Tag: Trade

Brexit Update – ‘All Change Please’

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.

Brexit Update

To say the least, it has been a tumultuous month for the UK Government on Brexit.  Once again, it has been defeated in its efforts to get the Withdrawal Agreement passed by the House of Commons whilst there have been widespread rumours of Ministerial resignations and the Prime Minister’s position now looks increasingly precarious.  All the while, businesses are no closer to getting clarification on where the UK’s relationship with the EU will be upon Brexit, let alone the eventual position of its future trading relationship.

On 12th March, the Government put the Withdrawal Agreement to a second Meaningful Vote in the House of Commons and was defeated by 149 votes.  Whilst not as substantial as the 230-vote defeat in January, the defeat was still comprehensive.  Despite the efforts of the Attorney General to secure legally binding changes to the Withdrawal Agreement (and the Irish Backstop in particular), the EU was only willing to provide the UK with clarifications in the form of a ‘joint legally binding instrument’ on the Withdrawal Agreement and a ‘joint statement’ adding to the Political Declaration.  Whilst these documents provided further information on how the UK could start a formal dispute with the EU if it felt that best efforts were not being made on obviating the need for the Backstop, they were insufficient to change the Attorney General’s legal opinion on the indefinite nature of the Backstop.  This was pivotal in the Government’s second defeat on the Meaningful Vote.

The defeat triggered two subsequent votes on the 13th and 14th of March.  In the first, the House of Commons was asked to give explicit consent to a No Deal.  This motion was defeated by 43 votes. However, it should be noted that whilst the UK Parliament voted against No Deal, the legal default if there is no Withdrawal Agreement between the UK and the EU upon Brexit remains that the UK’s future relationship with the EU would be based on WTO rules (i.e. a No Deal). 

The second subsequent vote, which passed by 210 votes, gave consent to request an extension to Article 50 and this is was the main area of focus at last week’s European Council meeting.  The UK Government initially proposed the end of June as the extension period and whilst there were many counter rumours from the EU side, it was eventually agreed to adopt a two-stage extension approach;

  1. Unconditional extension until 12th April: this date now replaces 29th March as the default Brexit day, unless the UK Parliament passes the Withdrawal Agreement or seeks to completely re-think its approach on Brexit (necessitating the UK’s participation in EU Parliamentary elections). Otherwise, the UK would exit the EU without a deal.
  2. Extension to 22nd May if Withdrawal Agreement passes: this would give the UK time to pass the additional legislation needed to give legal effect to Brexit and would also give the European Parliament the opportunity to pass the deal, before elections take place during 23rd to 26th May.

This, therefore, means that the focus shifts back to Westminster.  Today (25th March), MPs will be voting on a motion to permit Parliament to take control over the Brexit process on Wednesday by holding a series of ‘indicative votes’ which are intended to ascertain what options there might be a Parliamentary majority for.  The precise details of how these indicative votes would be held has yet to be finalised but MPs are often given ‘free votes’ (i.e. not subject to whipping) to discern which alternatives might command a majority.  These options are likely to encompass a softer form of Brexit such as the ‘Common Market 2.0’ (see January bulletin), a No Deal Brexit as well as the potential revoking of Article 50 in advance of holding of a second referendum.  However, it should be noted that these indicative votes are non-binding and it is highly possible that the Government could bring back the current Withdrawal Agreement for a third Meaningful Vote (subject to the Speaker allowing the vote to take place) in the next two weeks.

So, yet again, Westminster is in a state of chaos and agri-food businesses are no closer to getting any clarity.  The Brexit options still range from No Deal to No Brexit (or at least a lengthy delay to Brexit to facilitate a complete rethink to the UK’s approach, which would likely encompass a softer Brexit). Businesses are having to take decisions irrespective of the stalemate at Westminster.  There are several examples of investments which have been made to increase storage capacity to mitigate the impact of increased friction on cross-border trade.  There is also anecdotal evidence that trading positions are being adapted until further clarity is provided on the post-Brexit relationship.  These include delaying commitments for future purchases of on-farm materials destined to be traded between the UK and the EU after Brexit day.

All the while, Brexit fatigue is setting in and many industry professionals are expressing dismay at the current paralysis.  They are calling for decisions to be made so that companies can get on with their day-to-day business.  Unfortunately though, as the Future Relationship negotiations have yet to even start, the Brexit process is currently more akin to approaching injury time at the end of the first-leg of a European football tie and it has yet to be decided whether the second-leg will take place.

Brexit Update

Politically, it has been yet another tumultuous month regarding Brexit, but from an agri-food perspective, there have been relatively few developments of note and the Brexit fatigue factor has also been raised another few notches.

Last week Westminster witnessed the emergence of a new political group (The Independent Group) partly due to dissatisfaction with the Brexit policies of Labour and the Conservatives.  Yet again, the Prime Minister has decided to delay the ‘meaningful vote’ on the negotiated deal, which is now due to come before Parliament by 12th March.  This is in order to give the Attorney General more time to achieve clarifications from the EU, potentially permitting him to change his legal opinion on the indefinite nature of the backstop.

On 26th February, Theresa May offered MPs the chance to have two separate votes if her negotiated deal fails to pass on the 12th;

  1. On 13th March, MPs will be asked whether they support a No-Deal Brexit.  Therefore, the UK would only leave without a deal on 29th March if there is ‘explicit consent’ in the House of Commons for that outcome.  Such consent is highly unlikely.
  2. If this fails, then MPs would get a vote on 14th March requesting an extension to the Article 50 negotiation process to delay the UK’s withdrawal to beyond 29th March.

Whilst the PM still claims to be intent on securing a Brexit deal and the UK’s EU withdrawal on 29th March, the prospect of a short extension of Article 50 to the end of June have increased considerably.  Of course, such an extension would also require the approval of the EU.  However, noises from Brussels suggest a positive reaction to such a request.  Any request to extend Article 50 beyond the end of June would require the UK to participate in European Parliamentary elections in May, something which the Government has very little appetite for.  Last week, there were also claims in Brussels that the UK’s exit could be extended until 2021 which would coincide with the end of the current EU budgetary period.  However, there has since been a rebuttal of such claims in Brussels.  This approach appears to suggest that the PM is seeking to cajole the Brexiteers within the European Research Group (ERG) into accepting her negotiated deal with the EU.   If Parliament votes to rule out No-Deal, then what remains is likely to be a choice between the Government’s negotiated deal or No Brexit at all.

Meanwhile, Labour has also been making noises about changing its Brexit position.  On 25th February, it claimed that if Labour’s preferred Brexit option (encompassing a UK-EU Customs Union) was rejected, then it would advocate a second Referendum.  However, given the PM’s latest announcement, it is currently unclear when there would be a vote on its preferred Brexit option in the next few days.

Just when one thought that the Brexit process had run out of road and the precipice of a cliff-edge Brexit was becoming a real possibility, it looks like the Government has managed to kick the can yet again.  All the while, the agri-food industry is none-the-wiser as to how it can manage Brexit-related uncertainties.  Such paralysis is have a material impact on investment decisions and productivity across the industry.

Brexit Reaching Tipping Point

On 15th January, the Government suffered a historic defeat (by 230 votes) in its first bid to get Parliament to accept the Withdrawal Agreement and accompanying Political Declaration.  As a result, the sense of chaos and uncertainty in Westminster has accelerated. Whilst it is clear that the Parliament does not want this deal (in its current form), what is not clear is what sort of deal there would be a majority for.  The EU is clear that the ball is now in the UK’s court and the Prime Minister, assuming she wins today’s confidence vote, needs to set-out a plan by Monday.  Following last month’s article, below is an update of the potential options available in the coming weeks and months.  It is likely that a combination of these will be required.

  • Cross-party dialogue: this is the most obvious first-step that the Government needs to take and the noises from Downing St. suggest that it has already started to do this.  However, such an approach does not have much chance of succeeding if additional options to the PM’s deal are not considered.
  • Indicative votes: have been suggested by several MPs as a means to break the deadlock as the votes would be non-binding. It would help to gauge what there could be a majority for in the House of Commons.  The scale of the Government’s defeat on the Withdrawal Deal shows that another vote on the current deal has no chance of succeeding unless it can be changed fundamentally.
  • Renegotiate with the EU: on numerous occasions during the Brexit process Westminster has been operating in a silo and has not sufficiently considered the EU’s perspective in the negotiations.  Whilst some form of Brexit might eventually emerge as a favoured arrangement within the House of Commons, it has no chance of succeeding without agreement by the EU.  What is clear is that the EU will not back-down on the backstop and the UK Government’s strategy of trying to isolate Ireland has back-fired at every juncture.  It is therefore clear that if the UK wants to dilute the backstop, which is detested by many in Westminster, a lighter form of Brexit will be required. Below are some of the possibilities available;
    • Norway Plus / Common Market 2.0 – both of these options are broadly similar and essentially amount to the UK being within the European Economic Area (EEA) similar to Norway.  But, in addition, the arrangement would include agricultural products and the UK being part of a Customs Union.  As mentioned previously, this option has gained traction but the big drawback is that Freedom of Movement would have to be accepted, and as this was a major reason for the Leave vote in the first place.  It is unlikely to be favoured by many in the Labour party. Added to this, the UK would not have voting rights, would probably have to pay into the EU budget, and could not strike its own trade deals.  Therefore, it continues to be very difficult to see this arrangement being successful without some form of emergency brake on immigration as a minimum, even then it presents grave difficulties. 
    • Customs Union with the EU: this is  the favoured option by the Labour party as it would go some way towards addressing the Northern Ireland border but would potentially curtail free movement.  However, on its own, it would not prevent border checks on the island of Ireland as sanitary and phytosanitary (SPS) checks would still be required.  Unless the UK could agree some form of regulatory equivalence agreement with the EU, of the kind that has never been reached before, then Brussels will continue to insist on a backstop. It would also mean an independent UK trade policy for goods would be largely redundant.
    • Free-Trade Agreement with the EU: an accord similar to the CETA agreement with Canada is championed by many Brexiteers as the panacea to the current impasse and they claim that it will also address the Irish border problem.  A cursory assessment of the EU’s Official Controls Regulations (2017/625) would show that this is simply not the case, as SPS border controls would still be required on the island of Ireland.  Such controls would of course be unacceptable to the DUP and the famed technological solutions are years away (and some doubt whether they are feasible at all). 
  • Second Referendum: this is still the favoured option amongst many Remain MPs, however, as with all other options, there is not a majority in Parliament for this and the Labour leadership is lukewarm to say the least.  Even if a majority of MPs decided on a second Referendum, the path ahead would be fraught with difficulties.  Firstly, what question(s) would need to appear on the ballot box to reflect the now diverse range of opinions in the UK (from No Deal to No Brexit).  Secondly, it could lead to social instability as there would be heated opposition in some quarters and would at least entail another six months of uncertainty.  Some would argue that another Referendum, if framed correctly, could at least lead to a definitive answer (e.g. if Leave won, then the issue is dead for a generation).  However, all indications suggest that it would be another close vote, and if anything has been learned in the last few years is that the British public do not want more of the same, no matter what the outcome is.
  • No Deal: continues to be the default option and with 72 days until Brexit, its likelihood increases by the day, particularly if the House of Commons does not pass a cast-iron guarantee that No Deal will not happen. As outlined in previous issues, a No Deal has the potential to severely damage UK farming, especially as it may well eventually encompass a liberal trade policy with respect to imports.  On 16th January, the NFU has emphasised its view that a No Deal would be catastrophic for UK farming and most business associations agree with this view.  From an Irish perspective, a No Deal also presents a major dilemma.  If it does not introduce some forms of regulatory checks on produce coming in from the UK (including from Northern Ireland) in the event of a No Deal, then this may be viewed unfavourably by customers elsewhere in the EU and non-EU, who may in-turn place some additional controls on Irish produce. Such a development would have damaging ramifications for the Irish economy, whilst the re-introduction of a hard border would have severe social consequences. In such a situation, it is therefore likely that the Irish Government would first seek to introduce temporary measures along the border (citing safety concerns), similar to what was done during the foot-and-mouth crisis in 2001.  It could potentially keep these for weeks if not months in the hope that a more sustainable Brexit outcome could be achieved.  However, even such a temporary move is also likely to entail problems.
  • Extension to Article 50: all of the options set-out above contain unpalatable elements.  With the time relentlessly ticking towards the 29th of March and numerous Bills and secondary legislation still required to be passed by the Commons, the prospect of an extension to Article 50 grows by the day.  Rumours circulating in Brussels suggest that preparations are being made for a formal request by the UK for an extension and while a period of 3-months is doable (i.e. till early July) a longer period would present legal problems for the European Parliament if the UK is still a Member State and has no MEPs. Therefore, if an extension is to be accepted by the EU and its Member States, it will need to be coupled with a clear plan from the UK as to what form of Brexit or plan of action it could agree on which could be countenanced by the EU.

Overall, it now appears that an extension to Article 50 will be required and another attempt will be made by the Government to get some form of Withdrawal Agreement passed by the Commons.  It would appear prudent to do this after indicative voting to discern what sort of a deal would garner a majority, bearing in mind what would also be acceptable to the EU.  If the Government fails at the second attempt to pass a deal, much will then depend on Labour.  If it attempts another confidence motion and loses, will it call for a second Referendum?

Many questions remain. All the while, agri-food businesses have to try and cope with all of the uncertainty which does not show signs of dissipating just yet.

Brexit: More Tumult and Uncertainty

Brexit Options

To say the least, it has been a tumultuous month for Theresa May.  Despite reaching an accord on the Withdrawal Agreement and a Political Declaration on the Future Relationship with the EU in November, the Prime Minister’s plan has been faltering in recent weeks and culminated an eleventh-hour postponement of the meaningful vote on the proposed deal in Parliament on the 11th December.  Since then, she has overcome a confidence vote by Conservative MPs, but her position has weakened as a result. Following last week’s rebuttal at the European Council when the PM sought to obtain legal guarantees that the Irish backstop would only be temporary, there are serious doubts as to whether her proposed deal will be ratified by Parliament, even if the vote is delayed until mid-January.  In the House of Commons, there are now several schools of thought as to the end-point that the Government should seek in its relations with the EU.  These are summarised briefly below;

  1. No Deal –  the UK-EU relationship would be based on WTO Most-Favoured Nation (MFN) conditions.  As highlighted previously, this would mean tariffs on UK exports to the EU and would cause significant damage to agri-food trade both as a result of new trade barriers and the potential for the UK to unilaterally reduce tariffs on imports.  Some MPs are advocating a variant of this called a ‘managed No Deal’ where limited agreements with the EU are reached in areas concerning aviation for example.  This option is likely to lead to a significant economic shock both for agri-food and the economy generally.  It would also lead to a hard border in Ireland which would add a volatile political element to the economic uncertainty that would ensue.  Whilst a motion put forward by Dominic Grieve last month and approved by Parliament limits the chances of a No Deal, with time running out and current legislation still putting the UK on the course for No Deal as a default, the prospect of crashing out on WTO terms cannot be completely ruled out. 
  2. Canada ‘plus, plus, plus’ – leading advocates of this option include David Davis and Boris Johnson.  Whilst it would permit tariff-free trade in goods, non-tariff barriers would be a major issue particularly on the island of Ireland.  Therefore, without a backstop in place, the EU-27 will simply not agree to this.  Proponents of this arrangement have devoted scant attention to addressing Irish border concerns and the proposals they have put forward recently, which are closely linked with technology, have not addressed issues such as sanitary and phytosanitary measures which EU official controls law states requires controls at the border.
  3. The Withdrawal Agreement (with modifications) – this is what Downing Street is still aiming for but as alluded to above, the EU is lukewarm towards any modifications.  Whilst the EU-27 will countenance some ‘clarifications’ to the Political Declaration and backstop-related provisions of the Withdrawal Agreement (WA) in a separate document, it will not agree to re-opening the WA legal text itself.  Whilst this option would mean that the UK would lose its influence (vote) on EU regulations and as a result become a rule-taker, it would permit an open-border on the island of Ireland and would permit tariff-free goods trade between the UK and the rest of the EU.  As reported last month, it would involve some regulatory checks on GB-to-continental EU trade and would permit the UK to end free-movement, one of the key driving forces behind the Leave vote.  However, it is clear that the ‘indefinite’ nature of the Irish backstop is the major hurdle which many MPs object to.  That said, for the EU side, the backstop is seen as a vital insurance mechanism to apply ‘unless and until’ a better solution can be found to maintain frictionless trade on the island of Ireland.
  4. Labour Renegotiation – Labour has mentioned its ‘six-tests’ on numerous occasions which it would use to assess the Government’s deal, but these look to have been set-up from the start to reject any proposed deal that the PM put forward.  Labour appear to be proposing a Customs Union-type arrangement with the UK with a high degree of regulatory alignment (around Single Market matters) which it would see as obviating the need for a hard border on the island of Ireland.  However, Labour would seek a say on future trade deals that would be struck under this UK-EU Customs Union and it is also keen to curb free movement.  Once again, the EU is likely to have serious misgivings about these requests, particularly the latter as it would contravene its red line on the ‘indivisibility of the four freedoms’ (of the Single Market).  It is also likely that it would still insist on a backstop as an insurance arrangement.  Of course, for the UK itself, being locked into a (goods) Customs Union with the EU will limit its ability to strike free-trade agreements elsewhere as trade deals in Services tend to be very limited in scope.
  5. Norway ‘plus’ – as reported last month, this option has gained traction amongst some MPs and it is thought that some in Cabinet (e.g. Amber Rudd) would be in favour of it if Theresa May’s deal were to fail.  This arrangement would entail Norway’s EEA/EFTA model.  The ‘plus’ would involve agri-food and potentially a Customs Union (or ‘Single Customs Territory’) with the EU until alternative customs arrangements could be found to ensure that no hard border emerges in Ireland.  Of course, the big drawback with this option is that free movement would have to be accepted.  So, without some form of emergency brake being applied in the UK for a period of years, it will remain a challenge to get a majority in the House of Commons for this option.
  6. Remain in the EU – advocates of this option are calling for a second Referendum (‘People’s Vote’) and would involve withdrawing the Article 50 letter and remaining in the EU, subject to the Referendum ratifying that approach.  However, this option also has challenges.  Not least is what some perceive as the democratic deficit which would ensue if the 2016 result is overturned. Furthermore, there are also issues around what the question should be on the ballot paper.  Will it consist of some form of preference vote on three options (Deal, No Deal and Remain) as suggested by its lead advocate Justine Greening?  It would also likely lead to Brexiteers calling for a ‘best of three’ if Remain were to win. Of course, if a Leave option were to win, it would close the issue for a generation and society could at least move on and address other issues which badly require attention (housing, NHS, social care etc. etc.). 

It is clear that whatever course of action eventually gets chosen, difficult challenges will have to be overcome.  For more than two years, our Brexit articles have argued that judgement needed to be suspended until it was clear what a deal would entail, both in terms of Withdrawal but also in respect of the Future Relationship.  Whilst the current deal partially answers this question, insofar as it is clear what the backstop would involve, it is neither the UK’s nor the EU’s preferred option.  Parliament urgently needs to get its act together and work in the national interest to firstly coalesce on which option it would approve.  This will involve a deal of some description as there is simply not the will within Parliament for a No Deal. Options 2-5 above involve compromises and all arguably go against the ‘will of the people’ as expressed in 2016 in some form (e.g. continued acceptance of free movement, rule-taker, splitting the UK into two customs territories etc.).  However, with the result as close as it was in 2016, some form of compromise was always going to be needed.

Brexit – Key Dates in Coming Months

With all of the uncertainty at present, the following dates are worth bearing in mind as the Brexit drama unfolds;

  • Week commencing 14th January – the Government will bring the Withdrawal Agreement and Political Declaration before Parliament for a ‘meaningful vote’.
  • 21st January – deadline for the UK Government to have made a decision on whether to proceed with the PM’s deal.  If the Government has not presented the deal before then, powers for MP’s to influence Ministers’ next steps will kick-in.  Alternatively, if the Government is defeated on its meaningful vote deal, it would have 21 days to report back on what it believes the next steps should be based on the provisions of the 2018 EU Withdrawal Act.  If the Commons passes the deal, then the Government would put forward the EU (Withdrawal Agreement) Bill.
  • 11th March – according to some, this is the latest available date for the European Parliament’s vote on the Brexit deal, which is required before formal EU ratification.  The potential for an alternative special plenary session to vote on the Withdrawal Agreement cannot be ruled out either.
  • 21st – 22nd March – next European Council meeting and set to be the UK’s final Summit as a Member State.  It is at this point that a ratified UK-EU Withdrawal Agreement would be rubber-stamped.  Failing that, this would be the juncture that the UK could request a suspension, extension to, or revocation of, the Article 50 process.  The UK could also choose to delay its Article 50 notification at any time before 29th March.
  • Before 29th March – UK Parliament will have to pass the European Union (Withdrawal Agreement) Bill by this point, assuming that Parliament has approved it beforehand.
  • 29th March (‘Brexit Day’) – UK formally exits the European Union based on the current Article 50 timeline (at 11pm).  If a deal has not been ratified (by both UK and the EU) by this point, a No Deal would be the default as things stand.
  • After 30th March – assuming that the UK has an agreed Withdrawal Deal from the EU, fully-fledged talks on the UK’s Future Relationship with the EU could begin.  Until the UK has withdrawn, such formal talks are not permitted under EU law.
  • 18th April – last session of outgoing European Parliament.
  • 23rd – 26th May – European Parliament elections to take place across EU Member States.  If the UK decided to suspend/extend Article 50 in March, there are questions around what would happen to its representation at the European Parliament.
  • 2nd July – inaugural plenary session of the new European Parliament.  If Article 50 was delayed, and the European Parliament still had to vote on the Withdrawal Agreement, it would be after this point that a new vote could take place.

Thereafter, the next key dates to note are July 2020, by which point it is expected that a decision will be taken on whether the Irish backstop would apply, if the current Withdrawal Agreement were to be ratified. Alternatively, a decision could also be taken at this point to extend the Transition (Implementation) period which is due to end in December 2020.  For those who think that talk of Brexit would end on the 29th of March, there will be some disappointment as the process is set to continue on for many more years to come.

Trade Update – TRQs Split and EU-Japan FTA

UK-EU Proposed TRQs Split

One of the (many) issues that the UK and EU need to agree on is the split of Tariff-Rate Quotas (TRQs).  These allow a set quantity agricultural goods into the Single Market with  a lower-than-usual tariff applying to them.  With the UK splitting from the EU, these quantities need to be apportioned between the two parties.  This is necessary whatever form Brexit takes – even under a ‘no-deal’ scenario there will be a requirement for the UK to have an agreed schedule of TRQs lodged with the WTO.

On 7th December, the Permanent Representatives Committee (COREPER) of the European Council approved the split of the current EU import TRQs between the UK and the EU.  Both the European Parliament and the Council needs to approve this ‘apportionment’ before the Regulation enters into force by publication in the Official Journal.  However, it is also important to emphasise that it is not just a matter for the European Union (EU-27) and the UK to approve these TRQ splits, as the eventual adoption of these new TRQs will be contingent on agreement amongst other WTO members, some have whom have already opposed the UK-EU’s suggested approach.

The tables below provide a summary of the proposed splits for selected TRQs. For each TRQ, the share has been calculated based on the imports over a “recent representative 3-year period”.  It should be noted that, for a given commodity (e.g. poultry meat), there are additional TRQs which have not been shown as there are over 160 TRQs which have been split in a similar manner.

In terms of meat, the New Zealand sheepmeat TRQ (228Kt) has been evenly split between the UK and the EU and this is reflective of historical trade patterns.  Interestingly, 80% of Australia’s sheep meat TRQ (19Kt) would be allocated to the UK.  The UK’s shares of poultry and selected pigmeat import TRQs are also relatively high and reflects the fact that UK is not self-sufficient in these areas.  The British share of beef TRQs varies quite significantly but historical trading patterns with the likes of Australia remain evident as is the case with dairy products.

Table A: Proposed UK-EU27 TRQ Splits – Selected Meat and Dairy Products

Source: COREPRER analysed by The Andersons Centre

For cereals the UK’s proposed TRQ share is relatively low for most of the commodities shown, the notable exception is malting barley.  The UK’s proposed share of sugar and wine imports is also substantial. Arguably, this could present difficulties for the UK sugar beet sector in the future, particularly if the UK seeks to boost trade facilitation arrangements with non-EU countries such as Brazil and Indonesia.

Table B: Proposed UK-EU27 TRQ Splits – Selected Cereals and Other Products

Source: COREPRER analysed by The Andersons Centre

However, attention will now move towards WTO members to ascertain the extent to which the proposals will be acceptable.  One anticipates that some countries will object as they will perceive that they are losing the ‘option value’ of sending products into either the UK or the EU-27 in the future.  It is therefore likely that they will seek expanded TRQs to compensate for this perceived loss.  Whilst the appetite amongst the EU-27 to do this might be lukewarm, the UK may adopt a different view, particularly if it helps to reach Free-Trade Agreements with these countries at a later date.

EU-Japan Free Trade Agreement

On 12th December, the European Parliament ratified the EU-Japan Free Trade Agreement which is the largest ever negotiated by the European Union.  As reported in the July edition, the EU claims that this agreement could lead to an increase in agri-food exports to Japan of around €1 billion with dairy exports projected to double and more than 90% of Japanese duties on imports of European food products to reduce by 90% on Day 1 of application (which is expected to occur in February 2019).  The Free Trade Agreement brings together the two major players in the global economy representing about one-third of global GDP and over 600 million people.

Of course, the extent to which the UK might benefit from this deal is highly questionable in the context of Brexit.  However, the UK is keen to pursue a Free-Trade deal with Japan in its own right and has mooted the possibility of joining the Trans-Pacific Partnership (TPP) which is a trade agreement covering 11 countries including Japan, China, Australia and Malaysia.  Although trade deals with such countries are a positive development, given the geographic distances involved, they are unlikely to compensate for a significant loss in trade which could occur with the EU in the event of a hard Brexit. 

Brexit – Future Relationship

Future Relationship Agreement

On 25th November, EU leaders agreed the Withdrawal Agreement (see accompanying article) in addition to a 26-page Political Declaration on the UK’s Future Relationship with the EU.  Although not legally binding, this Declaration turned out to be more substantial than the 5-7-page document rumoured before its publication.  That said, its contents unsurprisingly adopt a high-level approach given that Future Relationship negotiations have not yet formally begun.  Key points include;

  • Ambitious Partnership: the Declaration seeks to form parameters for a ‘broad, deep and flexible’ partnership spanning multiple areas including trade, security, and law enforcement.
  • Trade: no tariffs, charges or quantitative restrictions across all areas, with parties seeking to improve the Single Customs Territory (essentially a Customs Union) set-out in the Withdrawal Agreement.
  • Irish Backstop: linked with the previous point, parties stress their ‘determination’ to replace the Northern Ireland backstop with alternative arrangements.  These should ensure that the absence of a hard border on the island of Ireland are put on a permanent footing.
  • Trade Regulation: disciplines concerning technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures should go above and beyond respective WTO agreements.  This will be necessary to have any chance of achieving a frictionless border on the island of Ireland, or between Northern Ireland and the rest of the UK under a backstop arrangement. 
    • Technology: the Declaration acknowledges that technical solutions should be considered when seeking alternative arrangements to ensure that there is no hard Irish border.  However, as previously mentioned, such technologies appear to be several years’ away.
    • Regulatory checks and controls: in acknowledging the scope for technology and facilitative arrangements, it also highlights that the integrity of EU and UK markets and legal orders must be respected.  This reinforces the point that, even with advanced SPS and TBT arrangements, it will not completely obviate the need for regulatory checks on products of animal origin and live animals.  It also implies that a level of regulatory checks along the lines of New Zealand or Canadian arrangements with the EU will be required.
    • Competition: the document emphasises the need to ensure a level playing-field between the UK and the EU as there are concerns, on the EU side in particular, that once outside of the EU, the UK will seek to deregulate and gain a competitive advantage.
  • Migration and Travel: in the Withdrawal Agreement, the UK Government was keen to ensure that free-movement would end.  The Political Declaration echoes this, but mentions that arrangements for entry and temporary stay for specific business purposes will be permitted.  It is also intended to have mobility arrangements between both sides, based on non-discrimination and reciprocity between the UK and the EU.  The Common Travel Area between the UK and Ireland would remain unaffected. Building on the provisions of the Withdrawal Agreement, the status of EU migrants already residing in the UK should be relatively unaffected but future migration will be subject to restrictions.  Without an adequate agri-food migrant workers scheme, which encompasses full-time and seasonal workers, this is likely to make access to labour more challenging for businesses. 
  • Transport: there will be arrangements for continued connectivity across aviation, road and maritime transport.  Exactly what will be required for road hauliers to transport loads from the UK to the EU remains to be seen and is an important area to monitor from an agri-food trade perspective. 
  • Governance: a new overarching legal framework is envisaged with a Joint Committee to be established to oversee and manage the implementation of the Future Relationship.  The Declaration emphasises that both parties’ legal statues will be respected.  Any disputes that are unsolved by discussion and consultation would be referred to the Joint Committee which may seek input from an independent arbitration panels whose decisions would be binding on both parties.

Further information on the Political Declaration is available via: https://www.gov.uk/government/publications/withdrawal-agreement-and-political-declaration

Next Steps

The Withdrawal Agreement and Political Declaration will now be subject to ratification by both the UK and EU Parliaments.  The (first) vote in Westminster is due on 11th December.  At present, it looks highly unlikely that it will get passed as there is widespread opposition.  Many privately concede that a second Parliamentary vote will be required and it has a (somewhat) better chance of passing at that point.

All the while, there is momentum building for an alternative ‘Norway plus’ plan being put forward by Nick Boles MP.  As the name implies, the UK would be part of the Single Market (most likely via EFTA/EEA) but agri-food would also be included (agri-food is not part of the Norway deal).  Otherwise, it would not be possible to have frictionless trade on the island of Ireland.  Until alternative Customs arrangements are put in place between the UK and the EU, it is also likely that the UK would be part of a Single Customs Territory as envisaged in the Withdrawal Agreement.  This prevents the UK doing separate Free Trade deals with the rest of the world in the short term.  This plan has many attractions but the biggest issue is that the UK would have to accept free movement which, for many, was the main reason for voting Leave. Without some form of emergency brake on migration being applied for a period of time, it is difficult to see this option succeeding.

Brexit Impact

On 28th November, the Government published its estimates on how Theresa May’s Brexit plan would affect economic output.  It projects that, in 15 years time, using today’s prices, the UK would take a 3.9% hit on national income in comparison to staying within the EU.  These estimates were not modelled exactly on the Withdrawal Agreement provisions but were also partly based on the Chequers plan published during the summer.  Therefore, the Customs Union (Single Customs Territory) that now forms part of the Withdrawal Agreement was not explicitly modelled.  One anticipates that the Government could claim that this arrangement, although politically toxic to some, will mitigate a significant proportion of the GDP hit.

The projections also show that a Canada-style deal would result in a 6.7% hit whilst a No-Deal scenario would shave 9.3% off GDP.  If the UK kept frictionless trade and free movement (i.e. like the Norway plus option) the impact would be just 0.6% of GDP, whilst frictionless trade with migration restrictions would result in a 2.5% hit.

Overall, from an agri-food perspective, if the Withdrawal Agreement is ratified, there would be ‘little’ change for trade until the end of 2020.  Thereafter, regulatory checks of some description are likely to be introduced and these will have a cost impact if imposed.  In the past month, there has been significant progress on the path to withdrawal.  The next phase of the negotiations is likely to see more ‘national’ interests come to the fore from an EU perspective as the French President’s remarks on fisheries access have already alluded to.  All eyes are now on Westminster and the crucial December vote with all scenarios ranging from No-Deal to No-Brexit still in play.

Brexit Withdrawal Agreement

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.

No Deal Brexit Preparations

NAO Report on No Deal Readiness

On 24th October, the National Audit Office (NAO) released its latest report on the UK’s preparations for a No Deal Brexit. Although the report’s scope examines the economy in general, the estimates provided indicate stark implications for the agri-food sector. Key findings include;

  • Between 145,000 and 250,000 traders would need to make customs declarations for the first time in the event of a no deal
  • HMRC estimates that it would have to deal with 260 million customs declarations per annum, as opposed to the current 55 million, nearly a five-fold increase.
  • 11 of 12 critical systems needing to be replaced or changed to manage the border were at risk of not being delivered on time and to acceptable quality. Several of these systems including the TRACES replacement system which would need to be developed by the UK to manage sanitary-related border movements are at major risk of not being delivered by Brexit day.
  • There is an elevated delivery risk due to the high interdependence between ‘at risk’ government programmes reliant on another ‘at risk’ programme. For example, seven of the most critical border systems are interdependent with the Customs Declaration Service (CDS) and/or its legacy system CHIEF (Customs Handling of Import and Export Freight); and all must be ready on day one for the border to operate as planned.
  • New infrastructure to track and physically examine goods cannot be built before March 2019. Without this, the UK will not be able to fully enforce compliance regimes at the border on day one. With approximately 100 working days until Brexit, this is unsurprising. 
  • Border Force intends to recruit 581 staff by March 2019 and expects to increase its staff in the months following. However, given uncertainty regarding the future regime, and the length of time it takes to recruit, security clear and train staff, Border Force acknowledges that there is a significant risk that it will not deploy all the staff it plans to recruit by 29 March 2019. The intended numbers of new recruits appears low in comparison with plans by Ireland and the Netherlands to each recruit approximately 1,000 extra customs staff in preparation for Brexit.
  • The most complex issues concerning the movement of goods at the border, such as arrangements to apply at the Northern Ireland and Ireland border as well as a system that will allow roll-on roll-off ferry ports and Eurotunnel to operate smoothly still need to be resolved.

As a result, the NAO warns that there will be an increased danger of criminals exploiting any perceived weaknesses or gaps in the enforcement regime. This could lead to an erosion of trust in UK agri-food produce. For example, if non-UK origin beef enters Britain illegally, at a lower price, and is then repackaged to give the impression that it is British beef (at a higher price), then regulatory authorities in both EU and non-EU countries will become very concerned. Given the substantial progress that the UK has made recently in opening markets such as China, a No Deal Brexit has the potential to undo a lot of this valuable work.

Further information on the NAO report is available via: https://www.nao.org.uk/wp-content/uploads/2018/10/The-UK-border-preparedness-for-EU-exit-Summary.pdf

No Deal Technical Notices

Separately, the UK Government has released several additional technical notices on preparations for a No Deal Brexit. Some notices were also published in August (see previous article) Several of the latest notices are directly related to agri-food and are briefly summarised below.

Farming and Food

  • Regulating Pesticides: the UK would establish an independent standalone PPP regime, with all decision making repatriated from the EU to the UK. This would help to ensure that a stable regulatory framework for pesticides is put in place from the point that the UK leaves the EU and would retain the two main directly applicable EU regulations in national law, through the provisions of the EU Withdrawal Act. This is intended to ensure that human and plant health standards continue to be upheld whilst making it as easy as possible for businesses to place products onto the UK market. Other points include;
    • All current active substance approvals, PPP authorisations and MRLs would remain valid in the UK upon departure in March 2019. Initially, there would be no policy changes, aside from technical amendments to make EU law applicable in a UK context. However, long-term the notice acknowledges that the UK could diverge from the EU in certain areas in due course. This point will be particularly relevant to decisions on glyphosate renewal for example.
    • After departure, all applications for products to be authorised in the UK would need to be considered via a national regime and applications for EU approvals would need to be made separately.
    • The Health and Safety Executive (HSE) would continue to operate as the national regulator. Applications under the national regime after Brexit would need to be made to HSE, in the same way as now.
    • Other processes carried out at an EU level including by the European Food Safety Authority (EFSA) would be converted into a national process and processed as part of a national regime if they were applicable to the UK. Decisions on MRL approvals currently undertaken at EU level would be replaced by a new UK statutory register in the form of an online database.
    • Importantly, to ensure that processes run smoothly, there would be an extension of three years to active substance approvals which are due to expire in the three years after the UK leaves the EU. Also applications being considered by the UK at the point of exit would continue to be progressed via a national regime.
    • Elements of the current regime, which rely on EU membership, would no longer be able to operate in a no deal scenario e.g. the arrangements whereby EU countries can choose to mutually recognise product approvals and also parallel trade permits. To address this, parallel trade permits in force at the point of exit would remain valid for a transitional period of two years after the date of exit, or the extant expiry date (whichever is sooner). After expiry, businesses would need to obtain authorisations for marketing and use of their products in the UK.
    • A transitional period for seeds which have been treated with PPPs authorised for that use in other EU countries would also be provided so that they could continue to be lawfully marketed at the point of departure from the EU and could continue to be placed on the UK market for a period of three years after Brexit.

Having a transition period of three years after Brexit is wise although some might question whether it is enough time to adapt, particularly given the timelines required to gain regulatory approval in some cases. Further information is available via; https://www.gov.uk/government/publications/regulating-pesticides-if-theres-no-brexit-deal/regulating-pesticides-if-theres-no-brexit-deal

  • Manufacturing and marketing fertilisers: again current domestic regulatory framework would remain in place but would be separate to the EU framework. There would be some implications for material labelled ‘EC fertiliser’ in accordance with the EU Regulation and sold in the UK:
    • There would be a suitable time-limited adjustment period during which ‘EC fertiliser’ could be placed on the UK market as now, to ensure continued supply. There would also be consultation with industry as to how long this time period needs to be so that UK or EU manufacturers would not have to change labels immediately. However, the Government envisages that it would be no more than two years.
    • There would be an option to use a new ‘UK fertiliser’ label for fertilisers placed on the UK market after Brexit, in accordance with the EU Regulation as converted into UK law
    • Upon the end of the time-limited adjustment period, fertilisers placed on the UK market would need to comply with the current domestic regime or with the requirements of the new ‘UK fertiliser’ regime.
    • The Government would also publish a new list of laboratories approved to test to the standards required for the new ‘UK fertiliser’ label.

The notice also claims that UK manufacturers would still be able to manufacture their products as ‘EC fertilisers’ in accordance with the EU framework and UK companies could still export ‘EC fertilisers’ to the EU. However, exports would have to ensure that they comply with applicable EU regulation, including the requirement that the manufacturer is established within the EU, and that any sampling required is undertaken by an EU-approved laboratory. The notice also claims that there would be no material change for users of fertilisers as long as fertilisers that are marketed meet the requirements set-out. Further information is available via:  https://www.gov.uk/government/publications/manufacturing-and-marketing-fertilisers-if-theres-no-brexit-deal/manufacturing-and-marketing-fertilisers-if-theres-no-brexit-deal

  • Plant variety rights and seed marketing: EU plant variety rights granted up to the point of departure, including those held by UK businesses, would continue to be recognised in the remaining 27 EU countries. Those rights would also automatically be recognised and given protection under UK legislation, without rights holders needing to take any action. For applications that have been applied for but not approved by March 2019, an application for rights in the UK would need to be made to APHA, following the normal process for UK plant variety rights, and using the same priority date and DUS tests. New applications from that date would require two separate applications (one for UK and another for EU-27). For protection of rights after departure, a separate application would need to be made to the APHA in addition to the EU equivalent.

For seeds and propagating material, varieties registered solely via UK National Listing would no longer be listed on the EU Common Catalogue and would not be marketable in the EU. To ensure that UK product could be marketed in the EU, breeders would have to ensure that the variety is listed on the EU Common Catalogue and the seed would have to be certified by an EU-approved certification body. Whilst the UK will apply to the EU to have its certification processes recognised as equivalent, this recognition cannot be guaranteed upon departure and may take 12 months to get approval. Further information is available via: https://www.gov.uk/government/publications/plant-variety-rights-and-marketing-of-seed-and-propagating-material-if-theres-no-brexit-deal/plant-variety-rights-and-marketing-of-seed-and-propagating-material-if-theres-no-brexit-deal

  • Breeding animals: upon departure, UK-recognised breed societies and operations involved in live animals and germinal products trade would no longer be recognised societies or operations in the EU and therefore would be ineligible to enter their pedigree breeding animals into an equivalent breeding book in the EU and would have no right to extend a breeding programme into the EU. However, the EU has stated that breeding bodies meeting its requirements will be permitted to make entries as a third country but that animals would need to be accompanied by a zootechnical certificate. Defra is making preparations to enable zootechnical stakeholders to be listed as approved third country breeding bodies with the EU Commission so that thereafter these bodies can issue zootechnical certificates. Arrangements for EU-registered breeding bodies operating in the UK would not change initially and would have access to the UK in the same way as they do now. For further information visit; https://www.gov.uk/government/publications/breeding-animals-if-theres-no-brexit-deal/breeding-animals-if-theres-no-brexit-deal 

There are also additional notices related to;

Whilst comment has not been made on all of the technical notices related to agri-food trade, the notices examined above, as well as the notices covered in August, reveal the eye-watering scale of the challenge facing UK Government and businesses if a No Deal Brexit comes to pass. In addition to the Government not being ready as reported by the NAO above, it is apparent that businesses are not prepared either. At a Brexit Select Committee hearing on 24th October, it was suggested that businesses have had more than two years to prepare for a potential No Deal and should have been doing more in terms of preparation. Given that the Government’s initial batch of technical No Deal notices were only published from August, comments such as this are unjustified. Businesses are facing three or more different scenarios by March. To adequately plan for a no deal would require large investments in many cases which would be wasted in the event that a deal was struck. Businesses should not be blamed for the situation that the country now finds itself in. The Government needs to continue its focus on achieving a smooth and orderly Brexit process and to avoid a No Deal scenario in March 2019. 

Brexit Negotiations

In recent days, it has been reported that the Brexit negotiations are entering their final phases with respect to the Withdrawal Agreement (Phase 1) and the accord is now at 90% or 95% completion, based on the views of Michel Barnier and Theresa May respectively. Whilst the October European Council passed without the discord witnessed in Salzburg, it is evident that the Irish border remains the crucial stumbling block, and that the success or failure of the negotiations, hinges on finding a satisfactory solution (or ‘fudge’) to this intractable issue.

For some, the Brexit talks are now entering their end-game. However, given that any Political Declaration will only have limited references to the future UK-EU relationship, the analogy of a football match about to enter into stoppage time of a first-leg European tie, might be more appropriate. That said, we do not know how long the stoppage time will last – the EU decided to refrain from announcing a special European Council in November as it thought that there was insufficient progress to merit such a move, and instead, it could be December before a Withdrawal Agreement is reached.

Although football analogies can be useful to explain the current situation at a high-level, they have their limits, particularly in terms of explaining the Irish border question (backstop). In recent weeks, Michel Barnier has sought to de-dramatize the backstop by suggesting that only agricultural and food products would need to be checked upon entry into Northern Ireland in a backstop scenario. These would in effect be an extension of the checks on live animals which already take place in Larne port for example, but the scale would have to be increased significantly. This of course is unacceptable to the DUP, and the UK Government by extension.

Instead, the PM is proposing a UK-wide backstop. This concept is uncomfortable for many Brexiteers as they perceive it as ceding control to the EU. They insist that any such arrangement needs to be time-limited. It also draws criticism from those in the EU-27/Brussels side who emphasise that they are only willing to extend special allowances to Northern Ireland, unless of course that the UK opts to remain in a Customs Union with the EU. What is clear is that the EU side requires a backstop “unless and until” an alternative arrangement is in place that obviates it as a means to maintain frictionless cross-border trade on the island of Ireland. There is also some openness to extending the transition (implementation) period in order to facilitate this, although whether this is by a few months or by a year or more remains to be seen.

There are also reports that the EU is ready to offer a UK-wide customs union arrangement with the EU as a way around the backstop issue. This would have to be outlined in a separate treaty to the Withdrawal Agreement which will continue to have a backstop, albeit with the language toned-down significantly. This move is seen by some as a significant compromise by the EU, which has made few concessions thus far in the negotiations. However, on its own, it is unlikely to satisfy the DUP and may require further commitments from the UK Government that the backstop will not be activated in the future. Furthermore, a customs union on its own may be insufficient to avoid regulatory checks (e.g. sanitary and phytosanitary inspections) on channel ports and would need to be accompanied by a regulatory equivalence agreement (Common Rulebook) to minimise these. 

Perhaps now is the time for those who advocate the use of technology to obviate the need for a backstop to come forward and develop workable solutions? There has been a lot of theoretical talk  about technology, but there is limited evidence that it is near being capable of providing practical solutions to help to address this issue. It is also worth remembering that the Government’s record with IT systems is poor as those who have been through the online BPS payments issues in recent years would attest. Whilst not ruling out technology’s role, it is clear that such technology needs to be tried, tested and trusted by both the UK and the EU before large-scale deployment. Even in that event, it is highly likely that the UK will have to maintain ongoing alignment with the EU in a manner that is akin to harmonisation (i.e. both the processes underpinning the product standards and the standards themselves will need to be recognised by the EU and the UK as being equivalent). Where things currently stand, it will be several years before technology is capable of addressing such border control issues. In the meantime, a transition (UK in a customs-union type arrangement) and/or backstop will continue to be required.

Across several agri-food supply chains, it is becoming increasingly apparent that if clarity is not provided on the Withdrawal Agreement and Political Declaration by December, decisions will start to be implemented which are likely to have negative implications for UK agri-food for many years to come. Already, key investment decisions are being deferred and businesses cannot continue to operate in an environment where there are three or more drastically different scenarios which could come to fruition in the next 5 months. The impasse is already affecting competitiveness and productivity. Agri-food businesses need to plan 2-3 years ahead, for most operations, and it would be helpful if some clarity could at least be provided until 2020/21.