have access to such trade deals as part of a customs-union type arrangement with the EU, this would still enable a ‘global Britain’ to emerge.  It could also offer the UK the potential to strike services-focused trade deals separately.  However, the UK would still need to offer something in return. This could potentially take the form of limited import quotas, including for agricultural goods, although the EU is likely to be heavily opposed to such a move.

Regarding EU compromises, it is becoming evident that in return for a close association with the UK, some concessions will have to be made on free movement as it currently stands.  It is worth recalling that the key issue which tilted the UK towards Brexit was controlling immigration and a way will have to be found to address this (or be seen to address it).  The Common Travel Area with Ireland solves most issues relating to a frictionless border on the island of Ireland.  The recent UK proposals on the future of EU migrants already resident in the UK (see separate article) provides much needed clarity for both immigrants and employers.  Potentially some form of a preference scheme which would allow prospective EU migrants to freely travel to the UK to seek work for up to 90 days, as is the case for EU/EEA migrants in other EU countries might be a way forward.

Implications for Agri-Food Businesses

A softer form of Brexit, as outlined above, would go a long way towards ensuring a level playing field for UK agriculture and its ability to safeguard access to EU markets whilst limiting potentially damaging competition from non-EU countries which are not subject to the same regulatory standards and policy-related costs (e.g. National Living Wage) as UK producers.

Undoubtedly issues would remain but these could be ironed-out during the transition period which needs to be as long as necessary in order to get Brexit right.  At the same time this period should be as short as possible so that the UK avoids a purgatory-like existence as a rule-taker with no influence.

Brexit Roundup – Progress (Or Lack Of)

Little has seemingly shifted in the Brexit talks this month.  The next big event will be the Summit of EU Heads of State on the 14th and 15th of December.  After failing to get agreement to move onto the Trade element of the talks in October, the UK Government will be hopeful of breaking the impasse next month.  It is rumoured that the UK might make an offer on the ‘divorce payment’ ahead of the meeting to push the talks forward.  A figure of £40bn has been mooted, although this still falls short of what the EU is likely to be looking for.  We have previously outlined how money was proving to be the biggest obstacle within the ‘Exit issues’ preventing the next stage of the negotiations starting.  Just to show how difficult and complex the process is, the last few days have seen the issue of the Irish border move to centre-stage in terms of being a deal-breaker.

Thursday the 9th November 2017 marked the mid-point between the Referendum on the UK’s membership of the EU, and the date of exit. It can be safely stated that half of the work in preparing for Brexit has not yet been completed.

Meanwhile, the UK Government has confirmed the precise time of leaving (should all go to plan) will be 11pm on Friday 29th March 2019 (midnight Brussels time).