Tag: No Deal

No Deal Brexit Preparations

NAO Report on No Deal Readiness

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

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

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

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

No Deal Technical Notices

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

Farming and Food

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

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

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

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

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

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

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

There are also additional notices related to;

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

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/

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.