Category: Policy & Business

EU Brexit Talks

Whilst multiple rounds of negotiations have taken place, talks with the EU have been stalling due to impasses on several key issues.  These include governance (role of the European Court of Justice), ‘level playing-field’ issues, fisheries, criminal and judicial cooperation as well as the implementation of the Irish Protocol.  On 15th June, the Prime Minister and the EU Commission President, Ursula von der Leyen, held talks where they agreed to intensify negotiations (to be held on a weekly rather than fortnightly basis) in a bid to secure a deal.  Most analysts now believe that it will be October before a deal is likely to emerge.

Transition Period Extension

It now seems that the deadline for extending the Transition Period beyond 31st December this year will pass with a whimper rather than a bang.  The UK Government has made it clear it will not be asking for an extension before the 1st July cut-off.  The EU sees little point in asking for one from its side as it simply provides an opportunity for the UK to say ‘no’.  There is a top-level committee that meets just before the deadline, but the conference call between Boris Johnson and von der Leyen has effectively ended the chance of extending the Transition.

There is still a wide gap between the parties to bridge on many issues over the next three or four months.  Many commentators now believe the most likely outcome is a ‘bare bones’ deal before the end of the year.  Negotiations may then continue in the months that follow, including January and beyond, to fill in the details.  Negotiators could return to the deal over the years that follow to add elements or deepen the provisions (depending on political will).  This all highlights Brexit is a process rather than an event.  And it is all a long way from the ‘easiest trade deal in history’ promised by Liam Fox back in 2017.  

Level Playing Field

From an agri-food perspective, much of the focus is on the level playing-field issues, particularly which standards will apply in the UK from January.  Whilst the UK Government has mentioned that the same high level standards will continue to apply, others believe that some dilution in standards is likely to take place as the UK tries to secure trade deals elsewhere.  During a House of Commons debate on 11th June, Michael Gove stated that the UK Government was “committed to making sure that high animal welfare and environmental standards continue to characterise British farming, which is the best in the world.”  During the same debate he also mentioned that the food available to consumers would “always meet high quality standards”.  Arguably, this latter statement could have a looser interpretation which leaves open the possibility of accepting alternative standards on some imports.  As previous articles have noted, the EU is keen to ensure that the UK’s standards remain as close as possible to the EU’s, otherwise, EU exports will not be as competitive in the UK market.  This would put pressure on prices within the EU due to an excess of supply if alternative markets cannot be found.

In an attempt to resolve the level playing field impasse, there are reports of a proposed compromise that the UK would reserve the right to diverge from the EU’s standards in the future but that Brussels would have the right to impose retaliatory tariffs or place restrictions on the UK’s access to the Single Market for services. Although some view this compromise as having the potential for constant friction in the UK-EU relationship, it has the potential to open-up a landing zone for a Deal. But, time is very tight and a breakthrough is needed soon if the October deadline is to be met.

Post-Transition Border Controls

On 12th June, the UK Government also announced that it plans to delay the full imposition of border checks on imports from the EU, but acknowledges that exports from the UK to the EU27 are likely to be subject to checks from the outset. Border controls would be introduced over three stages from January to July 2021.

  • Stage 1 (from January 2021): traders importing standard goods will need to prepare for basic customs requirements (e.g. keeping sufficient records of imported goods) and will have up to six months to complete customs declarations. Although tariffs will need to be paid on all imports, payments can be deferred until the customs declaration has been made. Checks on controlled goods like alcohol and tobacco will take place. Businesses will also need to consider how they account for VAT on imported goods. There will be physical checks at the point of destination or other approved premises on all high risk live animals and plants.
  • Stage 2 (from April 2021): all products of animal origin (POAO) (e.g. meat, pet food, honey, milk or egg products) and all regulated plants and plant products will require pre-notification and the relevant health documentation.
  • Stage 3 (from July 2021): declarations required at the point of importation for all goods and relevant tariffs must also be paid. Full Safety and Security declarations will be required, while for SPS commodities there will be an increase in physical checks and the taking of samples. Checks for animals, plants and their products will take place at GB Border Control Posts.

Implementation of Northern Irish Protocol

Whilst these arrangements will give UK businesses some more time to prepare it is important to note that regulatory checks on trade moving from GB to Northern Ireland are likely from January 2021 as a result of the provisions of the Northern Irish Protocol. This has the potential to create significant friction on agri-food trade between GB and NI. Whilst the UK Government has sought to alleviate this by announcing plans to reimburse companies for any imposition of tariffs, there are a lot of questions around how all of this would work. For instance, what paperwork would be required? How long would it take for reimbursement as the application of tariffs would have a significant impact on cashflow, even if they are only applied where goods are deemed “at risk” of entering the Single Market? A concept that is still quite vague and it would be helpful if the EU could define more precisely what would constitute a material risk to its Single Market.

Furthermore, there are State Aid Rules issues (which NI businesses would still be subject to). These rules limit the amount of state aid that companies can receive (circa €200,000 over 3 years). Given the substantial tariffs applicable in agriculture, some companies will quickly run up to these limits. 

Although numerous challenges remain with the introduction and implementation of the Northern Irish Protocol, there has been progress in several areas recently. The HMRC have provided some details on the regulatory arrangements it plans to introduce on GB to NI trade. This includes;

  • Declarations: a Pre-Import Declaration and a Safety & Security Declaration will be required. A Transit Accompanying Document might also be needed, particularly if consignment is route from GB to Northern Ireland via the Republic of Ireland.
  • Goods Movement Reference: will be used to notify the authorities of the consignment details, vehicle and shipping details.
  • Pre-Lodgement Model: would be used so that declarations and pre-notifications would be undertaken before shipping from GB.
  • Risk Assessments: would take place whilst consignments are at sea.
  • Upon Arrival: a confirmation would be provided before arrival if consignment is okay to proceed, or if a check is required.
  • Goods Vehicle Movement Service (GVMS) IT platform: will link the various documentary declaration references with the vehicle registration references so that one reference can be presented at the frontier.
  • SPS checks: details emerging from the negotiations suggest for UK exports to the EU (including EU checks imposed at NI ports and airports) all consignments will be subject to Documentary and Identity checks and physical checks will take place on up to 30% of consignments, with a 15% physical check rate likely for red meat. Whilst these physical check rates are lower than the EU default for third countries (50% for poultry meat and 20% for red meat), they have the potential to create significant friction.

It has been reported that the HMRC plans to have its IT platforms ready for testing in September or October before they ‘go live’ from 1st January. Although it is reassuring that the HMRC appears to be making significant progress, the timeline remains immensely challenging. It leaves little room for error, which has been a challenge with previous IT systems. Of course, whilst the authorities might claim to be on course for “being ready” for the 1st January, it is another matter entirely whether businesses are ready. Business groups have been calling for a six-month delay before the Protocol becomes fully operational. The Covid Crisis has meant that many businesses have been unable to focus much on preparing for the post-transition period of late. Few believe that businesses will be ready for the changes due to come into force on 1st January. It is evident that some form of further implementation (or application) period is needed.

EU Negotiations Timelines

Below is a summary of the key milestones anticipated in the months ahead.

  • 1st July 2020: deadline by which any extension of the Transition Period must be agreed. The UK has already said that it would not be seeking an extension and the EU has noted this.
  • 15-16th October 2020: European Council due to take place. A deal would need to be reached by this point, with legal texts finalised, to permit the EU to undertake its ratification process.
  • October – December 2020: conclusion and ratification of first UK-EU future relationship agreement.
  • 10-11th December 2020: European Council due to take place where any agreement is likely to be formally adopted.
  • 31st December 2020: Transition Period formally ends.
  • 1st January 2021: new UK-EU trading relationship applies. UK applies limited border control checks on imports from EU. EU likely to impose full regulatory checks on exports from the UK, including at NI ports and airports.
  • January 2021: negotiations on outstanding issues of the UK-EU trading relationship likely to commence. The various Joint Committees planned during the EU Withdrawal negotiations will play a key role.
  • April 2021: UK introduces full regulatory checks on all POAO and plant products.
  • July 2021: full regulatory checks and payments of tariffs on all goods at the UK border.

 

Trade Talks with Non-EU Countries

In recent weeks, there has been a noticeable increase in the pace at which the Department for International Trade (DIT) is seeking to conduct negotiations on free-trade with non-EU countries.  In addition to the highly-publicised negotiations with the US which commenced in mid-May, talks have also commenced, or are about to commence, with Australia & New Zealand and Japan.  This is in addition to negotiating ‘Continuity Agreements’ with various countries so that the UK can continue to trade with them after 31st December 2020 as it did when it was an EU Member State.  

UK-US Trade Negotiations

When the UK set out its negotiating objectives for a Free Trade Agreement (FTA) with the US back in March, it noted that US-UK trade was valued at nearly £221 billion and accounted for nearly 20% of the UK’s exports.  It claimed that, as a result of an FTA between both countries, trade could increase by £15.3 billion in the long-run.  It is therefore seeking to secure a comprehensive and ambitious FTA with the US, but was also keen to emphasise that it ensure high standards and protections for British consumers and workers.  This contrasts with the US negotiating objectives published in February 2019 which seek to ‘promote greater regulatory compatibility to reduce burdens associated with unnecessary differences in regulatory standards’ and to eliminate ‘unjustified trade restrictions’ (including labelling) that affect ‘new technologies’.

Although the UK Government have noted potential gains that could be achieved for British agriculture (e.g. increased access for lamb and cheese exports to the US), most debate has centred on the potential threat posed by permitting imports from the US which do not meet the standards that British farmers (or imports from the EU and elsewhere) currently adhere to.  In addition to issues posed by chlorinated chicken, there are also concerns around hormone treated and lactic-acid washed beef finding its way into the UK market.  It raises the prospect of UK farmers having to continue to adhere to current high standards on animal welfare and the environment whilst simultaneously being subject to competition from US importers producing to lower standards.

Whilst the UK Government might claim that it will seek for global food standards to be raised at the WTO level, relative to the US it is a small economy.  The US accounts for 23.7% of global GDP whilst the UK accounts for 3.4%.  Bargaining power is always crucial during trade negotiations and this dynamic becomes even more pronounced under an ‘America First’ US Presidency.  The threat to UK food standards is very real.  An FTA that permits significant volumes of US produce, produced to US standards, to enter the UK market would seriously erode the competitiveness of the British farming industry, not just domestically, but also in terms of exports to the EU.  For example, each year between 25% to 40% of the UK lamb crop is exported, almost entirely to the EU, which are valued at approximately £350 million per annum.  An FTA that gravitates towards US standards will significantly reduce access to the EU.  Increased access to the US market via UK-US FTA will not compensate.  For instance, the DIT estimates that lamb exports to the US would increase be £18m.

Australia and New Zealand Negotiations

On 17th June, the UK formally announced its objectives for the upcoming trade negotiations with Australia and New Zealand.  Again, agriculture is likely to feature prominently, especially given the historical trading relationships which existed before the UK joined the EEC.

Another major focus of these negotiations will be the reduction in non-tariff barriers to trade as New Zealand in particular has embraced e-certification.  New Zealand’s standards are quite close to the status quo in the UK (and the EU); therefore its non-tariff barrier costs are already low for several products (e.g. lamb).

It is likely that increased access for beef, lamb, dairy and horticultural products will be amongst the key asks from Australia and New Zealand.  This would bring about increased competitive pressure on UK farmers but it is not attracting as much controversy because both countries’ production standards are perceived to be more acceptable than the US for example.  Geographic distance from the UK also limits their influence.  Indeed, both countries have been focusing more heavily on Asia in recent years.

From the UK side, its focus is on increased access for services, investment and digital trade.  Opportunities on the agri-food and drinks side appear to be limited to niche sectors such as the export of British sparkling wine and chocolate.

Japan Negotiations

These talks also commenced recently and, given that Japan recently concluded an FTA with the EU (which at the time included the UK), it is anticipated that such negotiations would be wrapped up quickly.  The Japanese Government is pushing for the talks to be concluded in approximately six weeks as it claims it needs to secure Parliamentary approval during the autumn session in order to be ready to become applicable in January.  The UK had initially hoped that it could roll-over the existing EU-Japan FTA into a UK-Japan equivalent, but the Japanese Government has sought separate negotiations in what is seen as a bid to secure greater concessions from the UK.  Like most FTAs, agriculture is a key issue.  Since the completion of the EU-Japan FTA, the Japanese Government has come under pressure from its highly protectionist domestic farming lobby to limit access to its market for agri-food.  The Japanese are also keen to secure the supply chains of its companies which use the UK as a base to supply into the EU so it is likely that it is also using these negotiations as leverage so that the UK secures a trade deal with the EU.

The UK Government claims that a UK-Japan FTA could increase trade between both countries by over £15 billion and that the UK economy could see a £1.5 billion benefit.  It remains to be seen what specific concessions Japan will seek on agri-food.  The UK already exports significant volumes of grain (e.g. wheat and barley) to Japan.  Export opportunities also exist for products such as whisky.

Other Negotiations

  • Comprehensive and Progressive Agreement Trans-Pacific Partnership (CPTPP): the UK has also reaffirmed its interest in becoming a member of the CPTPP which is one of the world’s largest free trade areas accounting for 13% of global GDP in 2018.  The CPTPP includes Japan, Australia and New Zealand amongst its members and negotiations with these countries are seen as a stepping stone towards joining this larger trade bloc which also includes Canada, Chile, Malaysia, Mexico, Singapore and Vietnam.
  • Continuity (Rollover) Agreements: with the UK leaving the EU, it is seeking to replace the FTAs which the EU had agreed with other countries whilst the UK was still a Member State.  To this end, it has been pursuing Continuity Agreements with these countries.  To date, agreements have been concluded with approximately 50 countries, including Switzerland, South Korea, Chile and South Africa, as part of the South Africa Customs Union and Mozambique (SACUM) trading block.  Negotiations are ongoing with 16 others, including Canada, Mexico and the Ukraine.  Such rollover agreements are anticipated to have a limited impact on agri-food as they are largely seeking to replace FTAs that the FTA was subject to as part of the EU.

Whilst pursuing trade deals around the world is a crucial aspect of the UK’s independent trade policy, one must not lose sight of the fact that exports to the EU (£300 billion) accounts for 43% of total UK exports.  Furthermore, imports from the EU, which accounts for 47% of the UK’s total, plays a crucial role in the supply-chains of numerous companies.  Any major disruption in the supply of inputs would inhibit UK manufacturers’ ability to assemble finished products for export.  This is also true within the agri-food sector.  Therefore, securing a comprehensive FTA with the EU should continue to be the priority.  This can be done whilst also securing FTAs elsewhere but a considered approach must be taken.

A key danger is that the UK Government agrees trade deals in haste and that this could come back to haunt the UK in decades to come.  The global geopolitical tectonic plates are shifting quite rapidly.  The danger of a new Cold War, between the US and China is emerging.  Trade between both countries could become seriously curtailed.  The US is already a big agri-food exporter to China.  If it needs to look elsewhere, the UK will be a key target market. 

In any trade deal there are (excuse the pun) trade-offs between different sectors to get an agreement.  The danger is that agri-food might be sacrificed to allow trade gains elsewhere.  

 

 

ELM Plans

Defra has re-opened the ELM Policy Discussion Document for responses.  Our article published on 2nd March (https://abcbooks.co.uk/elm-plans/) outlined the details of the discussion paper which sets out Defra’s initial thinking for the design of the new ELM scheme and included 17 questions for which replies were initially required by 5th May.  But due to Covid-19 the policy discussion was paused on 8th April.  Those wishing to make a response, now have until 31st July.  Any replies already made will still be valid, although can be added to if wanted.  Originally, the intention was to hold a number of regional workshops, these will now be in the form of interactive webinars, held throughout July.  For further information, to submit a response or to register for a webinar go to https://consult.defra.gov.uk/elm/elmpolicyconsultation/

 

 

 

‘Bounce Back’ Plan

Defra and the Department for International Trade (DIT) have announced a ‘Bounce Back’ plan for the UK agriculture, food and drinks industry.  The measures being are designed to ensure the sector’s export trade can quickly recover and grow following the effects of Covid-19.  They are also aimed at getting the industry ready to capitalise on any opportunities that may be available through the series of free trade agreements currently being negotiated with Japan, US, Australia and New Zealand.  The measures include a programme of ‘physical and virtual events’; an overseas virtual buyer trial, a ‘Smart Distance Selling Process’ and a package of ‘Ready to Trade’ Exporting Masterclass Webinars.  A SME E-Commerce Accelerator Pilot is also being launched to increase the level of international e-commerce backing for SMEs in the food and drinks industry.  The package of measures have been designed in conjunction with business and the devolved administrations.  It will also see the introduction of Defra’s first Agri-food Counsellor serving the Gulf region.  More information can be found at https://www.gov.uk/government/news/bounce-back-plan-for-agriculture-food-and-drink-industry-launched

Farming Recovery Fund

The Farming Recovery Fund has re-opened for those who were affected by storm Dennis in February 2020.  Funding of between £500 and £25,000 is available to cover non-insurable items and activities such as re-cultivation, re-seeding, reinstating field boundaries and removing debris from farmland.  Eligibility for the scheme has been pre-determined using satellite data showing the extent of the flooding in February 2020.  It covers land in Herefordshire, Gloucestershire, Worcestershire, Shropshire, Staffordshire, Nottinghamshire, North and East Yorkshire.  A new online application portal is available which will confirm which land parcels have been identified as being affected and are therefore eligible for funds.  Applications must be made by 1st September.  Further guidance can be found at https://www.gov.uk/guidance/farming-recovery-fund-extension-2020

Tractor Registrations

Tractor registrations, often the bellwether for UK agriculture, have shown a sharp decline in April and May according to the Agricultural Engineers Association (AEA).  Compared to the previous year, registrations for these two months fell by 50.6% and 41.9%.  However, April 2019 was a particularly high point for registrations as there was an increase in purchases ahead of the original Brexit date.  Registrations for the year are down in total by 26.5%.  The lack of registrations is likely to be due to a combination of factors.  The Coronarvirus pandemic has seen factories temporarily shut, so orders will have been delayed.  This should mean we see an increase in registrations now factories are re-opening.  But registrations were likely to be have see a reduction, as the lack of winter drilling due to the weather and the uncertainties over Brexit will have had an impact on farmer confidence.

BPS 2020

Hopefully, all 2020 BPS claims will now have been submitted on time and correct.  But if this is not the case it is still possible to make a claim and also to make amendments to an already submitted application.  It is possible to make a late claim up until midnight on 10th July, but this will attract a 1% penalty for every working day late.  After the 10th July claims will not be accepted.  For those that got their claim in by 15th June, but subsequently find they need to make an alteration, certain changes can be made without penalty up until 30th June.  These are;

  • adding a land parcel
  • increasing the area being used to activate entitlements
  • changing the land use

These amendments can still be made from 1st July to 10th July but will attract late claim penalties on the amended parcels.

The above changes only refer to increasing the claim.  It is possible to make changes which do not increase the claim at any time.  Via the ‘Notified Error’ provisions it is possible to notify the RPA, in writing, at anytime (although see below) if you find you need to reduce the eligible area of a land parcel or change the land use declared.  It is possible to withdraw land which has become ineligible (i.e will not be used primarily for an agricultural activity for the whole of the year).  Examples might be because it has been sold out of agriculture or utility works are coming through.  Land parcels can be withdrawn from an application, or a BPS claim completely, by notifying the RPA in writing at anytime without penalty.

However, it is not possible to amend or withdraw an application if the claimant has;

  • been told about a non-compliance affecting the part of the application they want to withdraw or amend
  • had an inspection revealing non-compliance affecting the part of the application they want to withdraw or amend, or
  • received notification of an inspection

It is therefore important to let the RPA know straight away if you find a problem with a claim or a client notifies you, as once an inspection is notified it may not be possible to make any changes.

Foreign Seasonal Labour

Seasonal agricultural workers coming to England will be able to start work immediately.  Unlike other international travelers, those arriving to work on farms will not have to self-isolate for the first 14 days after they arrive as long as other rules and guidelines are adhered to.  However, before traveling, workers will have to complete a form with their journey, contact details and address of the farm on which they will be living and working.  If they are not staying at the farm they will not be able to work.  At UK border controls workers will have to prove they are are a seasonal agricultural worker.  On arrival into the UK, somebody from the farm where they will be living and working must collect them and take them straight there.  During the first 14 days, workers will need to follow social distancing rules and will only be able to leave the farm under strict circumstances, such as an emergency or to get essential supplies and medicines, only if these can’t be delivered.  The Government has produced strict guidelines for employers and workers to follow, these can be found at https://www.gov.uk/guidance/coming-to-the-uk-for-seasonal-agricultural-work-on-english-farmshttps://www.gov.uk/guidance/coming-to-the-uk-for-seasonal-agricultural-work-on-english-farms

Organic Farming Statistics

The amount of land managed organically in the UK grew slightly in 2019.  Latest figures from Defra put the organic land area (both fully organic and in-conversion) at 485,000 hectares.  This is a rise of 2.4% compared to 2018.  However, it is 34% lower than the peak organic area seen in 2008.  This means around 2.7% of the total area on UK farms is organic.  There are differences between sectors.  Only 1.2% of the UK cereals area is organic, but this rises to 7.1% for vegetables.  The UK organic dairy herd is 2.8% of the total whilst the equivalent figures for beef, sheep, pigs and poultry are 2.3%, 2.4%, 0.8% and 1.9% respectively.  More details can be found at – https://www.gov.uk/government/statistics/organic-farming-statistics-2019.

Emissions Trading Scheme

The Government has set out plans for a UK emissions trading scheme (ETS) that will operate once the country leaves the EU.  The proposals roll-over many of the features of the EU ETS, but it is stated that the UK scheme will have greater ambition to cut carbon output.  The scheme only applies to sectors that are deemed ‘energy intensive’ which does not currently include agriculture.  However, there is a clear policy goal to bring more sectors into a ‘carbon pricing’ mechanism in the future.  This may eventually see farming having to buy carbon credits or pay a carbon tax.  Further details on the ETS can be found at – https://www.gov.uk/government/consultations/the-future-of-uk-carbon-pricing .