Category: Policy & Business

UK’s Brexit Negotiating Proposals

On Friday 6th July, the Cabinet finally appeared to reach agreement on its negotiating proposals for the future trading relationship between the UK and the EU.  These proposals are based on 12 key principles (see graphic below) which the Prime Minister had hoped would provide “a precise, responsible and credible basis” for progressing the negotiations.  It could be summarised that these proposals amount to ‘Norway plus’ for goods (including agri-food) and ‘Canada plus’ for services.

Chequers’ Proposals – 12 Key Principles

Some of the key points of relevance to agri-food include;

  • Free trade area for goods – seeks to avoid friction at the border, particularly between Northern Ireland and Ireland where agri-food accounts for almost half of total goods trade. For UK agriculture, this is positive as it would help safeguard key export markets in the EU.
  • Facilitated customs arrangement – seeks to remove needs for customs checks and controls between the UK and the EU “as if a combined customs territory”.  The UK would apply the EU Common External Tariff (CET) for goods destined for the EU-27 with the UK controlling its own tariffs so that it can have an independent trade policy.  Notably, this would become operational in stages as both sides complete the necessary preparations.  This effectively combines the customs partnership and ‘max-fac’ proposals of last year but is realistic to acknowledge that the infrastructure to do this is several years away.  There are concerns around what this would mean for agricultural trade as it will be very difficult for the UK to complete trade deals with other countries without having some increased access for agri-food goods.  The EU will be keen to minimise such scope as this would dilute what is a key export market for Irish, French, Dutch and Danish farmers particularly.
  • Common rulebook for all goods including agri-food – committing by treaty to ongoing harmonisation with EU rules on goods, covering only those necessary to provide frictionless trade at the border.  Following on from previous point, this would have to include agricultural goods meaning that for UK agricultural produce that is traded with the EU-27, EU rules would hold sway.  Some could interpret this as offering scope for divergence to emerge for agricultural produce that is not traded with the EU.  But this would be a minefield.  The capability to effectively manage dual standards in a manner that would satisfy consumer concerns and both EU and non-EU food inspectors is simply not available and would take years to establish.
  • Parliamentary oversight – for incorporation of EU rules into the UK statute with the ability to choose not to do so, recognising that there would be consequences to this. T his likely to cause concern to the EU who will be keen to ensure that potential future uncertainty if Westminster decided not to pass a given EU regulation is minimised.
  • State aid and competition – UK commitment to apply the common rulebook in these contexts would set limits on which agricultural policy tools the UK could adapt in the future.  For instance, tax deposit schemes such as the Australian Farm Management Deposit Scheme do not comply with EU state aid rules.
  • Maintain high regulatory standards – including in terms of consumer and employee rights as well as the environment.  This would mean a continuation of the standards currently in place which once again should help safeguard the UK agricultural industry from third country competition.  A strong environmental focus is already being pursued vigorously by the Defra Secretary.
  • Northern Ireland – the Government believes that these proposals meets its commitments relating to Northern Ireland and Ireland whilst maintaining the constitutional and economic integrity of the UK but would obviate the need for the ‘backstop’ solution envisaged by the EU (i.e. NI remaining part of the EU customs territory) to be brought into effect.
  • Leaving the Common Agricultural Policy – enabling the UK to pursue a domestic agricultural policy which would work in the best interests of the UK.  Here, some questions remain over how a level playing field would be upheld in Northern Ireland where its farmers would be competing directly with Irish farmers still operating under the CAP.  Potentially, the EU Commission’s proposals offering Member States added flexibility in developing national strategic plans in combination with similar flexibility (and funding) at a devolved level for Northern Ireland could minimise any potential policy gaps which could open-up.

The proposals seek to strike a delicate balancing act between Single Market access on the one hand and UK sovereignty on the other.  Of course, the EU has yet to formally respond but the initial signs are that they will be taken seriously by Brussels as a basis for substantive negotiations on the future UK-EU relationship.  As mentioned previously, it is high-time for the London-Brussels negotiations to take centre stage (despite this morning’s event covered by an accompanying article) as both parties have a duty to minimise the immense uncertainties which have emerged for both UK and EU citizens.

The UK Government plans to publish its White Paper setting-out the detail underpinning these proposals later this week.

Brexit Secretary Resigns

The Cabinet’s unity on the Chequers negotiating proposals on Brexit (see accompanying article) lasted barely 48 hours as David Davis resigned as Brexit Secretary on 8th July.  In his resignation letter, he claimed that the proposed Parliamentary controls envisaged by the Prime Minister would end-up being illusory and that he could not continue to serve in the cabinet as a ‘reluctant conscript’.

The Brexit Secretary’s misgivings about the Government’s direction have been well-documented in recent months.  Mr Davies’ frustration grew as Downing Street exerted ever-more direct control over the negotiating process, whilst there were continued to delays to the publication of the DEXEU White Paper which he believed would provide much needed detail on the UK Government’s negotiating position and desired destination.  In recent days, it became increasingly apparent that David Davis’s vision of Brexit was inescapably incompatible with the PM’s and it is therefore unsurprising that he has resigned.  However, it does throw the Government’s supposed united stance and Cabinet collective responsibility into turmoil.

Dominic Raab (Housing Minister) has been announced as the new Brexit Secretary.  Some see Mr Raab as one of the ‘talented new generation’ of Conservatives and he has been touted as a future leader.  His credentials for that particular post are going to be fully tested in the coming months as he negotiates with Mr Barnier.

Earlier, it had been speculated that Michael Gove would replace David Davis.  However, many within Defra, especially those who have been working hard on the Health and Harmony consultation and the Agriculture Bill will no-doubt breathe a sigh of relief because otherwise several months of hard work would have been called into question.  With Parliament due to rise for the summer on 20th July, it looks possible that Michael Gove’s intention to have the Agriculture Bill before the House by the summer recess may not be achieved, particularly given recent events and Mr Gove’s heavy involvement with Number 10 on Brexit.

Tesco and Carrefour

Two of Europe’s largest retailers have announced a ‘strategic alliance’.  Tesco and the French-based business Carrefour have announced a tie-up that will see them work together to negotiate better deals with multi-national suppliers and to source own-brand products.  The move appears to be, at least in part, a reaction to the merger of Asda and Sainsburys.  It highlights the extremely competitive situation in the grocery market.  The concern is that suppliers to these retailers will come under even greater pressure.

Rights of EU Citizens Post-Brexit

On 26th June, the UK Government published proposals intended to protect the rights of EU citizens in the UK and UK nationals in the EU.

These confirm the creation of a new ‘settled status’ for EU citizens who arrive before a cut-off date, to be determined during Brexit negotiations with the EU.  EU migrant applicants who already have 5 years’ continuous residence in the UK will be immediately eligible for settled status.  Those who arrived before the specified date but do not yet meet the 5-year threshold by exit day will be allowed to stay until they reach that milestone and can secure settled status.  EU citizens who are granted settled status would be treated like a comparable UK national, entitled to broadly the same rights and benefits.  The proposals also include a grace period of up to 2 years allowing all EU migrants to regularise their status to remain in the UK.  All applicants will undergo full criminality checks.

Other key points include;

  • family dependants who join a qualifying EU citizen in the UK before the UK’s exit will be able to apply for settled status after 5 years
  • EU citizens seeking to remain in the UK will be asked to apply for documentation under a new streamlined, user friendly scheme
  • protection for the existing healthcare arrangements for both EU citizens in the UK and UK nationals in the EU.  The UK is seeking continued participation in the European Health Insurance Card scheme (previously known as the E111) for all UK nationals and EU citizens, including for temporary visits
  • the UK intends to provide certainty by continuing to export and uprate the UK State Pension within the EU, as well as offering reassurance that those exporting a benefit at the specified date will be able to do so, subject to ongoing entitlement
  • EU citizens who arrived before the specified date should be able to continue to be eligible for Higher Education (HE) and Further Education (FE) student loans and ‘home fee’ status.
  • the UK intends to continue to recognise professional qualifications obtained in the Member States prior to the UK’s EU withdrawal.  This would be part of a reciprocal deal which ensures professional qualifications obtained in the UK and EU Member States continue to be mutually recognised.

Further information is available via – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/621848/60093_Cm9464_NSS_SDR_Web.pdf 

These proposals come on the back of a Home Office announcement on 20th June concerning a settlement scheme for EU nationals living in the UK.  The Home Office proposed that EU citizens living in the UK and their family members will need to apply under the settlement scheme to obtain their new UK immigration status via three steps.  These include the need to prove their identity, show that that they live in the UK, and declare that they have no serious criminal convictions.  The proposed application fee is £65 and £32.50 for a child under 16.  For those who already have valid permanent residence or indefinite leave to remain documentation, they will be able to exchange it for settled status for free.

Applications for the scheme will take place via an online system which will be accessible through phones, tablets, laptops and computers.  The Government will also provide a support system to ensure that it is available for everyone.  The scheme will open in a phased way from later this year and will be fully open by 30th March 2019.  The deadline for applications will be 30th June 2021. Further information is available via – https://www.gov.uk/government/news/home-office-publishes-details-of-settlement-scheme-for-eu-citizens

These announcements bring much needed clarity for EU migrants currently living in the UK and should also help agri-food employers in securing a significant proportion of the labour it needs to operate competitively in the long-term.  That said, numerous agri-food businesses are finding it increasingly difficult to secure new labour for business operations.  This is a problem irrespective of Brexit and the need for a work-permit system which would enable UK businesses to access migrant labour over the longer term (from the EU or elsewhere) is becoming increasingly apparent.  The Republic of Ireland has recently announced a trial third-country work permit system for operational positions within its agri-food and horticultural sectors (e.g. for workers from Ukraine or Brazil).  The UK Government should pursue similar initiatives so that a robust and transparent migration system is established before free movement ends. 

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.

Mid-tier Deadline Extended

DEFRA has confirmed that the deadline for Mid-tier Countryside Stewardship applications, including the four new Wildlife Offers, has been extended by one month.  The deadline has been put back in recognition of the delays in getting application packs out to claimants.  Natural England has said that all packs should be issued by the end of June; a month after the deadline for requests.  The extension will give those applicants still waiting for their application packs an extra month to draw up applications at a busy time of the year.  In previous years the deadline has been the end of September, but this year it has been brought forward to allow Natural England more time to process applications ready for 1st January start date; some offers this year had still not been made before May 15th claim deadline.

Scottish BPS Payments

The Scottish Government has confirmed it has achieved the payment target of 95.24% of BPS, including Greening and Young Farmer payments by 30th June EU deadline.  Readers will recall that eligible farmers and crofters received 90% of their claim via a nationally funded scheme back in November, with balance payments being made once the claim has been fully validated.

EU-WTO Tariff Rate Quotas

On 26th June, the EU Commission was authorised to open formal negotiations with WTO on how to divide-up existing tariff rate quotas (TRQs) between the EU-27 and the UK.

In October 2017, the EU and the UK informed WTO members that they proposed to apportion existing EU TRQs based on existing levels of market access and historical trade flows under each TRQ.  This can be illustrated by the example the 228,254 tonnes of sheep meat TRQ that New Zealand has with the EU.  If it is assumed that, based on historical trade flows, that the UK imports 50% of New Zealand sheep meat exports to the EU under its TRQ, it would mean that the future UK TRQ would be 114,127 tonnes and the EU-27 TRQ would be the same amount.

These proposals were rejected by several influential WTO members including the US, New Zealand, Canada and Brazil.  They claimed that such an apportionment would put them in a disadvantageous position as they would lose the ‘option value’ of supplying any market within the EU (including the UK).

As things stand, the EU will need to modify its schedule with the WTO (including TRQs) whilst the UK will need to set-out its own schedule as it will be no longer an EU Member State from 30th March 2019. However, the transitional arrangements envisage that that the international agreements for which the EU is party would continue to apply to the UK until 31st December 2020.  This means that if an agreement is reached on the transition period, existing EU TRQs would continue in their current form until the end of 2020.

Some believe that the rejection of the initial UK-EU proposal by several WTO members was a move to increase their market access to the UK and the EU via TRQs.  It also illustrates that the WTO element of the Brexit negotiations could add significant complications in the next 18 months.

One potential means to resolve the TRQ impasse is to transpose the existing EU-28 TRQs into a joint UK-EU TRQ, similar to how the 11,500 tonnes of ‘Hilton”’Beef TRQ is jointly accessed by the US and Canada when exporting into the EU.  This would mean that future trade under TRQs would continue to be managed in effectively the same manner as present.  It would require close communication between the UK and EU to ensure that imports are managed in accordance with TRQ provisions.  If future TRQs are agreed either by the UK or the EU-27, these could be managed separately, similar to the autonomous beef TRQs that the US and Canada have individually with the EU.  It is rumoured that New Zealand for example would favour such an approach.  This principle would chime well with a close partnership between the UK and the EU which the PM is keen to pursue.  It would also help to mitigate a potentially complex negotiation with WTO members at a time when UK trade negotiating capacity is already seriously stretched.

Scottish Support Consultation

The Scottish Government published its consultation on ‘rural funding’ post- Brexit, on the 20th June.  It is looking for comments on how support for agriculture and the rural economy should change in the period immediately after the UK and Scotland leave the EU.  Following the fashion for alliterative consultation names (see ‘Health and Harmony’) it is titled ‘Stability and Simplicity’.  The consultation closes on the 15th August.

The appearance of the consultation was a bit of surprise, as it had not been widely trailed in advance.  It may have been brought out in response to the other devolved regions undertaking their consultations – there have been mutterings in Scottish agriculture that the Scot Gov did not seem to be doing much with regards to post-Brexit support.  Part of the reason for this is seen within the consultation itself, where there are numerous references to the uncertainty in policy-making caused by the lack of clarity on what devolved powers Scotland might have, and the funding available. 

The consultation is a rather odd mix of the very vague and very detailed.  The vagueness is largely around direct payments.  Firstly, the consultation is far less certain than DEFRA’s that a Domestic Agricultural Policy will commence in 2020 (although it sort-of accepts it is likely).  Like other UK administrations a five year transition period for farm support is outlined, running from the formal date of Brexit until March 2024.  However, despite this being billed as a ‘transition’ the consultation is silent on what the policy from 2024 might actually be.  It seems difficult to ‘transition’  without a known end-point.  Decisions on a long-term policy seem to have been delayed, with reports from the Agricultural Champions and National Council of Rural Advisors also feeding into this debate.

The transition period in fact looks like being quite static, with the consultation highlighting that ‘it would be an explicit aim of the transition period to avoid major new initiatives and changes in existing schemes’.  And ‘farmers and crofters currently entitled to CAP Pillar I support will continue to receive support’.  The use of the word ‘stability’ in the title is also probably quite a large clue.  Any changes appear to be limited to making the processes (application, inspection, mapping etc.) around direct payments simpler, and amendments to the Greening rules.  However, the consultation never quite explicitly states that direct payments will carry-on largely unaltered until 2024.

One area where change seems likely is on capping.  Scotland currently operates the 5% EU ‘degressivity’ deductions for payments over €150,000.  From 2018 BPS a fixed cap of €600,000 is being introduced.  The consultation indicates that this could be taken further.  No real guide is given as to what the capping level might be.  However, examples are given ranging from £25,000 to £200,000 per year which is likely to illustrate the kinds of levels Scot Gov is thinking about – i.e. much lower than currently.  These limits might apply to all payments not just Pillar 1.

As written elsewhere LFASS will continue for 2019, but at 80% of current payments.

The consultation then gets quite detailed, with many questions on the individual schemes and programmes under the Scottish Rural Development Programme and how these might be developed over the next five years once Scotland is outside the EU.

The consultation can be found at – https://consult.gov.scot/agriculture-and-rural-communities/economy-post-brexit-transition/

LFASS

Rural Economy Secretary Fergus Ewing has confirmed the Less Favoured Area Support Scheme (LFASS) will continue for 2019.  As outlined in its post-Brexit support consultation (see other article), the Scottish Government has said hill farmers and crofters will receive 80% of the current rate in 2019.  Under EU rules, Member States have the option from 2019 to either replace the LFASS with a new Area of Natural Constraint (ANC) scheme, or continue but at the reduced rate.  There seems a potentially larger problem looming for LFASS in 2020.  It is a Rural Development scheme, so the EU rule continue to apply until the end of the transition period in December 2020, unlike the BPS.  For 2020, it is only possible to pay 20% of the current LFASS rate if the switch to an ANC scheme has not been made.  This funding drop is seen as ‘unacceptable’ by the Scottish Government, and it is looking at options to avoid it.