Tag: Policy

On 18th December, Lord Frost, the UK Government’s Chief Brexit Negotiator, and co-architect of both the Trade and Cooperation Agreement (TCA) with the EU and the Northern Ireland (NI) Protocol, resigned with immediate effect.  In his resignation letter, he cited issues with the Government’s direction of travel on Covid policy and higher taxation as key reasons for his departure. However, many suspect that frustrations with how negotiations with the EU are progressing on the NI Protocol were also influential.  In recent weeks, some progress had been reported on medicines and the UK’s stance on the European Court of Justice had softened but negotiations will continue into 2022 with agri-food, particularly Sanitary and Phytosanitary (SPS) regulation continuing to be a key stumbling block.

Whilst some see Lord Frost’s resignation as a blow to the Prime Minister, others believe that the possibility of a deal on the NI Protocol in early 2022 has increased.  Particularly with the Foreign Secretary, Liz Truss, now taking on the responsibility of overseeing negotiations with the EU.  Ms Truss is popular with Conservative party grassroots and is viewed as more of a pragmatist than Lord Frost.  Her experience as Defra Secretary (2014-2016) and International Trade Secretary (2019-2021) should also be helpful in addressing remaining SPS and customs issues.  She will be deputised by Chris Heaton-Harris MP who has become Minister of State for Europe who will support the Foreign Secretary on EU Exit and NI Protocol issues.

The Trade and Agriculture Commission (TAC), the body set up to advise the Government on future trade deals, has published its ‘final’ report on 2nd March.  However, as the TAC will soon move onto a statutory footing, giving it a greater role in evaluating future Free Trade Agreements (FTAs), we will be hearing more from this body in the future.  This report, therefore, is likely to be the first of several.

The report itself is a well-polished document and sets out how much UK consumers are currently spending on food and drink (£46.60 per person per week in 2018/19), the volume of food consumed by food group, and the origins of food being consumed (55% of food consumed is grown and produced in the UK).  It also outlines the implications of leaving the EU, highlighting the disruption caused to devolved regions from friction on UK-EU and GB to NI trade as well as the changes in regulatory authority from the European Food Safety Agency to UK agencies.  It urges that these issues need to be resolved quickly.

The TAC proposes an overarching vision for UK agri-food which centres on having an ambitious trade policy that ‘contributes to a global farming and food system that is fair and trusted by all its participants, including farmers, businesses and citizens, from source to consumption’.  It also calls for food to be ‘safe, healthy, affordable, produced in a way which does not harm the planet, respects the dignity of animals and provides proper reward for those involved.’

Linked with this, the TAC suggests six guiding principles to develop a value-generating and values-driven UK trade policy. These are;

• Promote the liberalisation of trade, to positively influence innovation and productivity, and price and choice for consumers
• Prioritise a thriving domestic agri-food sector supported by complementary domestic and trade policies
• Ensure that agri-food imports meet relevant UK and international standards on food safety and biosecurity
• Match tariff-free market access to relevant climate, environment, animal welfare and ethical standards, remedying competition issues arising where permitted imports do not meet relevant UK and international standards
• Lead change, where needed, to the international framework of rules on trade and relevant standards, to address the global challenges of climate change and environmental degradation
• Support developing countries in accessing the full benefits of the global trading system.

The guiding principles reveal the balancing act that the UK is trying to achieve by liberalising trade on the one hand but safeguarding standards on the other.  The ambition of matching tariff-free market access over time provided standards can reach relevant UK/international requirements is arguably the most complex.  It suggests some form of ‘nuanced’ tariff system which could potentially add (yet) another layer of bureaucracy to an agri-food sector already struggling to implement the requirements of the UK-EU Trade and Cooperation Agreement (TCA).  Much will depend on how these high-level principles are implemented in practice as they are open to differing interpretations. 

The report sets-out 22 recommendations for the UK Government. These can be grouped into five areas;

1. Develop a bold, ambitious agri-food trade strategy: aligned to a broader UK Food Strategy that would seek to provide a unifying logic and direction for all UK devolved regions, Government departments and industry stakeholders . It would also strike and appropriate balance between liberalising trade and safeguarding key standards. This is certainly something that the UK should aspire to. However, it is especially challenging given that the interests of UK Devolved regions looks set to diverge further as each implements its own agricultural policy and Northern Ireland remains subject to EU Single Market rules for agri-food goods.
2. Provide international leadership on key issues such as climate change: the opportunities arising from hosting the G7 summit and COP26 this year should be grasped to show the UK’s leadership credentials not just on climate change but on animal welfare, labour rights, ethical trading and combatting anti-microbial resistance. One of the UK’s key objectives from COP26 should be to develop a more robust methodology to accurate net emissions from each farming sector (i.e. gross emissions less on-farm sequestration). 
3. Continue to strengthen the UK’s approach to negotiating and scrutinising trade agreements: lessons from the TCA should be applied elsewhere.  Future trade deals need comprehensive impact assessments considering both UK-wide and devolved issues. These should also consider qualitative impacts where quantitative measures are lacking. Presumably, the TAC would play a key role here once its Terms of Reference have been agreed. 
4. Enhance export promotion, market access and marketing: the TAC highlights the UK’s food ‘offer’ being one of quality, traceability, heritage, safety and high environmental and welfare standards.  It urges that opportunities to grow exports beyond the negotiation of trade agreement need to be embraced energetically by the UK Government.  Arguably, the UK is behind the likes of New Zealand, Netherlands and Ireland in this regard and such initiatives need to be embraced at the highest levels in Government if they are to make an impact in key markets such as China.  The TAC rightly highlights the potential offered by ‘heritage’.  Globally, consumers are increasingly seeking ‘experiences’ and authentic British produce is highly-regarded in many regions.  In this era of Covid-curtailed travel, food is a key means to experience another culture. The strong country associations of iconic products such as Stilton, Welsh lamb and Scotch beef have the potential to be a major source of competitive advantage.
5. Align trade, aid and climate change policies relating to agri-food: so that these work together to strengthen UK relationships with developing countries over time, to diversify Britain’s food supply, support its food security goals and overseas economic development. Aligning these policies is worthwhile, but arguably this policy alignment should be wider and include domestic agricultural policy which was not given much emphasis by the TAC but is a crucial part of the policy framework.

The key difficulty for the TAC was that it was set-up in July. By then, negotiations with the US, New Zealand and Australia were already underway.  Recently, the TAC Chairman admitted that he had no visibility of how those negotiations are going.  This is a concern because what has already been negotiated with these countries, particularly the US, might contradict what the TAC is recommending.  The true litmus test will be the extent to which the UK Government and Parliament takes on board the TAC’s recommendations when concluding and ratifying FTAs with other countries.  Time will tell as to how much influence the TAC ultimately has in practice.  The report is accessible via:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/969045/Trade-and-Agriculture-Commission-final-report.pdf

This past month has been one of, if not the most, tumultuous of the entire Brexit process.  It started off on a fairly promising note with EU leaders (most notably the German Chancellor) giving the UK Government 30 days to put forward its proposals on an alternative to the Backstop.  However, the mood has become more downbeat since then with the publication of the Government’s plans for a No-Deal Brexit (Operation Yellowhammer – see previous article), the prorogation of Parliament which the UK Supreme Court has judged to be unlawful, and the disclosure of the UK Government’s alternative Backstop arrangements (delivered by a ‘non-paper’) which the EU deemed to have failed each of Brussels’ three key criteria.  All the while, the Government’s preparations for a No-Deal continue apace with some notable updates of relevance to agri-food trade.

Prorogation of Parliament ‘Unlawful’

This was the unanimous verdict of eleven Supreme Court judges delivered on 24th September.  The prorogation has been rendered void and Parliament resumed on 25th September.  This is another major setback for the Prime Minister as the Government no longer has a majority in the House of Commons (HoC) as it removed the whip from 21 MPs for voting against the Government.  The PM also lost his bid to have a mid-October election and there appears to be very little appetite for MPs to agree on any long-term course of action on Brexit.   A summary of the current state-of-play is;

1. Brexit could still be achieved by getting a deal with the EU ratified by Parliament: despite the embarrassment arising from the Supreme Court ruling, Brexit is still achievable if the UK Government can achieve a deal with the EU at the EU Council meeting on 17-18th October, and thereafter, getting a majority of MPs to back that deal.
2. If a deal with the EU is not achievable, Article 50 would be extended again:  the ‘Benn Act’ (officially titled the European Union (Withdrawal) (No. 2) Act 2019) passed by MPs a few weeks back would result in another mandatory extension of Article 50, if a Brexit Deal cannot be reached during the EU Council.  Theoretically, the PM could choose to ignore the Benn Act.  Such a course of action would likely result in another Supreme Court case, with an unfavourable ruling again likely.  In such a scenario, it is possible that the Supreme Court could instruct another official to sign an Article 50 extension letter if the PM refused to do so.
3. Agriculture Bill reinstated: the Agriculture Bill is currently at the Report stage ahead of a third reading at the House of Commons.  With the prorogation of Parliament the Bill had ‘fallen’  – i.e. as it had not been passed by the end of the Parliament, it would have to be re-presented from scratch in the next Parliament.  But, now the prorogation has been ruled illegal, the Bill has risen from the dead,  As Brexit is likely to take up the vast proportion of Parliamentary time for the foreseeable future, it is likely that further progress on this Bill is still several weeks, if not months, away.

In this volatile environment, a General Election is becoming more likely, potentially in November if another Article 50 extension takes effect.  However, there is also increasing talk of a Government of National Unity, led by one of the parental figures in the HoC (Harriet Harman or Ken Clarke).  This move would require approval from Labour in a no confidence motion.  However, its leadership would prefer that an alternative Government be led by Jeremy Corbyn.  He would then seek to negotiate an alternative Brexit Deal with the EU and put that before the British people in a confirmatory referendum (with Remain the other option).  So all of this effectively means that after three years, the three broad Brexit options (Deal, No-Deal, No Brexit) all remain in play, but it does make a No-Deal at the end of October less likely.  Little wonder then that many think the Brexit process is going round in circles.

UK’s Alternative Backstop Proposals Not Legally Operable

Having been set the 30-day challenge by Angela Merkel a few weeks back to come up with a viable alternative to the Backstop, the UK’s proposals eventually emerged via a ‘non-paper’ (an unofficial document reflecting the ideas that the UK has put forward rather than concrete proposals representing a definitive UK Government view).  These were deemed by the EU to fall short on all of its three key tests on viability and were not legally operable. These key tests (objectives of the Backstop) are;

1. Having no hard border on the island of Ireland
2. Protecting the all-island economy
3. Preserving North-South cooperation

The UK proposed an all-island Sanitary and Phytosanitary (SPS) zone for agri-food goods; thus expanding the regulatory frontier that already exists for live animals between Northern Ireland and Britain.  It would have only been applicable to some areas (e.g. animal health and food safety checks) and not others (e.g. labelling rules on ingredients, allergens and additives etc.).  Furthermore, industrial goods and customs procedures relating to Northern Ireland would remain within UK rules, and not the EU regulatory regime as proposed by the original (NI-only) Backstop.  From an EU perspective, this would potentially mean a gaping hole in the integrity of the Single Market as false declarations could potentially be made on what a consignment of goods contains, thus meaning that ineligible products would be smuggled into the EU market.  In such a context, the imposition of a hard-border between Northern Ireland and Ireland would eventually become necessary, as alluded to by EU Commission President Jean-Claude Juncker recently.

The UK proposals also referred once again to (frequently untried and therefore untrusted) technological solutions and trusted trader schemes which have already been rejected several times by the EU.  As we’ve argued previously, that is not to say that technology does not have a long-term role to play – it does – but given current capabilities, it cannot replace human intervention in undertaking physical checks to verify the eligibility of meat products and the like.  In the meantime, some form of insurance mechanism (Backstop) is required. 

In the coming weeks, it is likely that there will be an increased focus on finding a NI-only (or unique set of arrangements for NI’s circumstances) route to overcome the impasse.  As a minimum, this would have to encompass harmonisation with EU regulations on the entirety of agri-food-related regulations within Northern Ireland (and applicable to goods entering NI) whilst ensuring that the province’s constitutional status within the UK is not affected in any way.  Recently, the prospect of giving the Stormont Executive (currently suspended) a role in the acceptance of such regulations was mooted; however, the EU does not want NI to have a veto on the imposition of rules across the Single Market.  It is prepared to countenance a consultative role, similar to that offered to Norway and Switzerland in some areas. Perhaps one way to address this would be to give the NI Executive some voting rights in a qualified majority voting context, but no veto?  However, the extent to which that would be legally operable is questionable. 

More Brexit Preparation Notices Published

There has been a continued ramping-up of efforts by the Government to help businesses to prepare for post-Brexit trade with the EU.  Some of the key notices published recently are ;

• Documentation to transport goods to the EU after Brexit: illustrates the driver, cargo, vehicle and customs documentation required. Available via – https://www.gov.uk/guidance/hauliers-and-commercial-drivers-you-will-need-new-documents-to-transport-goods-into-the-eu-after-Brexit 
• Moving goods through RoRo locations under a No-Deal Brexit: useful flowchart to illustrate the regulatory requirements at each stage of the importation (and exportation) process for UK-EU trade. From an agri-food perspective, it somewhat underplays the importance of sanitary and phytosanitary (SPS) regulatory procedures as previous studies have shown that these alone could generate numerous additional steps in their own right. Available via – https://www.gov.uk/guidance/how-to-move-goods-through-roro-locations-in-a-no-deal-brexit-eu-to-uk-and-uk-to-eu
• Importation and exportation guidelines for animals and animal products: contains some additional detail on the SPS procedures mentioned above and calls for importers to register on the new IPAFFS system which will replace the current EU TRACES system for notifying authorities of imports. See – https://www.gov.uk/government/news/government-encourages-food-exporters-to-get-ready-for-animal-health-regulations
• Steps needed to export meat and dairy to the EU: very useful flowchart outlining the key steps in the exportation process with further details on where one needs to go to find additional information on key steps. See – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832162/animal-origin-meat-dairy-flowchart-get-ready.pdf
• Safety risk assessment of food and animal feed under a No-Deal: states that the UK would continue to maintain current standards and that the UK food and feed authorisation process post-Brexit would be very similar to the current EU system. This process would be managed under the auspices of the Food Standards Agency (FSA). See – https://www.gov.uk/government/publications/safety-of-food-and-animal-feed-if-theres-no-brexit-deal/food-and-feed-safety-risk-assessment-and-management-if-theres-no-brexit-deal 
• Guidance for manufacturers and importers of fertiliser products under No-Deal: again states that most of the existing rules and standards would remain the same, but some changes to labelling and the requirements for importing ammonium nitrates. See – https://www.gov.uk/guidance/manufacturing-and-marketing-fertilisers-if-there-is-no-brexit-deal
• Other guidance for agriculture and farming sectors arising from Brexit: there is a whole raft of additional guidance available (see link below). Users can select their sector or area of interest to view the applicable guidance. Visit – https://www.gov.uk/find-eu-exit-guidance-business?order=topic

Undoubtedly, the Government’s preparations for Brexit are accelerating but significant gaps remain, particularly when it comes to issues associated with Northern Ireland.  Furthermore, publishing guidance is one thing, ensuring that businesses and relevant competent authorities are operationally ready for the changes imposed is another matter entirely.  

There has been much recent debate about the UK Government’s proposals on its future customs relationship with the EU.  This has centred on two key options put forward in August 2017 – a Customs Partnership and a Customs Arrangement (known as maximum facilitation (‘Max Fac’).  Both of these concepts, have been rejected, in their previous form, by the EU.  A third customs option also appears to have emerged, but it too is facing opposition from the EU.

Despite this, the Prime Minister recently established two Cabinet sub-groups to further examine each option put forward in August.  One group which includes Michael Gove (DEFRA Secretary), Liam Fox (International Trade) and David Lidington (Cabinet Office Minister) are considering the Customs Partnership.  Meanwhile, Greg Clark (Business Secretary), David Davis (DEXEU Secretary) and Karen Bradley (Northern Ireland Secretary) are examining Max Fac.  These options are generating intense debate within the Conservative party with the Brexiteers favouring Max Fac whilst the Europhiles are leaning towards the Customs Partnership. Both options are briefly summarised below;

• Customs Partnership: involves the UK collecting tariffs on the EU’s behalf for goods transiting through the UK intended for use in countries within the EU Customs Union.  The UK would also apply its own tariffs for goods intended for use in the UK market.  At the border, importers would pay whichever tariff was highest and could subsequently reclaim the difference based on any proportion of the consignment was used in the lower tariff territory.  It is claimed that this approach would obviate the need for customs processes between the UK and the EU, including between Northern Ireland and Ireland.  Such a system would require an elaborate tracking system to check whether goods were being tariffed appropriately and a ‘robust enforcement mechanism’.  The EU has dismissed it as ‘magical thinking’.  Furthermore, whilst a customs border might be obviated there would still need to be border controls to check product standards (especially in the food sector) unless the UK continued to align all of its regulations with the EU. 
• Max Fac: this would involves creating a border between the UK and the EU, but seeks to make this border ‘as frictionless as possible’ through the application of technology and recognition of ‘trusted traders’ amongst other mechanisms.  It would also allow smaller traders on the Irish border to trade as they currently do with no new restrictions.  This option has been criticised by many in industry, particularly in Northern Ireland, where some believe that it would create a ‘smugglers’ charter’ and would undermine the integrity of existing food safety systems.  It is also not clear that the technology exists, or that the Government could implemented it quickly enough, to make this option work (see below).

HMRC Weighs Into the Debate

The HMRC estimates that Max Fac would cost businesses between £17-20 billion per year to implement, primarily due to the increased costs associated with customs declarations.  This equates to about twice the UK’s annual net contribution to the EU budget.  Brexiteers such as John Redwood have rubbished these estimates claiming that they are highly speculative and claim that trade is already taking place with non-EU countries with costs nowhere near this amount.  Nevertheless, all credible analysis indicates that dealing with customs, even under a free-trade agreement, does create additional costs.

Jon Thompson (Head of HMRC) also said that the Customs Partnership would have a negligible cost to business over time – a view which will play into the hands of the PM who is said to favour a Customs Partnership-type model.  Mr. Thompson also stated that neither model would be ready to implement by 2021 and suggested that a lead-in time of between three to five years would be required to establish the systems needed, once it became clear what these would consist of.

A Third Customs Option?

In recent days, a third option appears to have emerged which, it was hoped, would help to overcome the deadlock in the Brexit negotiations.  This proposal, which some think of as a Hybrid Customs Partnership plan, was tabled by the UK this week in Brussels.  It is understood that it would also represent a backstop which would align the UK as a whole, not just Northern Ireland, with the rules of the Single Market and Customs Union for a time-limited period only (but longer than the ‘transition period’ already agreed).  This time-limited period would then give the UK the scope it needed to develop the systems required for its Customs Partnership model.

This too appears to have been rejected by the EU, although there are signs, that it has not been completely ruled-out.  The Brussels view is that the backstop envisaged in Paragraph 49 for the December Joint Report would apply to Northern Ireland only, given the wording in Paragraph 46 which states that the “commitments and principles outlined in this Joint Report will not pre-determine the outcome of wider discussions on the future relationship between the European Union and the United Kingdom, and are, as necessary, specific to the unique circumstances on the island of Ireland.”  The UK on the other hand has taken a broader view, claiming that the wording of Paragraph 49 states that “the United Kingdom will maintain full alignment…”, not Northern Ireland. Therefore, the backstop could apply to the UK as a whole.

It is understandable that the UK has taken this more expansive view and there are attractions to this perspective for several EU Member States, particularly Ireland whose 2016 trade with the UK is valued at €66 billion. This includes €32 billion in goods, of which nearly €9 billion is in agri-food, and €34 billion in services. Other countries, such as the Netherlands and Denmark, which rely heavily on trade with the UK, particularly for agricultural products are also believed to see the attractions of this proposal.  That said, EU Member States are reluctant to break ranks on this issue, as it is seen as another attempt by the UK at cherry-picking.

This impasse looks set to drag on to the European Council in June, but as Michel Barnier has reminded us on many occasions, time really is ticking, and there are now just a few months left to get all of this agreed.  A time-limited, interim arrangement beyond the current transition period is the only realistic way to achieve this whilst facilitating a ‘smooth and orderly Brexit’ which the PM called for back in January 2017.  Whatever form the eventual relationship takes, no matter what its name is, it is crucial that the time is taken to get it right.  For agriculture, this is especially critical.  In this regard, the five-year ‘agricultural transition’ envisaged in DEFRA’s recent consultation might be a prudent model to apply elsewhere as well.