Tag: Trade

EU-Mercosur Trade Deal Negotiation

After more than two decades of negotiations and false starts, the EU and Mercosur (a South American trade-bloc consisting of Brazil, Argentina, Uruguay and Paraguay) concluded negotiations on a Free Trade Agreement (FTA) on 6th December.  Whilst it is the biggest FTA negotiation that the EU has ever concluded, and despite the environmental safeguards now built-in which hindered the deal in recent years, there are still several hurdles to overcome before the deal would enter into force.  That said, the conclusion of negotiations is notable and the FTA would have a significant impact on EU agriculture if enacted.  It would also have indirect implications for the UK.

The key provisions of the agreement are:

  • Market access: significant tariff reductions for agricultural exports from Mercosur to the EU, with quotas introduced on more sensitive products (see next points). There will also be export opportunities for EU agricultural sectors like wine, spirits, and dairy products into Mercosur markets.
  • Tariff Rate Quotas (TRQs) for Mercosur exporters to the EU:
    • Beef: 99 Kt of carcass weight equivalent (CWE), of additional quota for Mercosur exports to the EU, subdivided into 55%fresh and 45% frozen with an in-quota tariff rate of 7.5%. There will also be an elimination of the existing in-quota rate in the Mercosur-specific WTO “Hilton” quotas, once the new FTA enters into force (combined this equates to around 46.8 Kt, which signifies a net increase of about 52.2 Kt, once the full TRQ has been phased in). The volume under the new FTA will be phased in in six equal annual stages.
    • Poultry: 180 Kt CWE duty free, subdivided into 50% bone-in and 50% boneless. This will also be phased in via six equal annual stages. The 2024 updated negotiations also feature an additional 1.5 Kt of TRQ to Paraguay.
    • Pigmeat: 25 Kt with an in-quota duty of €83 per tonne. The volume will be phased in in six equal annual stages.
    • Sugar: elimination at entry into force of the in-quota rate on 180 Kt of the Brazil-specific WTO quota for sugar for refining. No additional volume other than a new quota of 10 Kt duty free at entry into force for Paraguay. Specialty sugars are excluded.
    • Ethanol: 450 Kt of ethanol for chemical uses, duty-free. 200 Kt of ethanol for all uses (including fuel), with an in-quota rate 1/3 of MFN duty. Again, to be phased in in six equal annual stages. The 2024 updated negotiations also allow for an additional TRQ of 50 Kt of biodiesel to Paraguay on account of its land-locked and developing country status.
    • Rice: 60 Kt duty free. This will again be phased in in six equal annual stages.
  • Reciprocal tariff rate quotas: these will be opened by both sides and phased in over 10 years;
    • Cheese: 30 Kt duty free. This will be phased in in ten equal annual stages stages. The in-quota duty will be reduced from the base rate to zero in ten equal annual cuts starting at entry into force.
    • Milk powders: 10 Kt duty free. This will also be phased in in ten equal annual stages, with a similar reduction in in-quota duty as outlined for cheese.
    • Infant formula: 5 Kt duty free. The will again be phased in via ten equal annual stages with similar reductions in in-quota duties as described above.
  • Environmental safeguards: adherence to the Paris Agreement is included as an ‘essential element’ of the FTA.  The agreement could be suspended if a party leaves the Paris accord or stops being a party in ‘good faith’ (i.e. undermines it from within).  There are also additional provision around promoting sustainable supply-chains, helping to conserve biodiversity / livelihoods of indigenous peoples, especially in the Amazon.

There are concerns amongst several EU Member States, notably France, Ireland and Poland, about cheap imports from Mercosur undercutting EU products, compounded by less stringent production standards. A 2021 study by the Irish Government estimated that the EU-Mercosur deal could reduce the value of Ireland’s beef output by €44 – €55 million, equating to around 2-3% of output.

Whilst South American beef might not be permitted to come into the UK as a result of the EU-Mercosur FTA, there could be indirect impacts.  For instance, displaced Irish beef will seek to find markets elsewhere with the UK being the most obvious choice.  This could exert some downward pressure on UK beef prices, particularly in the food services segment.  That said, UK beef prices have been very firm of late due to lower supply and in any case, it may take several years’ yet before an EU-Mercosur FTA enters into force, even if it gets that far.  The likes of France and Ireland are likely to push back strongly against the deal.

Of course, if the EU can negotiate an FTA with Mercosur, the UK will also have an interest in exploring FTA opportunities, but that does not appear to be a priority for Labour presently. If/when negotiations do start, Mercosur is likely to seek more significant concessions with the UK, especially bearing in mind the precedent set by the Australia and New Zealand FTAs. However, it could be after the next UK General Election before a concrete trade deal is reached with the likes of Mercosur.

UK Joins CPTPP

On 15th December, the UK formally joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  Before the UK joined, the CPTPP trade-bloc consisted of 11 members with a combined population of around 520 million people.  Many of these countries are in Asia and have been growing strongly to date.  That said, the UK already has trade deals in place with most of these countries with Malaysia being the only significant addition.  This means that the impact of the UK’s membership of the CPTPP will be limited from an agricultural perspective, as most agricultural trade between the UK and the CPTPP countries will continue to be conducted via these bilateral trade deals.

Our April 2024 article (see: https://abcbooks.co.uk/agreement-reached-on-uk-joining-the-cptpp/) provided further information on the extra market access for agricultural products that other countries would have to the UK.  This included:

  • Beef: a duty-free TRQ of 13Kt will be phased in over 10 years and will start at 2.6Kt.  It is only be available to Canada, Mexico, Chile, Peru, Malaysia and Brunei. Importantly, any beef imports will have to meet UK Sanitary and Phytosanitary (SPS) requirements.  Australia and New Zealand will not get any further access to the UK market under the CPTPP.
  • Pork: a 55Kt TRQ will be phased in over 10 years (starting at 10Kt).  Again, this will be available to the same countries listed above.  Vietnam and Singapore will also have access to this TRQ for an initial 3-5 year period before their duties are eliminated via a bilateral FTA with the UK.
  • Chicken: a TRQ of 10Kt will again be available to the countries listed above.  A 10-year phase-in period will again apply.  Vietnam and Singapore will again have access to this TRQ for an initial 3-5 year period before tariffs on imports from these countries are eliminated.

Whilst the UK’s accession to the CPTPP will have a small overall impact, it still presents export opportunities in a variety of areas including whisky and dairy products. It also sends a message that the UK is prepared to engage in international trade with like-minded partners.  Such deals might become less frequent with the onset of a Trump presidency in the US.  That said, the UK’s trading relationship with the EU will remain by far the most important from an agricultural perspective. 

UK-EU Relationship Under Labour

Following Labour’s election victory on 4th July, there has been a renewed focus on the UK-EU trading relationship and how it might evolve under the new Government. Whilst Labour has ruled out the UK rejoining the EU’s Single Market and Customs Union, below are a number of areas where, from an agri-food perspective, the UK-EU trading relationship could be improved.

  • Veterinary/SPS Agreement: since 2021, UK agri-food exports to the EU have faced stringent regulatory controls and checks, while similar checks on imports into the UK from the EU are gradually being implemented.  These controls, such as export health certificates and identity checks, are costly.  Labour has expressed a desire to pursue a Veterinary Agreement with the EU for over a year.  The impact of this agreement on reducing the regulatory burden depends on its nature.  If the UK dynamically aligns with EU legislation, most checks could be removed, but the UK would have no formal vote on the rules.  If the UK opts for equivalence, similar to New Zealand, checks would be reduced but still significant, and the UK would maintain control over its rules.  Importantly, a Veterinary Agreement would only cover a limited aspect of the wider Sanitary and Phytosanitary (SPS) requirements; issues such as plant health rules and phytosanitary requirements would not be included and would represent significant hurdles to trade.  Therefore, Labour is increasingly talking about a wider SPS Agreement with the EU, which has merit and should be pursued.  Again, there will be a trade-off between the degree of access to the EU Single Market and the control that the UK would have on the rules that apply to UK trade.  The EU will also have its own perspective and will be keen to avoid the UK ‘cherry-picking’ the parts of the EU Single Market that it would like unfettered access to.  An SPS deal would also benefit agri-food goods moving from GB to Northern Ireland.  Whilst a deal is achievable, its comprehensiveness and the extent of regulatory burden removal remain uncertain.
  • Mutual Recognition of Conformity Assessment: currently, UK products being exported to the EU (e.g. machinery) need EU-based certification to enter EU markets.  This can no longer be done by UK-based laboratories, and therefore, adds costs and complexity.  The UK could seek an agreement similar to those the EU has with countries like Australia and Canada, easing this burden.
  • Safety & Security Declarations:  post-Brexit, UK exporters must submit new export summary declarations to the EU to verify that such products do not pose risks.  The UK could negotiate an agreement to remove these requirements, similar to deals the EU has with Switzerland and Norway.  Again, this would require some alignment with EU rules and regulations.
  • Temporary Labour and Youth Mobility: new arrangements could allow UK performers and artists to work temporarily across the EU without complex visa requirements, addressing current bilateral challenges, but importantly, it would not be Freedom of Movement.  The UK could also establish reciprocal youth mobility agreements with EU countries, enabling young people to work temporarily in each other’s territories.  The EU had previously made labour mobility proposals but these were rejected by the Conservative Government.
  • Mutual Recognition of Professional Qualifications (MRPQs):  the UK and EU could encourage mutual recognition of professional qualifications, easing the movement of professionals between regions.  There will be difficulties here though as, within the EU, the competence for granting such recognition partly rests with Member States, so negotiations would be complex.
  • Linking Emissions Trading Schemes (ETS):  aligning the UK and EU’s carbon pricing systems could streamline processes and mitigate issues like the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional requirements on UK exports of carbon-intensive goods.  Whilst CBAM does not yet extend to agricultural goods, this could change in the future and from 2026, there is the potential to have charges levied on exports of certain industrial goods (e.g. fertiliser, steel and cement) to the EU.
  • Joining the PEM Convention:  the Pan-Euro-Mediterranean (PEM) Convention on preferential Rules of Origin (RoO) aims at establishing common RoO amongst member countries which currently include the EU, Turkey, the Ukraine and EFTA Member States.  This would allow the UK to consider inputs from other PEM members as ‘local’ for meeting RoO requirements in trade agreements, potentially simplifying trade processes.  However, there are difficulties as the UK-EU Trade and Cooperation Agreement (TCA) rules are different to the PEM Convention in some instances and these would require aligning.

Significant improvements to the UK-EU relationship are possible, but there will still be a trade-off between access to the EU Single Market and the UK’s control over its own rules.  Even with new arrangements, agri-food trade will face more friction than if the UK rejoined the EU Single Market and Customs Union, as some advocate.  Sir Keir Starmer is known for seeking incremental improvements and only considering radical changes if gradual measures fail.  Therefore, the Labour Government is likely to focus on the areas mentioned, leveraging the UK’s strengths in security and defence in negotiations with the EU.  A deal is achievable, though its comprehensiveness and alignment with EU regulations remain uncertain.

EU / NZ Trade Deal

On 1st May 2024, the EU-NZ Free Trade Agreement (FTA) entered into force.  This follows the initial announcement of the FTA back in July 2023 (see https://abcbooks.co.uk/eu-nz-trade-deal/) and the ratification of the deal by the EU in November.

The EU will benefit from the elimination of tariffs on key exports to NZ such as pig meat, wine (& sparkling wine), chocolate, sugar confectionary and biscuits.  In return, NZ achieves limited access to the EU market for imports of sensitive agricultural products such as beef, sheep meat and dairy products, through tariff rate quotas (TRQs).  This includes 10,000 tonnes of beef (phased in over 7 years) at a reduced tariff of 7.5%.  A duty-free TRQ for 38,000 tonnes of sheepmeat will also be phased in over the same period.  There are also new TRQs for milk powder and butter (both 15,000 tonnes, with varying duty rates), cheese (25,000 tonnes; 0% duty) and high-protein whey (3,500 tonnes; 0% duty).  All of these TRQs will also be phased in over 7 years.

As reported previously, NZ’s access to the EU market is much more curtailed for beef, sheepmeat and dairy products in comparison to the relatively more generous access that the UK has granted.  This is a function of the greater bargaining power of the EU and the eagerness of the UK to sign a new FTA with NZ as part of its independent trade policy. 

UK Border Controls

The UK Government has confirmed (yet another) delay to the implementation of its post-Brexit border controls on food and fresh products entering the UK from the EU.  This time due to concerns around their impact on inflation.  This is the fifth delay since 2020.

Based on the previous plan, new paperwork requirements including health certificates for certain animal and plant products, as well as for high risk foods, were going to be required from the end of October.  These plans will now be delayed by a further three months meaning that the new paperwork will now not be required until the end of January 2024.

Similarly, the previous plan had envisaged physical checks at the UK border to begin in on 31 January 2024. These will now be deferred by three months until the end of April 2024. Safety and security declarations for EU imports will be delayed until October 2024.

The Cabinet Office published its latest strategy for the Target Border Operating Model (previously called the Border Operating Model) on 29th August. More detail is accessible via: https://www.gov.uk/government/news/new-border-controls-to-protect-the-uk-against-security-and-biosecurity-threats-and-ensure-smooth-flow-of-goods

Separately, the HMRC has also announced a ‘phased approach’ to moving exporters to its new Customs Declaration Service (CDS) which will replace the 30-year old CHIEF IT platform.  The deadline for moving all export declarations to CDS had been 30th November, but exporters will now have until 30th March 2024 to move across to CDS.  Notably, all import declarations have been managed by CDS since October 2022.

These delays once again illustrate the difficulties involved with replacing systems which have been in place for decades. Whilst it is important that the UK gets its border control systems right, there are concerns amongst many in the food industry that imports from the EU are essentially not getting checked. Therefore, the UK is exposed to increased risks from a food safety and food crime perspective.

UK Joins CPTPP

On 16th July, the UK Government formally signed its accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  This comes approximately four months after accession negotiations were agreed and concluded in March (see previous article).  Despite the formal signing of the accession agreement, the entry into force of the agreement will not take place until the latter part of next year.  In the interim, each of the existing CPTPP members will need to ratify the UK’s entry.

Although there has been some lobbying by the Canadian meat industry for Canadian MP’s to vote to block the UK’s entry, this is not anticipated to scupper the deal.  Canadian producers remain unhappy that the UK refuses to recognise Canada’s food safety and animal health systems as being equivalent to its own.  This is chiefly due to Canada’s acceptance of hormone-treated beef and the use of antimicrobial carcase-washes in Canadian abattoirs.

As reported previously, whilst joining the CPTPP might help the UK to gain greater access to some Asia-Pacific markets (particularly Malaysia), its impact from an agricultural perspective looks set to be limited.  This is because the UK already has bilateral trade deals with most CPTPP members and most agricultural trade will continue to be conducted via these bilateral trade deals.  

EU-NZ Trade Deal

On 9th July, the EU and New Zealand (NZ) reached an agreement on a Free Trade Agreement (FTA).  From an agricultural perspective its key provisions include:

  • Elimination of all duties on EU agri-food exports to New Zealand: will be effective upon entry into force.  This also includes wine, confectionary and dairy products including speciality cheeses.
  • NZ access to the EU: greater access has been achieved for its agricultural exports to the EU, including for;
    • Beef: a new tariff rate quota (TRQ) for 10,000 tonnes (t) with a reduced duty of 7.5%.  This volume will be gradually phased in over 7 years from entry into force of the agreement.
    • Sheepmeat: a new 38,000t TRQ to be imported duty-free. Again, this volume will be gradually phased in over 7 years.
    • Milk powder: a 15,000t TRQ with a 20% import duty, to be phased in over 7 years.
    • Butter: for the pre-existing TRQ of 41,177t which currently attracts a 38% import duty, for 21,000t of this TRQ, the duty will gradually be reduced to 5%. There will also be a new butter TRQ of 15,000t which will also see in-quota duty rates gradually fall to 5%. This means the NZ TRQ access will increase to 56,177t, with 36,000t of this seeing duties gradually fall to 5%.
    • Cheese: a new TRQ of 25,000t to be imported duty-free. This will gradually be phased in over 7 years. NZ’s existing TRQs of 6,031t allocated under the EU’s WTO schedule will see tariffs eventually reduced to 0%.
    • High-protein whey: new 3,500t TRQ to be phased in over 7 years at 0% duty.
    • Other TRQs: for sweetcorn (800t) and ethanol (4,000t) will also be eventually at zero duty.
  • Sustainability: both sides claim that the dedicated Chapter on Sustainable Food Systems and Animal Welfare makes significant advances on the provisions of most existing trade deals and that the parties will work together on animal welfare, food, pesticides and fertilisers.
  • Geographic Indicators (GIs): the EU claims that 163 of its most renowned food GI’s will be protected in NZ as well as the full list of GIs for EU wines.  GIs for 23 NZ wines will also be protected in the EU market.

The agreement will draw inevitable comparisons with the UK-NZ trade deal.  Certainly, NZ’s access to the EU market is much more curtailed for beef, sheepmeat and dairy products in comparison to the relatively more generous access that the UK has granted.  Therefore, the competitive pressures exerted on EU producers as a result of this deal will be much less pronounced.  Over the longer term, for EU Member States such as Ireland, the UK-NZ trade deal could end up being more influential on its animal product sales as NZ exports to the UK could displace notable volumes of Irish beef exports to the UK.

Both the EU and NZ will now begin the ratification processes for this deal. Therefore, the entry into force of this FTA is still some time away. 

Trade Deals Study

The Scottish Government has published a study on the impact on Scottish agriculture of Free Trade Agreements (FTAs) between the UK and four selected non-EU partners, namely: Australia; New Zealand (NZ); Canada; and the Gulf Cooperation Council (GCC).  It found that these free-trade deals could have a significant negative impact on certain sectors of Scottish farming, particularly sheep.  The study was undertaken, in 2022, by Andersons and Wageningen University and Research (WUR).

The study quantifies the FTA impacts on selected Scottish agricultural sectors namely: cereals (wheat and barley); livestock (dairy, beef, and sheep); and potatoes.  This was done using two FTA scenarios; high and low liberalisation.  These were modelled alongside the current status quo (UK has left the EU but the Trade and Cooperation Agreement (TCA) is in place).  An Alternative Baseline (No-Brexit) scenario was also briefly examined.

The research was undertaken in collaboration with Wageningen University and Research (WUR) and used a combination of MAGNET, a computable general equilibrium economic model to assess the individual and aggregated impacts of each FTA, as well as desk-based research and interviews with industry experts based in Scotland, the UK, Australia, New Zealand, Canada, and the Gulf region.

Key Results

  • Impact of the selected FTAs is generally limited, but significant in some sectors: as Table A depicts, the projected long-term impact of the FTAs on Scottish output is relatively small in most cases. The exceptions are sheepmeat, where output is forecast to fall by around 10.5% to 11% under the Low and High Liberalisation scenarios. Beef and wheat are also projected to fall (both by around 3% to 6% depending on the scenario). Conversely, liquid milk output is forecast to grow by 3% to 9% in value terms, indicating significant FTA opportunities for dairy products. Barley is forecast to show a small long-term gain.
  • Cumulative impacts of future FTAs will be more significant: although the aggregated impact of the selected FTAs is relatively limited, the cumulative effect of multiple trade deals over the longer term should not be underestimated. This is especially so if the UK agrees FTAs with agricultural powerhouses such as the US and Mercosur (including Brazil and Argentina).
  • FTAs with Australia and NZ are main drivers of declines Scottish sheepmeat output: the new FTA is seen by many as a strong signal for NZ businesses to recapture trade with the UK, which was lost when the UK joined the EEC. Australia will also be keen to increase sheepmeat exports to the UK.
  • Beef sector will come under pressure but some opportunities also exist: whilst imports from Australia and NZ will create more competition, a trade deal with Canada is likely to generate some export opportunities. Given the brand recognition of Scotch beef, it should be relatively well-positioned to exploit such niches. That said, safeguarding domestic sales, particularly to UK retailers, from overseas competitors will remain most crucial.

  • The FTAs with Australia and NZ set important precedents: the recently agreed FTAs with Australia and NZ give important signals to other countries on what the UK is willing to cede in trade negotiations. Therefore, the standards that the UK is willing to accept for imports is pivotal, especially as other FTA partners will likely push for more concessions during negotiations. Any significant changes to standards relating to food safety and hygiene, the environment and animal welfare will have major implications for Scottish produce. This is not just on the home market, but overseas as well, especially in terms of highly-renowned brands such as Scotch Beef.
  • FTA opportunities for dairying the dairy sector is best positioned to see export growth, particularly to the GCC, where Scottish dairy produce has already gained traction in high-end segments. UK exports to GCC in 2018-20 are valued at £38m and could rise by as much as 49% in a High Liberalisation scenario. Opportunities theoretically exist to export to Canada, but, as it is highly protectionist, sales are likely to be limited to select niches.
  • Long-term impact of Brexit is deemed to be limited: Table A also shows relatively small differences in output under the Main Baseline (incorporating Brexit) and the Alternative Baseline (No-Brexit scenario). Although seed potatoes were not modelled, the loss of the EU markets for Scottish seed potato exports is significant and the restoration of this market access is a key goal for the sector. It should also be a primary objective for policy-makers.
  • Significant Farm Business Income (FBI) declines: of up to 60% in some sectors, in both the Main Baseline and FTA Scenarios in comparison with the Base Year (2019/20) although the differences between the Main Baseline and FTA scenarios are quite small. This is chiefly linked with declining prices.
  • New FTAs to have negligible impact on potatoes: industry input suggests that the new FTAs will have minimal impact on seed potatoes’ profitability. Instead, the impact of the loss of the EU market for Scottish seed potatoes is estimated to have led to a decline in seed potato prices of approximately 4%. Restoring market access to the EU27 and Northern Ireland is a priority for the sector.

Overall, the findings that more pressure will be exerted on the Scottish (and UK) beef and sheepmeat sectors are unsurprising as Australia and New Zealand are widely regarded as significant and highly competitive players on the world markets.  That said, the projected extent of declines on output is perhaps not as pronounced as some might have feared, although the declines are still significant.  The report also suggests some opportunities for dairy products, particularly in the Gulf region. 

The Summary Report is available on the Scottish Government website via: https://www.gov.scot/publications/analysis-impact-future-uk-free-trade-agreement-scenarios-scotlands-agricultural-food-drink-sector/

 

Trade Policy Blueprint

The UK Trade and Business Commission, a body consisting of business and political leaders from opposition parties as well as international trade experts, recently launched its blueprint for future trade policy.  It is designed to address key barriers to trade and help grow of the UK economy.  The blueprint was launched at the Trade Unlocked conference in Birmingham.  This event was attended by over 650 businesses, industry leaders and several Labour MPs, including the Shadow International Trade and Foreign Secretaries.  As such, the conference provided an interesting insight to the potential direction of a future Labour Government.  The Commission’s recommendations, if enacted, would have significant implications for agricultural trade.  They include;

  • ‘Beneficial’ alignment with EU Standards and Regulations:  whilst staying outside the EU Single Market and Customs Union, the Commission suggests that there is ‘everything to be gained’ by the UK aligning with EU Standards and Regulations, where it is beneficial to do so.  The Commission also suggests that where it is sensible to diverge, the UK should use its freedom to do so, whilst acknowledging that costs would arise in such instances.  It argues that this would give greater predictability regarding the UK’s regulatory system,  helping investment.  It is also seen as key to achieving a UK-EU Sanitary and Phytosanitary (SPS) and veterinary agreement  – something that a future Labour Government is particularly keen on.  In addition to SPS, other areas where the Commission calls for alignment include;
    • Food safety: the UK should maintain and uphold the key principles of EU food safety standards, including the General Food Law (EC 178/2002) and EU regulation (EC 852/2004) on the hygiene of food stuffs.
    • Chemical contaminants and residue monitoring: continue to align with EU maximum residue limits (MRLs) for pesticides and align veterinary drugs’ regulations with the EU.
    • Foodborne disease surveillance and outbreak response: the UK should actively participate in the various EU surveillance networks and systems including the Rapid Alert System for Food and Feed (RASFF) and have close collaboration with the EU across a range of other disease-related areas.
    • Safeguard against lower quality imports: the UK Government should ensure that imported food products meet minimum regulatory standards that apply to domestically produced food, including on environmental requirements and animal welfare.
    • Organic food equivalence: maintain regulatory alignment between the UK and EU for organic food standards to facilitate continued equivalence beyond December 2023.
  • Establish a new regulatory forum for trade cooperation with the EU: this UK-EU Regulatory Council would be styled on the US-Canadian Regulatory Cooperation Council and would aim to reduce non-tariff trade barriers and build on the commitments made in the Windsor Framework.  It would be established ahead of the 2026 review of the UK-EU Trade and Cooperation Agreement. This is a sensible approach and the US-Canada relationship provides a useful template for how the future UK-EU trading relationship should be managed.
  • Establish a new UK Board of Trade: this would be an independent body acting for the Department for Trade and Business in much the same way as the Office for Budgetary Responsibility (OBR) acts for the Treasury. As such, it would impartially assess the UK’s trading performance and help to drive improvements across Government.  It would also provide impact assessments of new and existing trade deals and assess areas of divergence between the UK’s and other trading blocs’ regulations that will benefit the UK economy.  Its board would include representatives from major UK business organisations, SMEs, trade unions, devolved Governments, and senior experts in trade and regulation. One would imagine that if such a body were established that it would supplant many of the functions of the Trade and Agriculture Commission.
  • Visa system reform: to address labour shortages, including in agriculture.  This would include a comprehensive review of the Seasonal Worker Visa Scheme to determine areas for improvement and give greater long-term certainty to businesses.  It also calls for the reform of short-term and business visa rules to enable corporations to bring in highly-skilled personnel for short-term projects and to extend the maximum permissible stays under business visas to enable UK businesses to pursue longer-term projects.  It also calls for a bilateral and reciprocal Youth Mobility Visa Scheme with the EU allowing young people (aged 18-35) to travel and work in both UK and the EU for up to five years.  In addition, it calls for the UK to develop targeted skills development programmes to address labour shortages in specific sectors.  Many in the agri-food sector are likely to be sceptical about this latter recommendation as numerous organisations have tried to recruit and train indigenous workers, with minimal success. 

Overall, given the make-up of the UK Trade and Business Commission, and statements by Shadow Ministers at the UK Trade Unlocked conference, it is evident that a future Labour Government will seek a much closer relationship with the EU.  Whilst the EU will be open to such an approach, it has other priorities given what is happening in Eastern Europe.  Its appetite for any renegotiation of the Brexit deal is minimal.  This is recognised in Labour circles; hence the focus of the UK aligning with EU regulations.  The EU will also push back strongly on any attempts to dilute what it sees as the indivisibility of the Four Freedoms of the EU Single Market.  Without free movement of people and leaving open the possibility for UK regulations to diverge in the future, the EU will not offer the UK frictionless trade.  That said, significant improvements are possible and should be pursued. 

The full report is accessible via: https://www.tradeandbusiness.uk/blueprint

Image source: Best for Britain

Agreement Reached on UK Joining the CPTPP

On 31st March, the UK Government completed negotiations to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), following over 2 years of negotiations.  Whilst the accession agreement was signed at a virtual meeting of Trade Ministers, the legal text of the agreement has yet to be published, and there will be a ratification process in the UK similar to that of other recent trade deals (e.g. Australia and New Zealand).  The key points from an agricultural perspective are:

  • General economic impact: the UK will be joining a trade bloc of 11 countries, accounting for about 7% of global GDP.  The UK already has bilateral trade agreements in place (or pending ratification in the case of Australia and New Zealand) with nine of these members, the other two being Malaysia and Brunei. Therefore, the additional economic gain from joining the CPTPP will be limited at a national level, with the UK Government estimating that it will boost UK GDP by 0.08% in the next decade.  From an agri-food perspective, the UK joining the CPTPP will not alter the level of access that Australian and New Zealand exporters will have to the UK market.
  • Import tariff concessions:
    • Palm oil: controversially, import duties on Malaysian palm oil (currently up to 12%) will be eliminated upon entry into force.  Given the environmental concerns around deforestation associated with palm oil production in Malaysia, this will attract strong criticism.  The UK and Malaysian Governments have attempted to address this by publishing a joint statement as part of the environment chapter of the agreement which sets out commitments to promote sustainable production and protecting forests.  Palm oil may provide greater competition for domestically-grown oilseed rape.
    • Sheepmeat: Australian and NZ exports to the UK will remain subject to the TRQs outlined in the UK’s bilateral Free Trade Agreements (FTAs) with these countries.  Duties on imports from other countries, which are minimal, will be eliminated from entry into force.
    • Eggs:  Australian eggs will remain subject to the UK’s Global Tariff. Duties on imports from other countries will be eliminated over a 10-year period, although imports from these countries are likely to remain minimal.
  • Tariff Rate Quotas (TRQs) on Imports to the UK: the following new TRQs have been agreed
    • Beef: a new duty-free TRQ of 13Kt will be phased in over 10 years and will start at 2.6Kt.  It only be available to Canada, Mexico, Chile, Peru, Malaysia and Brunei.  Importantly, any beef imports will have to meet UK Sanitary and Phytosanitary (SPS) requirements.  The Canadians sought UK acceptance of its standards (which permit hormone-treated beef), but the UK withstood this.  Also, Australia and New Zealand will not get any further access to the UK market under the CPTPP.
    • Pork: a 55Kt TRQ will be phased in over 10 years (starting at 10Kt).  Again, this will be available to the same countries listed above.  Vietnam and Singapore will also have access to this TRQ for an initial 3-5 year period before their duties are eliminated via a bilateral FTA with the UK.  This TRQ could present some competitive threats from the likes of Canada and Mexico, although some commentators don’t believe that Canada will pose an immediate threat as it currently only utilises a small proportion of its potential TRQ under pre-existing agreements.
    • Chicken: a TRQ of 10Kt will again be available to the countries listed above.  A 10-year phase-in period will again apply.  Vietnam and Singapore will again have access to this TRQ for an initial 3-5 year period before tariffs on imports from these countries are eliminated.
    • Sugar: a 25Kt tonne TRQ will be shared by Brunei, Chile, Malaysia, Peru, and Vietnam.  Canada will also have access to this TRQ for an initial two-year period before its tariffs will be eliminated as per the bilateral (roll-over) FTA that the UK has with Canada.
    • Rice: for long-grain milled rice, there will be a 10Kt TRQ to be shared by Brunei, Chile, Malaysia, and Peru.  Most-favoured nation (MFN) duties will continue for rice from Australia, Japan and Mexico.
    • Other CPTPP countries: will have access to the UK market as agreed in existing (pending) bilateral trade deals.  As our previous articles on the Australian and New Zealand trade deals have noted, bilateral TRQs of beef and lamb will be phased in over 15 years, whilst dairy TRQs will be phased in over 5 years.
  • Tariffs and TRQs on UK Exports: as the UK was perceived to be quite defensive in the access that it is offering to importers, the market access for UK exports has also been limited to some key areas, including:
    • Whisky: exports to Malaysia will see tariffs of up to 80% being reduced down to zero over a 10-year period which should help Scotch whisky to gain further market share. This is seen as a significant win for the UK.
    • Dairy exports: the Canadian Government has not made any additional market openings available. This means that the UK will need to compete with other members for Canada’s CPTPP TRQs for dairy products (16.5 Kt). This is unsurprising given the UK’s stance on Canadian beef imports and the Canadian dairy sector is highly protected.  There will be similar additional cheese TRQ of 6.5Kt on exports to Mexico, again, this will be shared with other CPTPP members.  Similar arrangements to Canada will be put in place for to any UK dairy exports to Chile, Japan, Mexico, Peru and Vietnam.
    • Beef: British exports of beef will be subject to a TRQ under the CPTPP.  There is limited further detail at this stage and it will require the publication of legal texts to confirm what is available.   In 2022, it is estimated that the UK exported 4.4Kt of beef to Canada and the CPTPP potentially presents an opportunity to grow this volume.  Tariffs on UK beef exports to Mexico (up to 25%) will be eliminated after a staging period.  There will also be staged liberalisation on exports to Peru, although export opportunities to Latin America will be limited.
    • Pork and poultry: tariffs on UK exports to Mexico, of up to 25% and 75% respectively for pork and poultry, will be eliminated over a staging period.  Similar provisions will apply to poultry meat exports to Peru and pork exports to Vietnam.
    • Other goods’ exports: over 99% of UK goods’ exports will be eligible for tariff-free trade upon accession.  For other goods where tariffs are being phased out, the UK has agreed to catch-up to other CPTPP members who are in Year 6 of their various multi-year tariff phase-out schedules.  Importantly for the UK, this includes Malaysia agreeing to phase out its 30% tariff on car imports.
  • Sanitary and Phytosanitary (SPS) measures: as mentioned above, the UK has offered no concessions on this.  However, the deal does provide a framework for more transparency and information sharing on SPS issues, which would help with addressing food fraud.  The UK has also managed to formalise the principle of ‘regionalisation’ meaning that in the event of animal or plant disease outbreaks, trade restrictions would only be limited to affected regions.
  • Other provisions: for goods, there will be multilateral cumulation which basically means that intermediate goods (e.g. car parts) from any country will count as ‘local’ for the purpose of accessing tariff concessions on trade within the bloc.  So, UK car parts sold to a Vietnamese automotive plant would be classed as local for any Vietnamese car exports from that plant to Malaysia.  In terms of services, UK companies will be able to operate in all CPTPP countries without the need to establish a local base in each territory.  This will be a significant gain for the UK financial services sector in particular.  The CPTPP chapter on the environment largely formalises commitments made by the UK and other CPTPP members under other international agreements.

Overall, whilst joining the CPTPP might help the UK to gain greater access to some Asia-Pacific markets (particularly Malaysia), its impact from an agricultural perspective looks set to be limited.  As mentioned above, the UK already has bilateral trade deals with most members and most agricultural trade will continue to be conducted via these bilateral trade deals.  In the longer term, a bigger issue could be what happens if the US joins the CPTPP, as it had agreed to join its predecessor (the Trans-Pacific Partnership), until the Trump administration pulled out.  Although the current US administration is not overly focused on international trade, the prospect of a future US administration re-joining a Pacific trade bloc (CPTPP, or a subsequent deal) should not be ruled out.  This would have much more significant implications for agriculture from both a market access and SPS perspective.

What happens next?

  • The legal text of the agreement will be formalised and published in due course.
  • From there, the agreement will come under Parliamentary scrutiny and this should include an examination and report by the Trade and Agriculture Commission; similar to the reports it compiled for the Australia and New Zealand trade deals.  This will be done to verify that accession to the CPTPP is consistent with UK laws concerning animal welfare, food safety and environmental protection.
  • Existing CPTPP members will also have their own ratification processes, which could potentially result in delays, although this is not anticipated as things stand.
  • The UK is expected to be formally approved to join during a Ministerial meeting of CPTPP members during the summer, with the ratification process will then need to be completed by all CPTPP members.

Further information can be obtained via: https://www.gov.uk/government/publications/comprehensive-and-progressive-agreement-for-trans-pacific-partnershipcptpp-conclusion-of-negotiations/conclusion-of-negotiations-on-the-accession-of-the-united-kingdom-of-great-britain-and-northern-ireland-to-the-comprehensive-and-progressive-trans-pac