Tag: Brexit

Defra’s Brexit Preparations

The National Audit Office (NAO) reports that Defra has been making good progress in its preparations for leaving the EU.  However, enormous challenges remain and it believes that it is no longer possible for Defra to deliver everything it originally intended for in a ‘No-Deal’ exit.  That said, Defra is working on contingencies to have what it believes are sufficient arrangements should a No-Deal scenario arise.

As readers will be aware, Defra is one of the Government Departments most affected by Brexit and the NAO reports that it is responsible for 55 of the 319 EU-related work streams across Government.  This covers agriculture, the agri-food industry, chemicals, fisheries and the environment.  The NAO report focuses on overall implementation of Defra’s EU Exit portfolio as well as work streams covering environmental regulations for chemicals, the import and exports of animals and animal products and control of English fishing waters.  Areas where significant progress has been made, despite the demanding timescale, include;

  • securing HM Treasury approval for £320 million spending in 2018-19
  • started to build new IT systems
  • recruitment of over 1,300 new staff by March 2018
  • strengthened its project management capability
  • published consultation documents on agriculture and fisheries (note Agriculture Bill was published on 12th September – see accompanying article).

Despite this notable progress, major challenges remain, particularly as the political environment is constantly changing, making it difficult to develop a robust plan and stick to intended timelines.  The main challenges include;

  1. No-Deal Scenario Planning for Agri-Food – as alluded to above, Defra will not have time to implement all the changes necessary by 29th March. Examples of areas where Defra will fall short are;
    • Export health certification for products of animal origin – estimated to be valued at £7.6 billion, Defra needs to negotiate and agree replacement export health certificates with 154 countries, necessitating the introduction of approximately 1,400 versions of the current EU export health certificates. As a mitigating measure, Defra is focusing on 15 countries which account for 90% of all exports. It accepts that under a No-Deal scenario, UK firms exporting to the other 139 countries may be unable to do so for a period after a no-deal Brexit.
    • Shortages of qualified veterinarians – with the prospect of having to issue health certificates to EU countries for the first time in many years, it is clear that there are not enough vets.  Estimates of the increase in certification required as a result of the UK trading with the EU as a third country range from 300% to 800%.  With veterinary shortages, there will be delays to consignments crossing the border. The NAO reports that Defra plans to launch an emergency recruitment campaign for vets in October to meet minimum requirements and plans to use non-veterinarians to check records and processes that do not require veterinary judgement. Whilst these steps are sensible and should be pursued without delay, with less than 200 days before ‘Brexit Day’ it remains a tall order to have new veterinary and non-veterinary sufficiently trained and up-to-speed to deal with the increased bureaucracy. 
    • Control and enforcement of fishing waters – whilst not of direct relevance to the agri-food sector, it highlights the fact that there is a significant shortage of patrolling vessels for border control. This echoes sentiments elsewhere and indicates concern regarding the potential for smuggling, particularly if there are major bottlenecks at Border Inspection Posts (BIPs). 
  2. Chemicals Regulations and Exports – the UK exports of chemicals to the EU are valued at £17 billion.  Whilst the UK is seeking continued participation on the European Chemicals Agency, this is subject to negotiations. Without this access, exports to the EU would cease as existing registrations would no longer be recognised by the EU and re-registration in another EU Member State is a lengthy process and cannot commence until the UK last left the EU.  This has the potential to affect sales of agri-chemicals from UK plants to other EU markets (e.g. Ireland) and could also give rise to issues concerning the import of chemicals from the EU.  However, based on the UK Government’s no-deal planning publications in August (see previous article), it is anticipated that the UK would continue to recognise existing EU certifications and registrations (at the UK’s ‘discretion’). 
  3. Parliamentary Time – there is a high risk that Defra will not be able to introduce all of the required legislation to transpose EU law into the UK statute by March 2019.  The NAO reports that Defra has “three new bills and 93 Statutory Instruments to convert EU law into UK law and is now having to prioritise.”
  4. Supporting Businesses to in Brexit Preparations – the Government has been unwilling, until recently, to allow Departments to discuss preparation for a No-Deal scenario with stakeholders.  This finding will be unsurprising to most readers as many business organisations have long been expressing concern at the lack of information available on how they can prepare for Brexit. Last month’s Technical Notices on no-deal planning are a start but substantial uncertainty remains and very little time to implement contingency plans.

Overall, the NAO report demonstrates that Defra is rising to the Brexit challenge.  But the scale of a No-Deal scenario is so substantial, that the Department’s best efforts will fall short in several key areas.  Another major issue for businesses which the NAO did not cover, is the potential deterioration on product value and the reputational damage to British Agri-Food Plc that will arise from not being able to adhere to just-in-time supply chain delivery requirements.  In sectors where profit margins are frequently less than 5%, any deterioration in product value will have the potential to cause severe damage.

Finally, one needs to be mindful that many of the issues pointed out above are related to a No-Deal scenario.  According to Michel Barnier this week, if both sides are realistic a Withdrawal Agreement could be reached in 6-8 weeks.  That said, in today’s political environment, realism appears to be in short supply and businesses must prepare for all scenarios, including No-Deal.

Government No Deal Brexit Notices

The Government has stepped-up its preparations for a ‘No Deal’ Brexit.  On 23rd August it published 25 notices setting out what UK businesses and other stakeholders need to consider in the event of the UK leaving the EU without a comprehensive agreement in place.  Over the coming weeks, additional technical notices will be published.  In total, over 80 notices are expected.  These can be found at; https://www.gov.uk/government/collections/how-to-prepare-if-the-uk-leaves-the-eu-with-no-deal

The documents cover a wide range of topics spanning medical science, research, taxation, and workers’ rights, in addition to farming and international trade.  The key points from a food and farming perspective are set out below.

Agri-Food Production (incl. Labelling) and Funding

  • Farm Payments – as previously communicated, the levels of cash funding will continue until the end of this Parliament (expected to be 2022) with all EU legislation as it currently stands being transposed into UK law.  All rules and processes will remain in place until Defra and the devolved administrations introduce new agricultural policies, either through the Agriculture Bill (due in Autumn) or via devolved legislation.  Click here for the Notice on farm payments.
  • Rural Development Funding – as outlined previously, Government funding agreed before the end of 2020 will be maintained over the lifetime of any agreement (i.e. after 2022 if applicable).  However, after 29th March 2019 under No Deal, Rural Development schemes would be funded directly by the UK Government via existing national and local arrangements.  Operationally, there would be no substantive change for farmers, land managers or rural businesses.  For more details, click here.
  • Producing and Processing Organic Food – from a UK perspective, the same processes would remain in place as currently exist.  This includes maintenance of existing standards on labelling and food production, UK organic control bodies certifying British organic produce, recognition of third countries currently equivalent to EU and continued acceptance of EU’s organic products “at the UK’s discretion.”  However, as the EU would treat the UK as a third country, there would be changes including;
    • logos and packaging – UK organic operators would no longer be permitted to use EU organic logo, but they could continue to use the UK control body’s own organic logo.  Defra is investigating the development of a new UK organic logo.
    • exporting as organic to the EU – could only be done if business is certified by an organic control body recognised and approved by the EU to operate in the UK.  This means UK organic control bodies will need to apply to the EU Commission for recognition.  However, they cannot do so until the UK becomes a third country (in March 2019) and the process is estimated to take 9 months.  Whilst efforts are underway to speed-up this process, including the introduction of an equivalency agreement with the EU and for the EU to accept applications before March 2019, this would present a major challenge to UK organic exporters.  More details available here.
  • Genetically Modified Organisms (GMOs) – no significant implications for UK stakeholders.  All current EU legislation would be transposed into UK law.  Regulatory decisions on GMO trials would be made as they are now on a devolved basis.  Any existing EU decisions authorising marketing of GMO products would be applicable on Brexit Day 1 until current expiry date.  Thereafter, any decisions on marketing of GMO products would be made by the UK authorities.  For UK exports of GMOs to non-EU countries the rules in EU Regulation 1946/2003 as converted to UK law would continue to apply. See here for more detail.

International Trade

  • Trade Remedies – these enable WTO members to operate a trading safety net and protect domestic industry (usually via additional import duties) from injury caused by unfair trading practices (e.g. subsidised imports, dumping etc.).  As the UK adopts an independent trade policy after Brexit, responsibility for overseeing this area would transfer to the UK Trade Remedies Authority (TRA) which would be operational by March 2019.  After Brexit, UK businesses would need to contact the TRA instead of the EU Commission for any complaints relating to trade remedies.  In the lead-up to 29 March 2019, any new complaints raised by UK businesses would need to be lodged with the TRA in parallel with the EU Commission, and thereafter, with the TRA only.  Further detail on how the TRA would work is available here.
  • Trade with EU under No Deal – as one would expect, this is one of the more substantive Technical Notices (accessible here) and outlines the steps businesses should take before and during trade (import/export) with the EU under a No Deal scenario. The UK Government advises that businesses should take the following actions to prepare for a potential No Deal;
    • understand what the likely changes to Customs and Excise procedures will be to their businesses (more detail in link above)
    • take account of the volume of their trade with the EU and any potential supply chain impacts such as engaging with the other businesses in the supply chain to ensure that the necessary planning is taking place at all levels. The first part of this action should have been undertaken shortly after the Brexit vote. Supply chain planning is trickier and if No Deal occurs in March, there are limitations to what businesses can do at this stage to plan
    • consider the impact on their role in supply chains with EU partners.  If the UK and the EU do not have a Free Trade Agreement (FTA) in place in a ‘no deal’ scenario, trade with the EU will be on non-preferential, WTO terms.  This means that Most Favoured Nation (MFN) tariffs and non-preferential rules of origin would apply to consignments between the UK and EU
    • if necessary, put steps in place to renegotiate commercial terms (e.g. INCOTERMS) to reflect any changes in Customs and Excise procedures, and any new tariffs that may apply to UK-EU trade
    • consider how to submit customs declarations for EU trade in a ‘no deal’ scenario, including whether the services of a customs broker, freight forwarder or logistics provider are needed, or alternatively secure the appropriate software and authorisations
    • register for the HMRC’s EU Exit update service via the GOV.UK website
    • prepare to register for an UK Economic Operator Registration and Identification (EORI) number, although businesses do not need to do anything now as further information will be available later in the year
    • decide the correct classification of goods (i.e. appropriate HMRC commodity code) in advance of any shipments and when making customs declarations (after Brexit) ensure the correct value of goods is entered
    • check whether your business needs to apply for import or export licenses for trade with the EU (as a third country)
    • for carriers (e.g. hauliers, aircraft operators), ensure that the appropriate Safety & Security declarations can be made for UK-EU shipments
  • This notice also mentioned a series of mitigating actions that businesses could consider taking. These include;
    • customs warehousing – allows businesses to store goods with duty or import VAT payments suspended.  Once goods leave the warehouse, duty must be paid unless the business is re-exporting, or moving goods to another customs procedure. The warehouse must be authorised by HMRC.  This may be a worthwhile first step for businesses to take and further information on how to do this available here
    • inward processing – allows businesses to import goods from non-EU countries for work or modification in the EU.  Once this has been completed, any customs duty and VAT due must be paid, unless goods are re-exported or moved to another customs procedure, or released to free circulation. This could be particularly applicable for cross-border trade on the island of Ireland but will entail additional bureaucracy. (More detail here)
    • temporary admission – allows business to temporarily import and or/export goods such as samples, professional equipment or items for auction, exhibition or demonstration into the UK or EU.  As long as the goods are not modified or altered while they are within the EU, the business will not have to pay duty or import VAT
    • authorised use – allows a reduced or zero rate of customs duty on some goods when used for specific purposes and within a set time period.
  • Classifying Goods in the UK Trade Tariff – sets out the obvious point that anyone trading between the UK and the EU will be subject to customs procedures under No Deal, including the potential payment of duties. The detailed information is accessible by this link with key points below.
    • for imports into the UK, any tariff rates (i.e. under the UK Trade Tariff) will be based on the UK schedule that it submits to the WTO (a draft schedule is currently with WTO members for review).  Based on comments from those who have read this schedule, it appears that the tariff rates are essentially copied and pasted from the existing EU schedule (i.e. the EU’s Common External Tariff).  However, the UK will have the right to amend those post-Brexit or could choose to apply a lower tariff as long as it is applied fairly to all WTO members (i.e. under MFN terms)
    • for UK exports to the EU, the EU’s Common External Tariff (CET) will apply which as readers will know from previous articles is prohibitively high for some agri-food commodities
    • the UK intends to continue offering unilateral preferences to developing countries, and to seek to transition all EU Free Trade Agreements for Brexit Day 1 in order to ensure continuity for both goods imported to the UK, and for UK exports.  Further information on this point will be captured in a separate Trade Continuity Technical Notice
    • the UK does not immediately plan to change the classification of goods in a No Deal scenario meaning that UK 10-digit commodity codes for imports and 8-digit codes for exports will remain the same, except for a few exceptional standards where codes may need to change to ensure continued alignment with international standards for example
    • the Taxation (Cross-Border Trade) Bill provides the legislative powers for HM Treasury to establish a new UK trade tariff.

Taxation and VAT

  • VAT for businesses – is one of the most complex areas associated with Brexit.  Under a No Deal scenario there would be significant changes for businesses (click here for more details).  The UK Government intends to manage this by;
    • introducing postponed accounting on import VAT on goods brought into the UK.  This means that registered businesses could account for import VAT via their VAT return as opposed to paying upon arrival of goods at the border.  Importantly, under WTO MFN principles, these rules would be equally applicable to imports from the EU and non-EU countries.  Customs declarations and payment of other duties would still be required as set-out elsewhere.  This is a significant measure by the UK Government in a bid to minimise the amount of bureaucracy required under No Deal.  However, it also opens-up the possibility of increased “missing trader” fraud where goods enter the UK and circulate freely, while traders go missing and never pay the VAT due.  VAT-related fraud is already a major challenge for UK authorities and this proposal potentially exposes the UK further.
    • keeping the NOVA system for notification of vehicle imports into the UK.
    • employ a technology-based solution for goods valued under £135 to collect VAT from overseas businesses when selling into UK.  For goods over £135 VAT will be collected from recipients in similar manner to present arrangements for collecting VAT from non-EU countries
    • For exports to EU businesses, as a third country, the UK would no longer need to complete an EC sales list, but would need to retain proof that goods have left the UK. The Government also advises that UK businesses check with individual EU Member States on VAT arrangements as value-added tax would become due at the border upon export into the EU as rules can vary between Member States.

State Aid and Workers’ Rights

  • State Aid – the existing provisions of EU law (as transposed into the UK Statute) would continue to apply.  However, the Competition and Markets Authority would take over state aid regulation within the UK and would apply to all businesses with operations in the UK (click here for more details).  This would mean that from that point;
    • UK public authorities will need to notify state aid to any undertaking, through either the block exemption or through a full notification to the Competition and Markets Authority instead of the European Commission
    • existing approvals of state aid, including block exemption approvals, will remain valid and will be carried over into UK law under the Withdrawal Act
    • any full notifications not yet approved by the Commission should be submitted to the Competition and Markets Authority
    • any complaints from businesses about unlawful aid or the misuse of aid should be made to the Competition and Markets Authority. Further guidance will be published by the Competition and Markets Authority in early 2019.
  • Workers’ Rights – all existing EU employment legislation will be transposed into UK law.  There may be changes to the protections afforded to UK employees working in the EU-27 due to variations in how EU law is applied in each Member State.  There could also be changes to European Works Councils if there is no reciprocal agreement between the UK and the EU.  See here for more information.

Whilst the above ‘summary’ is quite long, it illustrates that there are going to be major repercussions of leaving the EU without a deal.  For readers who have banking, insurance or financial services-related interests in the European Economic Area (EEA) or transact with companies based in the EEA, they should also review this guidance (accessible here).  The Horizon 2020 Technical Notice should also be reviewed by organisations receiving funding under this mechanism and there is also separate guidance for organisations receiving funding through other EU-funded programmes (separate to Horizon 2020 and farming-related programmes) which can be accessed here.  Further notices (50-60 expected) are anticipated in the coming weeks where problematic areas such as Port Health will be addressed.

If a No Deal comes to pass, there is little doubt that business costs will rise, particularly when trading with the EU and there is the potential for major disruption to supply chains.  In the medicines sector for instance, the UK Government is advising six weeks’ of contingency stocks to deal with possible bottlenecks. In agri-food, there is already increased pressure on storage and given the highly perishable nature of some products, the effect of a No Deal would be even more pronounced.

It may appear to some that the No Deal Notices are rather alarmist and that it is perhaps a ploy by the UK Government to steer people towards an arrangement similar to Chequers proposals of last month. That said, the threat of a No Deal is real and needs to be planned for.  Three years’ ago, the odds of voting for Brexit were 3:1 (i.e. one in four chance) and it occurred.  As mentioned previously, businesses and policy-makers need to prepare for the worst whilst striving for the best deal possible.  To that end, The Andersons Centre is hosting a webinar on 19th September which will provide further insights on how to prepare for a No Deal and steps that should be undertaken when making contingency plans.  This will include suggested practical actions that businesses should take now and what is required in terms of contingency planning. Further details are available via: http://theandersonscentre.co.uk/webinars/

UK Export Strategy Launched

On 21st August, the UK Government launched its Export Strategy which seeks to raise exports as a percentage of GDP from 30% to 35% as part of an initiative which seeks to make Britain ‘a 21st century exporting superpower’.  Key points include;

  • Establishment of a £50 billion UK Export Finance (UKEF) fund – to provide loans and insurance support to businesses as they seek to grow their export business.  However, thus far, the Government has committed £22 billion of this amount.
  • Suite of online tools to help businesses to export – including a tool enabling businesses to submit non-tariff barriers that they face.  It is planned to host such tools within “great.gov.uk” as a single digital platform in a bid to facilitate domestic growth as well as supporting export capacity-building across UK supply-chains.
  • Peer-to-peer learning – is to be put at the heart of the process in order to encourage and inspire more businesses to export as both the Government and trade associations (rightly) believe that more regional UK businesses have the capacity to export if the requisite support is available.
  • Alignment with the UK Industrial Strategy – this was launched earlier this year.  In the agri-food sector, there will also be a linkage with the sector deal for Food and Drink Manufacturing, which industrial representatives are currently negotiating with Government departments, in order to grow agri-food exports more generally.

When launching the Strategy, the Secretary for the Department of International Trade (DIT) Liam Fox noted that the food & drink sector has strong export potential and cited recent efforts in encouraging China to allow imports of British milk.  A noteworthy remark however that he made however was that “free trade agreements will give you greater market access, but so will unilateral liberalisation”.  Whilst it must be acknowledged that this was mentioned in the context of removing non-tariff barriers which he sees as a greater impediment to exports, there will be concern amongst some that agri-food sector could be sacrificed at the expense of other industries (e.g. automotive).  Indeed, looking through the Export Strategy document in further detail (link below) shows that the food sector was only mentioned once (automotive and artificial intelligence (AI) feature much more prominently).

Overall, the Export Strategy does represent a positive step forward with respect to developing exports in non-EU markets.  However, the big elephant in the room is Brexit and safeguarding the UK’s No. 1 export market (accounting for nearly 50% of goods trade) has to be a cornerstone of achieving 35% of GDP exporting target.  Rather disappointingly, no timeline was mentioned in conjunction with this target. Surely, one of the keys to a successful strategy is to have an ambitious (but achievable) timeline?  The Food Harvest 2020 and Food Wise 2025 strategic initiatives put forward by Ireland in recent years point the way in this regard.  However, the proof of any strategic initiative is in its implementation and only time will tell on that front.

Further information is available via; https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/735734/17814_Export_Strategy_brochure_web_v26.pdf  

Brexit Update

In what is becoming a familiar trend, the Brexit process is becoming increasingly turbulent with civil war in the Conservative party and the stakes being raised in negotiations with Brussels over the prospect of a ‘No Deal’ Brexit.

The publication of the Chequers White Paper changed the dynamic with Brussels insofar as there was finally a detailed paper on the table which the EU could negotiate on.  However, the sands have shifted in Westminster yet again following last week’s Commons debate on the Customs Bill.  Four key amendments were tabled by Conservative Brexiteers which are seen by some as an attempt to undermine the Chequers White Paper:

  1. Customs Duties’ Collection – bans the UK Government from implementing its plan to collect EU customs duties after Brexit unless the EU agrees to collect tariffs on behalf of the UK. The EU has already made it clear that it would oppose such an arrangement, something which is already conceded by the UK Government in its White Paper.
  2. New Customs Union with the EU – prevents the UK from entering into a post-Brexit customs union with the EU, without introducing a specific new piece of (primary) legislation.
  3. VAT regime – requires the UK to operate a separate regime to the EU.
  4. Northern Ireland – makes it illegal to have a customs border within the UK, thus seeking to rule out a hard border on the Irish Sea between NI and GB.  The Prime Minister has already made this commitment, as the UK Government’s opposition to the EU’s proposed backstop is well known. Notably, this amendment did not preclude a regulatory border as Northern Ireland already operates within a separate epidemiological area to the rest of the UK.

Of the four amendments, those relating to customs duties and VAT are the most problematic.  On customs, Downing Street is maintaining that the approach is consistent with its White Paper because it envisages that money from tariffs will flow both ways.  However, the White Paper has not provided much detail on how this would work aside from a vague reference to using a formula to govern flows of money based on trade patterns between the UK and the EU-27.

The situation regarding VAT is potentially more serious as it withdraws the UK from the EU’s VAT administrative system.  This could mean that authorities would have to impose a hard border to check if the proper tax has been applied to goods crossing the border.  This will be most problematic on the island of Ireland where there is a 500 kilometre land border.  If the UK chose not to impose a hard border, it would be exposed to massive fraud (smuggling) and tax evasion.  One possible way to negate this is for the Government to seek agreement from the EU to UK participation in its VAT information sharing arrangements, which would need new parliamentary legislation and would add further complexity, particularly because the EU would likely insist on ECJ oversight.

Although the four amendments complicate an already fraught position for the UK, the reality is that the Chequers White Paper is more of an opening gambit in the negotiations with Brussels.  What is crucial for the UK now is to increase the pace of the negotiations with Brussels and to pay attention to the sequencing which it has already agreed.  This requires the UK and the EU to firstly agree a Withdrawal Agreement, a legally binding treaty, which will include a backstop on Ireland.  This will also be accompanied by a Political Declaration setting out the future direction of the UK-EU relationship.  The details underpinning the future relationship would then be negotiated and agreed during the transition period.  Undoubtedly, the UK-EU negotiations are going to require further compromises.  If the terms of the negotiated deal go against existing domestic UK legislation, then the British Government will simply have to change the legislation.  So, in other words, the four amendments and key elements of the Chequers White Paper could be overturned at a later juncture if required.

That said, as the stakes get higher in the negotiations, the chances of a No Deal (whilst still less likely than a negotiated settlement) increase.  It is prudent that agri-food businesses start seriously planning for the prospect of No Deal.  At the business level, steps to consider include:

  • Contingency stocks – there is increasing evidence that businesses are starting to build contingency stocks to smooth over extra delays which could result from border checks being re-imposed.
  • Training – boost efforts to train-up staff on customs and official controls issues and procedures which must be followed if the UK is trading with the EU as a third country under WTO trading conditions.  Some of this knowledge is likely to be useful anyway once the eventual UK-EU trading relationship is finalised and will be applicable for businesses seeking to expand markets beyond the EU.
  • Licensing – ensure that UK businesses have undertaken the steps necessary to ensure that they can continue to export to the EU-27.  This could include providing proof of previous trade with EU Member States.
  • Mitigating tariffs – most businesses by now should know what the default EU Common External Tariffs are for the products they supply into the EU.  What is perhaps less well-known are the Tariff Rate Quota (TRQ) options potentially available to mitigate the impact of tariffs.  It should be noted that the TRQs available to the UK are limited and British businesses would be competing with other countries for access.
  • Managing cash flow – if UK businesses need to start lodging securities (e.g. licensing securities) with EU-27 authorities as well as potentially paying VAT on cross-border consignments, then cash flow will have to be carefully managed, particularly if goods are delayed in transit and payments by customers get delayed.

For policy-makers, actions to consider to help businesses would include:

  • Recruiting additional customs and border control staff – the UK Government has already started this process but faces competition from the likes of the Netherlands and Ireland which are increasing their recruiting efforts significantly.  In addition to customs staff, the need for veterinary staff is evident.  Incentives to encourage veterinarians working in small animal veterinary practices to assist with implementing official controls should be considered, even if they work on a part-time basis.  As in parts of the US, programmes to part-subsidise tuition fees for veterinary students if they commit to a period (e.g. 5 years) of working on border controls or associated duties in meat plants should also be examined.
  • UK-EU TRQs – given that the close historic trading links between the UK and the EU, a case should be made to the WTO to introduce new UK-EU TRQs that would reflect the historical trading patterns between both parties in the event of a No Deal.  Whilst this would not eliminate friction, it would go a long way in addressing tariff-related issues that could arise whilst simultaneously protecting farming livelihoods.  Admittedly, there may be some opposition within the WTO on this, but it is worth pursuing given the potentially exceptional circumstances of a No Deal Brexit.
  • Official controls and associated checks – given that UK and EU standards would essentially be the same on Day 1 of Brexit, there are grounds for UK exports having a lower frequency of physical checks for products of animal origin (e.g. 1% for sheep meat) than the EU’s default rates (20% for sheep meat).  Currently, New Zealand enjoys a 1% physical check rate given its closeness to EU standards, so there is a precedent.  This would work in both directions UK-EU and EU-UK as long as standards didn’t diverge and would help to lower the regulatory burden considerably.  This arrangement could also include reciprocal recognition of existing UK (and EU) licenses and authorisations so that existing trading patterns could continue and upheaval is lowered as much as possible.
  • EU-27 employees – grant all existing EU-27 citizens and residents in the UK something akin to settled status.  This will require clear and rapid communication to them, to their employers and their landlords to clarify their rights and obligations.  This would at least give businesses some degree of certainty that existing employees could continue to work in the UK whilst giving workers and their families the peace of mind they require to continue to be productive.

It is worth emphasising that the likelihood of a No Deal scenario is still relatively low and that an extension of the Article 50 process (of around 3-4 months) is deemed by experts in Brussels and elsewhere as being more probable if a negotiated deal was not reached in the time available.  However, as an industry which has been through many crises in the past, it is always prudent to prepare for the worst case scenario whilst striving for the best outcome possible.

EU/Japan Economic Partnership

On 18th July, the EU-Japan Economic Partnership Agreement was signed in Tokyo, thus finalising negotiations on a major new free-trade deal for Europe.  The EU Commission is claiming that this is another major success and pointedly mentions that it is a powerful signal that cooperation, not protectionism, is the way to tackle global challenges.  The deal still needs to be ratified by EU legislatures over the coming months.  Key points include:

  • Bilateral trade – offers substantial opportunities to further expand EU’s exports to Japan, estimated at €86 billion per annum (€58 billion for goods and €28 billion for services).
  • Customs duties – the deal seeks to remove €1 billion worth of duties which affect both European exporters and consumers.
  • Agri-food trade – the EU claims that its exports of processed agri-food to Japan could increase by more than half (circa €1 billion increase), with dairy exports potentially doubling.  The agreement will see Japan eliminating duties on more than 90% of EU agricultural exports from day one.  Current Japanese tariffs on EU food and drink products are 38-40% for cheese and 38.5% for beef.  For products that are too sensitive for Japan to remove duties completely, duty-fee quotas or reduce duties for EU produce will be increased.
  • Geographical Indications (GIs) – the EU wants Japan to recognise 205 GIs, so that only products with this status will be allowed to be sold in Japan under the corresponding name.  This list includes Scottish Farmed Salmon, West Country farmhouse Cheddar cheese, White Stilton cheese / Blue Stilton cheese and Scotch Whisky.
  • Food standards – the EU will continue to have the right to apply the precautionary principle and will apply its own standards to all goods and services sold in Europe.  For example, any food, clothing, or cars coming from Japan to the EU must respect all EU rules.  The deal also permits the EU to set higher standards for product or food safety, and higher levels of protection for labour or the environment, if it so wishes. T his, once again, emphasises the EU’s determination to continue to uphold its standards when trading internationally and is a signal to the likes of the US that the EU will not accept lower standards with respect to agri-food.

Whilst all of this sounds positive, from a UK perspective the big question concerns Brexit and whether the UK agri-food industry will see any benefit.  Central will be the eventual agreement which the UK strikes with the EU on its future relationship. The fact that some UK GIs are included in the list can be seen as a positive and, provided that the UK and the EU can agree a transition that gives the UK equivalent rights as present, implies that it would continue to benefit from such trade deals – at least during the interim.

What happens thereafter is highly questionable.  Japan has been unusually vocal in urging the UK to minimise any trade disruption arising from Brexit.

An overview of the EU-Japan Economic Partnership is available via: http://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/

A chapter-by-chapter breakdown of the deal is available via: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684   Please note that the Trade in Goods chapter alone is over 500 pages long, and makes for pretty heavy reading!

Brexit: Future Relationship White Paper

Following on from last week’s negotiating proposals supposedly agreed by the Cabinet at Chequers, the UK Government published, on 12th July, its long-awaited White Paper setting out its detailed vision on the future UK-EU relationship.  The 98-page document has received a cautious welcome by the EU-27 who are mindful of the deep divisions within the British Government.

In the White Paper, the UK Government is essentially seeking an ‘association agreement’ with the EU of unprecedented scale and depth so that the UK can achieve a ‘principled and practical Brexit’ which respects the referendum result and simultaneously acknowledges the deep trading relationship between the two parties.  The key points from an agri-food perspective are set out below;

  • Frictionless trade for goods: at the border between the UK and the EU.  This encompasses the establishment of a free trade area for goods as a means to protect the deeply integrated supply chains and ‘just-in-time’ processes developed over the past 40-plus years.
  • Common Rulebook for goods including agri-food: would seek to avoid customs and regulatory checks at the border but would only cover ‘those rules necessary to provide for frictionless trade at the border’.  The White Paper identifies three broad categories of rules relevant to agri-food and fisheries:
    1. Sanitary and Phytosanitary (SPS) rules – would be included in the common rulebook.  Linked with this, the UK would ‘make an upfront choice to commit by treaty to ongoing harmonisation with the relevant EU rules, with all those rules legislated for by Parliament or the devolved legislatures.’
    2. Rules relating to wider food policy – this would include marketing rules that determine how agri-food products can be described and labelled.  As these do not need to be checked at the border they would not be included in the common rulebook.  Geographical Indicators (GIs) (e.g Stilton cheese and Melton Mowbray Pork Pies) would also be included in this category and the UK will be establishing its own GI scheme after Brexit in accordance with WTO rules.  As part of this, the UK would open its GI scheme to both UK and non-UK applicants.
    3. Agricultural and Fisheries Policies – as previously communicated, the UK will leave both the CAP and the Common Fisheries Policies, thus enabling it to pursue domestic policies which best serve the UK’s interests.  Thus, these rules would not be included in the common rulebook. For fisheries, the UK is proposing annual negotiations with the EU on access to its waters.  Some EU Member States will have significant concerns about this.
  • Facilitated Customs Arrangement (FCA): would seek to ‘remove the need for customs checks and controls between the UK and the EU as if they were a combined customs territory’.  The Government claims that it would enable the UK to control its own tariffs for trade with the rest of the world.  For businesses this would mean;
    • where a good reaches the UK border, and the destination can be robustly demonstrated by a trusted trader, it will pay the UK tariff if it is destined for the UK, and the EU tariff if it is destined for the EU.  This is most likely to be relevant to finished goods; and
    • where a good reaches the UK border and the destination cannot be robustly demonstrated at the point of import, it will pay the higher of the UK or EU tariff.  Where the good’s destination is later identified to be a lower tariff jurisdiction, it would be eligible for a repayment from the UK Government equal to the difference between the two tariffs. This is most likely to be relevant to intermediate goods.

The UK Government claims that up to 96% of UK goods trade would be able to pay the correct or no tariff upfront, with the remainder most likely to use the repayment mechanism.  This is in effect combining the Customs Partnership and ‘Max-Fac’ proposals in the last year’s paper, both of which were rejected by the EU.  There was an acknowledgement by the UK that this system would become operational in stages as both sides completed the necessary preparations.  Given where the infrastructure is currently at, this process could take several years.  The UK Government has already stated that it envisages the UK remaining part of the EU Customs Union for a year after the end of the Transition Period.  This may well get extended.  It is unclear what ability the UK will have to strike Free-Trade Agreements (FTAs) with other countries whilst it remains within the Customs Union.

  • Rules of Origin: agreement not to impose tariffs, quotas or routine requirements for Rules of Origin on any UK-EU trade in goods.  This would allow EU content to count as local content in UK exports to its FTA partners for Rules of Origin purposes, and UK content to count as local content in EU exports to its FTA partners.  ‘Diagonal cumulation’ would allow UK, EU and FTA partner content to be considered interchangeable in trilateral trade.
  • Trade with non-EU countries: the UK’s claims that the FCA will enable it to strike Free Trade Agreements with non-EU countries as the UK will have its own schedule with the WTO.
  • Participation in EU agencies: UK would seek continued participation in agencies which facilitate goods being placed on the EU market but conceded that it would not have voting rights.
  • State Aid: the UK would continue to apply the EU’s State Aid rules via a common rulebook. Although elsewhere in the document, the Government is seeking to reserve its right to make its own arrangements regarding tax. As highlighted in a recent article, there were questions about whether there would be limits on the UK implementing agricultural policy tools such as tax deposit schemes (e.g. similar to the Australian Farm Management Deposit Scheme) which do not comply with EU State Aid rules. This is an area that will require clarification, potentially via the Agriculture Bill due later in the year. 
  • Maintain high standards in environment, employment and consumer protection rules: includes ‘non-regression provisions’ to ensure that current high standards are maintained by the UK.
  • Northern Ireland/Ireland: taken together, the UK Government believes that its proposals (including the points set out above) would see the UK and the EU meet their commitments to Northern Ireland and Ireland through the overall future relationship.  It claims that this would preserve the constitutional and economic integrity of the UK, honour the letter and the spirit of the Belfast (‘Good Friday’) Agreement and ensure that the ‘backstop’ solution of the Withdrawal Agreement will not have to be used (i.e. Northern Ireland remaining in the Single Market).  The Irish Government in particular has responded positively to this as it is also seeking to resolve the frictionless border riddle via the overall UK-EU relationship.  However, the UK Government’s proposals are arguably narrower than what was envisaged in the December Joint Report which contained commitments on protecting the all-island economy and North-South cooperation. The latest UK proposals are very much focused on goods trade only (i.e. services are omitted). 
  • New Joint Institutional Arrangements: these are required to manage the future relationship in key areas such as the common rulebook, including a clear process to update relevant rules in a manner that respects the UK’s sovereignty and provides Parliamentary scrutiny.  This will include regular dialogues at leader (PM) and Ministerial levels.  There would be a Joint Committee to discuss and interpret regulations as well to resolve disputes which may arise.  At times, such disputes could be resolved via a binding independent arbitration.  These bodies would have oversight by the European Courts of Justice (ECJ) as the interpreter of EU rules, but only the UK courts (whilst giving regard to EU case law) could give judgements on rules which apply to the UK.  Here, the UK is effectively conceding that in areas where it commits to adhering to the common rulebook, the ECJ would (indirectly) hold sway. 
  • End to Free Movement: however, the UK proposes introducing new frameworks which would enable ‘UK and EU citizens to continue to travel to each other’s countries and businesses and professionals to provide services’.  In agri-food, the provision of services associated with the supply of input equipment for example, is an important consideration and whilst the UK proposals imply that such arrangements could continue along much the same lines as present, questions remain about the extent to which this will be the case. 
  • Mutual recognition of professional qualifications: including for those working in the veterinary and agri-food sectors.  The extent to which this includes low or unskilled workers remains to be seen and is unlikely to be clarified until the Migration Advisory Committee (MAC) publishes its report in September

The white paper is available via: https://www.gov.uk/government/publications/the-future-relationship-between-the-united-kingdom-and-the-european-union

Whilst there has been a polite initial response from the EU, the proposals are likely to raise several objections from their side including:

  • Indivisibility of the Single Market:  the EU will fundamentally object to the UK wanting to remain in the Single Market for goods, without accepting the EU’s rules on freedom of capital, services and movement.  This separation, combined with the potential for divergence in areas not covered by the common rulebook, could give the UK competitive advantages in years to come and could undermine the rationale for EU membership by others.  This could potentially include the protection currently afforded by GI designations to EU-27 brands (e.g. Parmesan cheese) sold to the UK if the UK decided not to continue with existing GI legal protections.
  • Trade with non-EU countries: whilst the proposals focused heavily on tariff-free access between the UK and the EU, the UK wants to reserve its right to do free trade deals with other countries, potentially including agri-food products.  Whilst the UK’s participation in a common rulebook for agri-food trade would limit the scope for cheap imports, there is still a possibility that such trade could significantly displace EU exports to the UK, if third countries met the standards required.  This would have an onward impact on domestic prices in the EU-27.  The EU is expected to push-back strongly on this to curtail any potential displacement.
  • Complexity and cost: the UK’s proposals amount to an elaborate set of mechanisms to replicate its current access to the EU across a wide variety of areas.  To some, it is akin to the arrangements between the EU and Switzerland which Brussels is keen to rationalise.  Therefore, the EU is likely to have serious reservations about the creation of new frameworks adding yet more complexity to what is already and intricate tapestry.  There is little detail in the White Paper as to how much all of this will cost, but one can anticipate that the EU will expect the UK to bear a substantial proportion of any funding involved.

Whilst many questions remain unresolved, the UK Government’s White Paper provides a credible starting point for the substantive negotiations with the EU to take place.  These need to be urgently accelerated as there is a huge amount of ground to cover between now and the autumn.  For the agri-food sector, the commitment to ‘ongoing harmonisation’ via a common rulebook for agri-food trade should provide some welcome reassurance for the industry generally, particularly those which are heavily dependent on EU export markets.  Furthermore, given President Trump’s claim that the UK proposals would likely ‘kill’ the prospect of the US-UK trade deal, this may also be seen as a positive by those concerned with the potential for cheaper imports to undermine UK farming.  That said, a lot of uncertainty remains especially given the principle that ‘nothing is agreed until everything is agreed’.

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.

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.