Tag: Trade

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

Windsor Framework Agreement

On 27th February, the UK Government and EU Commission reached an agreement on the implementation of the Northern Ireland (NI) Protocol – the ‘Windsor Framework’.  The deal emerged after months of, often arduous, negotiations and is heralded as a major breakthrough by both the UK and EU negotiators.  It is hoped that this framework will resolve the thorniest issue of the entire Brexit process and has been welcomed by most Northern Irish stakeholders, although the DUP have yet to give an official view on the Framework, which is not expected until April.

The key aspects of the agreement are:

  • Customs Procedures for Goods: there will be a ‘green lane’ for goods moving from Great Britain (GB) into NI which will be consumed in Northern Ireland and not deemed to be at risk of moving into the EU Single Market.  For such goods, nearly all customs procedures will be scrapped.  Goods deemed to be at risk of moving into the EU Single Market will be moved through a red lane, where EU border controls will apply.
  • Chilled Meats: products such as sausages which are sold in GB supermarkets will also be available in Northern Ireland, provided that they are shipped into Northern Ireland by trusted traders.  Chilled meats are usually prohibited from import into the EU Single Market or require arduous certification procedures (sometimes hundreds of certificates for a container with chilled meat and animal products for the retail sector).  This will now be replaced by a single document confirming that the goods will stay in Northern Ireland and are moved in line with the terms of the UK’s internal market scheme.  This is a significant concession from the EU.  It is also a sensible one on the basis that such products are for consumption in Northern Ireland and there is now real-time data on the movement of goods from GB to NI, giving the EU the visibility it needs to ensure that no fraudulent activity is taking place. Any physical or identity checks that do take place will be on a risk and intelligence-led basis, based on decisions by UK authorities.
  • Seed Potatoes, Plants and Trees: certain plant and crop products had been either prohibited from entry into NI from GB since January 2021, or required lengthy certification processes.  Such trade can now recommence under the provisions of the Windsor Framework.  This is seen as a big boost for the seed potato sector in particular.  However, seed potatoes will still be prohibited from being sold to the Republic of Ireland.
  • VAT and Excise Duties: the NI Protocol’s legal text has been amended so that the UK can set VAT and excise duties for the whole of the UK.  It means that the reforms to alcohol duties taking effect in the UK in the summer will now apply to NI, thus lowering the price of beer in NI pubs for instance.
  • Parcels and Online Shopping: no paperwork will be required for parcels moving from GB to NI.
  • Pet Travel: documentary requirements and associated treatments and inoculations that are usually required by the EU have been removed for travel between GB and NI.
  • Applicability of EU Law in Northern Ireland: has been reduced substantially (estimated by the NI Secretary to be 97%) and now only focuses on the ‘minimum necessary’ to avoid a hard border on the island of Ireland.  The EU notes that the European Court of Justice (ECJ) will still have a final say on Single Market issues.  However, it is envisaged that its role will be greatly reduced due to the provisions outlined above and also because of the data sharing, labelling and enforcement procedures within the Windsor Framework.  This will help to safeguard the Single Market whilst also giving opportunities to resolve differences without having to revert to the ECJ.
  • ‘Stormont Brake’: this new mechanism is designed to give the Northern Irish Assembly the opportunity to pull an emergency brake on EU legislative changes which would apply in Northern Ireland.  It is designed to address concerns, particularly amongst Unionists, on what they perceive to be a democratic deficit of the NI Protocol as agreed in 2020.

For the brake to activate, it would require cross-community support and would need a minimum of 30 Assembly MLAs from at least 2 parties to agree to its activation.  The EU stresses that this can only be activated in exceptional and emergency circumstances, where there is a significant impact specific to everyday life in Northern Ireland.  It is also planned to have greater consultation between the UK and the EU on new EU legislation so as to minimise instances of the Stormont Brake being activated.  Once triggered, the UK Government would notify the EU of its activation.  The rule in question would automatically be suspended from coming into effect.  It could only then be reapplied if the UK and EU jointly agree.  If the suspension remains, the EU reserves the right to respond with remedial action to protect its Single Market.  For the Stormont Brake to become an option, it requires a functioning NI Assembly and is seen as a bid to get the NI Executive back up and running.

Overall, the Windsor Framework strikes a pragmatic and careful balance between the concerns of the UK Government and Unionists who wish to ensure that Northern Ireland remains an integral part of the UK, and of the EU in ensuring that its Single Market is protected.  With hindsight, it was the sort of balance that should have been struck when the original Protocol was negotiated in late 2020, but which ended up being rushed and was negotiated without enough attention to the nuance needed for the unique circumstances of Northern Ireland.  Importantly, by giving NI unfettered access to both the UK Internal Market and the EU Single Market, the Windsor Framework gives Northern Ireland the potential for strong economic growth, not just in agri-food but across NI industry generally. Undoubtedly, the Protocol will need further refinements in the years ahead as will the UK-EU trading relationship more generally.  This is as it should be, as trading relationships between near neighbours are constantly fine-tuned.  The US-Canada relationship is a prime example of this.

NI Protocol Deal

At the time of writing (morning of 27th February), it is expected that a deal will be imminently reached between the UK Government and the EU on the implementation of the Northern Ireland (NI) Protocol.  The European Commission President (Ursula von der Leyen) is travelling to the UK today for high-level talks with the Prime Minister to address the final list of issues which are said to require top-level scrutiny by both leaders.

It is said that the remaining issues centre primarily around the role for the Northern Ireland Assembly in having a say around how EU Law is applied in Northern Ireland.  Some also suggest that there will be further discussion around the role of the European Court of Justice, although this is mainly seen as an issue for the European Research Group (ERG) within the Conservative Party.

Although both the UK Government and the EU have remained tight-lipped about the details of the deal, it is widely believed that the deal will remove checks for goods crossing from Great Britain (GB) into NI which are destined for Northern Ireland only.  Key to achieving this has been the real-time access to shipments’ data on goods crossing from GB to NI which has enabled the EU to adopt a more flexible approach.

After meeting with Ursula von der Leyen, the Prime Minister will hold a virtual Cabinet Meeting to discuss the details of the deal (if agreed).  From there, Rishi Sunak will then brief the House of Commons in the evening.  Whilst the deal is imminent, there will still be significant hurdles to surmount including whether the DUP and the ERG wing of the Tory party will support it.  However, Labour has said that it will support the deal.  Many are hoping that this will be one of the last major moments in the Brexit saga.  With numerous other challenges to tackle, all key stakeholders, particularly agri-food businesses are keen for these issues to be resolved so that there can be some certainty on trading arrangements between GB, NI and the EU in the coming years.

As soon as the text of the deal emerges, we will update readers via an online article.

NI Protocol and Trade

With a deal on implementing the Northern Ireland (NI) Protocol supposedly imminent and with the Irish Central Statistics Office (CSO) releasing its latest trade data for 2022, it is an opportune time to examine the impact of the NI Protocol on agri-food trade on the Island of Ireland.

The chart below shows how agri-food trade for selected commodities has evolved in monetary (Sterling) terms between Northern Ireland and Ireland (Republic of Ireland (ROI) since 2017.  It shows that since the introduction of the NI Protocol from January 2021, which has enabled Northern Ireland to stay de-facto part of the EU Single Market for goods, that trade between NI and Ireland has increased substantially for most products.

Dairy trade has seen the most significant increases, with exports of dairy produce from NI to Ireland rising by 120% since 2020 (from £202m to £446m).  Imports in the opposite direction have also risen substantially from £169m to £427m.  Exports of beef from NI to Ireland have doubled since 2020 and are valued at £64 million in 2022.  Again, there has been a notable, though less sizeable, increase (25%) of beef imports into NI from Ireland.

Trade has also risen substantially for other commodities since 2020 with animal feedstuffs’ exports from NI to Ireland up by 125% (to £262m), whilst pigmeat exports have risen by 128% to £46m. Poultry meat exports in 2022 are estimated at £25.5m, 82% higher than in 2020.

The data presented in the chart above are in current terms.  In other words, they do not take account of inflation which has been significant across agri-food during 2022.  That said, given the increases reported on NI-Ireland trade, which has more than doubled in several cases, it is clear that the NI Protocol is having a significant impact on trade on the Island of Ireland.

This impact becomes clearer when agri-food trade between Ireland and NI is compared with trade between Ireland and Britain.  The table below shows that total agri-food trade for 2022 (imports and exports combined) between NI and Ireland is 80% higher than in 2020, whilst Ireland’s agri-food trade with Britain has fallen by 6%.  This shows the clear impact of the imposition of regulatory barriers on trade between Ireland and Britain as a result of the implementation of the Trade and Cooperation Agreement (TCA) between the UK and the EU in January 2021.

Within this, it is also notable that exports from Ireland to Britain are 12% higher in 2022 versus 2020, whilst imports into Ireland from Britain are 26% lower over the same period.  This shows the clear impact of the imposition of regulatory controls by EU Authorities (including in Ireland) on imports from the UK (GB) from January 2021.  At the same time, the UK has continued to delay the imposition of its regulatory controls (previously called its Border Operating Model, and now termed as its Target Operating Model) until late 2023.

Overall, the CSO trade data reveals that all-island trade has increased substantially as a result of the NI Protocol and supply-chains on the island of Ireland have become much more integrated.  Within this, there is also a noticeable shift in Ireland away from importing from Britain (which is now subject to regulatory controls) and sourcing more locally from Northern Ireland where there is unfettered trade.

Of course, the CSO data does not assess how NI trade with Britain (GB) has performed during this time.  It is important to highlight that NI continues to have unfettered access to the GB market for its exports and the various grace periods implemented by the UK Government have, thus far, limited the imposition of regulatory checks on produce moving from GB to NI.  The extent to which this trade will be affected in future is of course contingent on the detail of any agreement between the UK and the EU on implementing the NI Protocol.  We will be analysing this detail as soon as it becomes available.

NI Protocol Negotiations

Negotiations between the UK and the EU on making amendments to the Northern Ireland (NI) Protocol have dominated the trade agenda in recent weeks.  There have been promising signs of progress, although significant hurdles need to be overcome if an agreement is to be reached by April (to coincide with the 25th anniversary of the Belfast Good Friday Agreement).

The announcement, on 9th January, of a data sharing agreement between the UK and the EU is key development as it permits the EU to gain real-time access to data on goods movements between Great Britain (GB) and NI.  The EU sees this as a critical pre-requisite towards rebuilding trust in UK-EU relations and in permitting the EU to consider introducing greater flexibility in how regulatory checks on goods coming from GB into NI are undertaken.  However, this data-sharing agreement is only a first step and there are serious differences to reconcile in other areas.

Most notably, an agreement on the levels of Sanitary and Phytosanitary (SPS) and Customs checks on goods remains unresolved.  This is especially important for agri-food trade.  Previously, the UK had proposed a ‘green channel’ at ports which would permit goods destined to stay in Northern Ireland to be waved through without customs paperwork.  A ‘red channel’ would be set-up for shipments destined for the Republic of Ireland.  This set-up would be complemented by a Trusted Trader scheme and fines to minimise non-compliance.  Such proposals were dismissed by the EU as being insufficient to protect the integrity of its Single Market.

Back in October 2021, the EU proposed an ‘express lane’ for goods destined to stay in NI, although Customs paperwork would still be required.  At the time, these proposals were dismissed by both the UK Government and the DUP as being unacceptable because of the border it would create on the Irish Sea which would undermine the integrity of the UK.

The current negotiations are focusing on finding a landing zone between the green channel and express lane approaches.  If this conundrum could be resolved, a pathway towards an agreement between the UK Government and the EU should emerge.  However, concerns persist as to whether the DUP would accept this.  So, whilst the mood music has changed and progress is being made, it remains premature to expect an agreement yet.  Talks are likely to continue until April and beyond. What might yet emerge is a ‘fudge’ based on more temporary arrangements similar to the extension of the grace period for checks on veterinary medicines traded between GB and NI agreed last month. 

Veterinary Medicines from GB to NI

On Monday, 19th December, the EU Commission’s Brexit Chief Negotiator announced an extension to the grace period, covering the supply of veterinary medicines from Great Britain (GB) to Northern Ireland (NI), to December 2025 in order to give industry ‘ample time’ to adapt to the new regulatory arrangements that will eventually be required.  The current grace period was due to expire at the end of this year.  Many businesses were concerned about the continuity of supply of veterinary medicines as NI, which is still inside the EU’s regulatory system for pharmaceutical products due to the NI Protocol, sources most of its supplies from GB which is no longer subject to EU regulations.  There was concern that if the grace period was not extended, there would be severe shortages in Northern Ireland.  In announcing the extension, the EU is keen to show that it is able to develop practical solutions to resolving issues with the Protocol.  The UK Government also welcomed the announcement.  It is hoped that increased EU flexibility in areas such as this will create the ‘landing zone’ needed to develop a more long-lasting solution to the NI Protocol challenges.  Business groups including the British Veterinary Association also welcomed the announcement.

Trade Update

After a relatively quiet few months on the trade policy front, recent weeks have seen a resurrection of previous debates around the future long-term relationship that the UK should have with the EU as well as the impact of new trade deals that the UK is in the process of concluding.

Talk of a Swiss-Style Relationship

Following the Chancellor’s Autumn Statement, rumours emerged from Government circles of a change in approach towards the long-term relationship that the UK would have with the EU.  This would see it move towards something more akin to Swiss-style relationship.  This would mean accepting free movement, contributions to the EU budget, dynamic alignment with EU regulations for goods, and European Court of Justice (ECJ) oversight in return for being part of the Single Market.  Whilst some welcomed this, others claimed it was a betrayal of Brexit.

What many failed to acknowledge was that the EU is dissatisfied with how its relationship with Switzerland is structured as it requires more than 100 bilateral deals to replicate Single Market requirements and which constantly need to be renegotiated.  It is unlikely to want to replicate this with the UK.  In any event, the UK Government later denied that it was seeking to move to a Swiss-style relationship.

That said, and from an agri-food perspective, there is merit at looking at elements of the EU-Switzerland relationship and replicating aspects that make sense for both parties.  In previous articles, we have advocated a Swiss-style Sanitary and Phytosanitary (SPS) agreement with the EU, whereby the EU would permit frictionless access for UK agri-food goods in return for the UK dynamically aligning with EU regulations.  Whilst previous Tory administrations (i.e. under PMs Johnson and Truss) dismissed this approach, it would appear that the Sunak administration is at least considering it.

Such an SPS agreement would greatly assist UK exports to the EU, its biggest trading partner and it would also overcome key hurdles in the ongoing NI Protocol negotiations, which have shown some tentative signs of progress recently.  Whilst it would mean the UK mirroring EU laws, it would still leave scope, albeit more limited, for the UK to negotiate separate trade deals and trading arrangements, as the Swiss have done with the US.  The UK could also give notice (e.g. of one year) if it wanted to discontinue this arrangement. 

Overall, the talk of using existing templates in framing the future UK-EU relationship is becoming unhelpful.  The sooner a bespoke UK-style relationship emerges the better.  This could incorporate key aspects of other templates, but it will need to respect key EU principles, meaning that further negotiation is needed.  It will also need to incorporate the closer relationship that NI will have with the EU, as it is de-facto part of the Single Market for goods by virtue of the NI Protocol.

Eustice Attack on Recent Trade Deals

On 14th November, during a House of Commons debate on the Trade (Australia and New Zealand) Bill, the former Defra Secretary George Eustice severely criticised the UK Government’s negotiating strategy for both trade deals.  He singled out the then Trade Secretary, Liz Truss, for particular criticism, especially for imposing an arbitrary target of concluding negotiations with Australia ahead of the 2021 G7 summit.  He thought that this severely weakened the UK’s bargaining power.  Mr Eustice recalled that there were ‘deep arguments and differences in cabinet’, which were mirrored by friction between Defra and the Department for International Trade (DIT) during the negotiations.  He also claimed that the ‘Australia trade deal is not actually a very good deal for the UK’ and that he tried his best when Defra Secretary to address its shortcomings.  Specifically, he claimed that there was no need to give Australia (and New Zealand) unlimited access over the longer term for sensitive sectors such as beef and lamb.

From a farming perspective, it is all well and good to criticise the deal.  But during his time in Government, Mr Eustice defended it – his comments, therefore, offer scant consolation to farmers who perceive these deals to be a significant threat.  Both the Australian and New Zealand agreements will increase the competitive pressure on UK agriculture, particularly in grazing livestock.  However, recent studies looking at the impact of these trade deals projected that the impact may be lower than some fear.  That said, being the first new trade deals that the UK has negotiated from scratch since leaving the EU, they create an important precedent, and the cumulative impact of multiple trade deals can have a more significant impact. 

The UK-Australia trade deal was ratified by the Australian Parliament on 22nd November.  The Trade (Australia and New Zealand) Bill is making its way through Westminster.  It is currently at the Report Stage, where amendments can still be made to the Bill, before a final third reading and subsequent vote on the Bill in the House of Commons – the date of which has yet to be announced.  The House of Lords will also have to vote on the final Bill and they could delay it for up to a year before it would receive Royal Assent (assuming it is passed by the House of Commons).

Trade Update – July 2022

Although summer is often quieter on the trade front, there have been a couple of developments in recent weeks which merit mention. These relate to the UK-Australia Free Trade Agreement (FTA), and the announcement of the EU trade deal with New Zealand (NZ), which will be of interest to many in the UK agri-food sector.

UK-Australia FTA

The UK Government has failed to offer MPs the opportunity to debate the UK-Australia FTA within 20th July deadline as required by the framework set-out under the Constitutional Reform and Governance Act 2010. This means that the FTA can be ratified by the Government without the parliamentary scrutiny that it had promised to the farming industry on several occasions. Many in the UK farming industry see this as a betrayal and are concerned that it will create a precedent for future trade deals that the UK negotiates.

Separately, the House of Commons Library published its assessment of the UK-Australia FTA on 15th July. It noted that whilst the overall impact of the FTA is limited (adding 0.08% to UK GDP (£2.3 billion per year) in 2035), it does note that the effects on agriculture will be more sizeable. It references the UK Government’s own assessment from earlier in the year which projects that long-term agricultural output would decline by £94 million whilst semi-processed food output would also decline by £225 million as a result of the deal. The impacts would be strongest in the beef and sheep sectors.

The report has also highlighted concerns around environmental, animal welfare and food safety standards. The report has noted the importance of distinguishing between two aspects of standards:

  1. Product standards which must meet before they can be imported into the UK
  2. Wider questions of differences in animal welfare and environmental practices permitted in Australia and the UK.

On the former, it highlighted the Government’s conclusion that the FTA did not require changes to the UK’s import rules or statutory protections concerning human, animal or plant life or health, animal welfare or the environment. Regarding the latter, it highlighted concerns around Australian products being produced to lower animal welfare and environmental standards than what UK producers (farmers) must adhere to. It also noted that the Government has refused calls for Australian access to the UK to be contingent on adhering to “core standards” as advocated by the National Food Strategy.

Whilst it is unsurprising that the Government has taken this approach, it will add to concerns in British farming that its competitive position will be undermined as future FTAs are negotiated and agreed.

The House of Commons Library report is available via: https://researchbriefings.files.parliament.uk/documents/CBP-9484/CBP-9484.pdf

EU-NZ FTA Announcement

On 30th June, it was announced that the EU and New Zealand concluded negotiations for a trade agreement. In announcing the deal, the EU Commission projected that bilateral trade could grow by up to 30% and also emphasised what it claims were unprecedented sustainability commitments to align with the Paris Climate Agreement. From an agri-food perspective, the Commission also highlighted that key EU sensitivities around agri-food products were also safeguarded. Key provisions of the announced trade deal include;

  • EU agri-food exports to NZ: all tariffs would be removed from entry into force. This is unsurprising as most tariff lines for agri-food imports into NZ are already at 0% or at very low levels. Given the geographic distances involved, the benefits of this are likely to be limited to high-end niche food products, including chocolate, confectionary, ice-cream and wine.
  • EU beef imports from NZ: the EU will permit a tariff rate quota (TRQ) of 10,000 tonnes (t) with a reduced duty of 7.5%. This will be phased in over 7 years and will have to adhere to EU standards. This level of access is substantially lower than what the UK has permitted (12,000 t in Year 1, rising to unlimited  access from Year 16).
  • EU sheepmeat imports: an additional TRQ of 38,000 t will be permitted to be imported duty-free, again phased in after 7 years upon entry into force. As the old WTO TRQ was split evenly between the EU27 and UK as a result of Brexit (i.e. 114,000 t each), it is more likely that this new TRQ will be activated, given the EU’s market size and population (circa 450 million). But again, the level of access is lower than that ceded by the UK to NZ (35,000 t in Year 1 rising to unlimited access from Year 16).
  • EU dairy imports: the following provisions apply;
    • Milk powder: a new 15,000 t TRQ with a 20% duty will be phased in over 7 years.
    • Butter: NZ has currently access to the TRQ of 47,177 t allocated under the EU’s WTO schedule with the in-quota tariff of 38% of the MFN duty. Under the FTA, 21,000 t of this TRQ will have the tariff gradually reduced to 5%. The EU will also provide a new 15,000 t TRQ with the same gradually reduced tariff duty (i.e. from 38% to 5%).
    • Cheese: the EU will allow 25,000 t to be imported duty-free via a new TRQ. This will again be phased in over 7 years. In addition, for 6,031 t of cheese TRQ that NZ currently has under the EU’s WTO schedule, the tariffs will gradually be reduced from €176/t to zero.
    • High-protein whey: a new TRQ of 3,500 t with zero duty to be phased in over 7 years.

As with beef and sheepmeat, the concessions offered by the EU are generally less than what the UK has offered (more generous TRQs for butter and cheese with full liberalisation after 5 years).

More information on the EU-NZ FTA is available via: https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4158

Overall, it is evident that despite agreeing this FTA, the EU will continue to offer a higher level of protection to its farmers than the UK has done with its FTA with New Zealand. That said, it must be emphasised that, like Australia, NZ continues to be heavily focused on the Asian markets, where it is getting strong prices for its produce. Just because increased access is available to the UK or EU markets, this does not necessarily mean that this access will be availed of. 

Northern Ireland Protocol Bill

On 13th June, the UK Government introduced the Northern Ireland (NI) Protocol Bill to the House of Commons. The highly controversial Bill, if enacted, would dis-apply large swathes of the NI Protocol which was agreed between the UK and the EU as part of the Withdrawal Agreement negotiations.  The Bill’s legal text which is highly complex and potentially far-reaching drew harsh criticism from multiple sources. It has been met with particular disdain by the EU which sees the Bill as a breach of international law and the Commission is set to respond in the near future. At a top-level, the Bill seeks to do three things;

  1. Disapplies large parts of the Protocol: relating to most provisions that apply EU rules on the movement of goods into NI.
  2. UK’s Protocol alternative: is outlined and the UK Government provides some guidance on how it would be implemented.
  3. European Court of Justice oversight: the Bill would remove the Court’s direct jurisdiction and the role for EU institutions

In essence, the Bill is effectively rewriting the Protocol, in a unilateral manner, outside of the structures agreed by the UK Government and the EU.  Whilst the political fall-out will continue to generate intense debate, it is the accompanying policy paper which provides practical insights on how the Bill would work and the implications for agri-food. The key points are;

  • Establish new ‘green channel’ arrangements for goods staying in the UK: it is claimed that this would fix the burdens and bureaucracy caused by the application of EU Customs and SPS rules.  This channel would only be available to firms registered as ‘trusted traders’ and this scheme would be overseen by UK Authorities.  Goods moving on to the EU or moved by firms not in the trusted traders’ scheme would use the ‘red lane’ and be subject to the full range of regulatory checks.  This would significantly reduce the sometimes complex certification requirements for agri-food produce.  Here, the UK proposals are not that far from the EU proposals published last October which suggested an ‘Express Lane’ for goods moved by trusted traders which would be consumed in Northern Ireland. 
  • Establish a new ‘dual regulatory’ model: this is intended to provide flexibility for NI firms to choose between UK or EU rules on product standards.  It is intended to remove barriers to trade within the UK internal market and the UK Government claims that it will encompass robust commitments to protect the EU Single Market.  For agri-food, goods could only move from GB to NI under the trusted trader scheme (otherwise they would be in the red lane and subject to checks).  There would be robust penalties for violations.  The EU strongly objects to this proposal on the grounds that it undermines the integrity of its Single Market.  There are also challenges around the bureaucratic complexities involved with dealing with two regulatory systems. Major NI agri-food businesses are also against these proposals as it would scare-off overseas customers from purchasing NI produce as they would be unsure on which standards the products are adhering to and would be deemed too complex and risky.
  • State Aid and VAT: the UK Government states that the Protocol restricts the UK from providing the same tax and spend policies in NI as the rest of the UK—with little room for flexibility.  This aspect of the Protocol was insisted upon by the EU so that there was a level playing field between NI and the EU Single Market and that NI firms, or GB firms with operations in NI, did not gain an unfair advantage.  The new Bill gives the UK freedom to disapply these rules so that NI can have the same tax rules as other parts of the UK.  Again, the EU strongly objects to these proposals.
  • Role of European Court of Justice (CJEU): would be removed in dispute settlement and would provide the means for UK Authorities and Courts to set out the arrangements which apply in Northern Ireland.  This is also highly controversial from an EU perspective as it would not have agreed the Trade and Cooperation Agreement (TCA) with the UK if the CJEU did not have ultimate oversight over the NI  Protocol.

Whilst the full EU response is awaited, it has confirmed on 15th June it is restarting the legal proceedings it had initiated last year against the UK Government for its unilateral extension of grace periods for checks on products such as sausages and mince.  These had been suspended for almost a year to facilitate negotiations on addressing the Protocol issues.  The EU response is also likely to state that it reserves the right to enact much more stringent measures if this NI Protocol Bill becomes law in the UK.  This would include suspending key aspects of the TCA or introducing some tariffs on UK exports to the EU.  That said, the EU will also be keen to get the UK back to the negotiating table and the Commission has set-out further proposals on how it thinks the outstanding issues on the NI Protocol should be dealt with.

From an agri-food perspective, it is important to note that the House of Lords will vote against this Bill, thus delaying its enactment for at least a year.  This gives time for further negotiations to take place.  However, additional negotiating time has been wasted in the past.  Breaching International Law (which legal experts almost entirely agree would happen if this Bill were to be enacted)) is not the way to build trust.  What is needed now is quiet and determined diplomacy to reach a deal that all parties can live with.

NI agri-food businesses are adamant that the Protocol delivers major benefits in enabling NI to access the EU Single Market whilst having unfettered access to GB.  As we have mentioned previously, a UK-EU veterinary agreement would help greatly to reduce the burden of checks, not just GB to NI but also GB to the EU.  On this, the EU needs to be more flexible.  The UK will not opt for a Swiss-style veterinary agreement as that would mean following EU rules for the whole of the UK.  A bespoke veterinary agreement should be a key part of the framework to resolve the remaining Protocol issues.

Northern Ireland Protocol Wrangling

On 17 May, the Foreign Secretary, Liz Truss, made a statement in the House of Commons on the Government’s intention to introduce legislation to make changes to the Northern Ireland (NI) Protocol.  During her statement, the Foreign Secretary stated that her preference remains a negotiated solution with the EU.  To this end, she invited European Commission Vice-President Maroš Šefčovič to a meeting of the Withdrawal Agreement Joint Committee.  However, she also said that various aspects of the Protocol are not working.  She stated that the new Bill would address these issues whilst claiming it would also uphold the provisions of the Good Friday Agreement and be consistent with international law – points that the EU, in particular, disagrees with.

The new Bill, due to come before Parliament in the coming weeks would focus on addressing issues around;

  • The movement of goods: particularly relevant to agri-food, where the Protocol is not yet fully functional in some areas as a result of the grace periods already put in place by the UK Government for products such as sausages and mince
  • Goods regulation: also of relevance to agri-food, and concerns NI having to follow EU rules for goods which has precedence in NI over rules that the UK might introduce in the future (which could diverge from the EU)
  • VAT: NI remains within the EU’s regulatory orbit for VAT on goods
  • Subsidy control: the EU’s State Aid rules are applicable to NI and, in some instances, British based companies that do business in NI.
  • Governance: this links with the oversight that the European Court of Justice has over the NI Protocol.

The Foreign Secretary stated that the Bill would include a Trusted Trader scheme, effectively a ‘green channel’ for goods imported from GB and staying in Northern Ireland.  It would also encompass the provision of real-time data to the EU with the intent of giving them confidence that goods intended for NI do not enter the EU Single Market, via the Republic of Ireland.

A dual regulatory regime is also suggested so that NI could follow UK rules for goods that would stay in Northern Ireland.  Effectively, businesses would choose between producing goods to UK or to EU standards in Northern Ireland.  Liz Truss also stated that robust penalties would be imposed for those seeking to abuse the proposed new system and promised further detail in the coming weeks.

Unilaterally disapplying key parts of the NI Protocol via UK legislation has the potential to place the whole post-Brexit trading arrangements between the UK and the EU in jeopardy.  Whilst the EU has been somewhat muted in its response, Maroš Šefčovič clearly stated that the EU would respond ‘with all measures at its disposal’ should the UK follow through and enact legislation to override the NI Protocol.  However, we remain several steps away from retaliatory action being taken.

If a Bill is brought before Parliament in the coming weeks, it needs to go through Parliamentary approval process.  Most believe that the House of Lords would almost certainly vote against the Bill.  This would mean a delay by one year to the Bill’s enactment.  Some suggest that 20th June 2023 to be a potential key date, if the Bill gets to the final House of Lords vote by 20th June this year.

This gives some time for the UK and the EU to reach a negotiated solution. For agri-food businesses, it is unlikely that much will change in the interim.

There is a delicate balancing act required between the UK seeking to rewrite large chunks of the Protocol on the one hand and the EU Commission not having the mandate from EU Member States to renegotiate the Protocol on the other.  That said, there is the scope for all parties to improve the Protocol and this must be the focus.

As we have stated in the past, a veterinary agreement between the UK and the EU would go a long way towards addressing the most problematic Protocol issues around the movement of agri-food goods between Britain and NI.  This could be along the lines of the veterinary agreements that New Zealand has with the UK and the EU.  This would still give the UK the ability to negotiate free trade deals with third countries.  It would mean that some checks would remain, but at greatly reduced levels (e.g., 1% physical checks versus the default 15% for red meat).  The DUP NI Agriculture Minister, Edwin Poots, has suggested a similar concept in the past. 

It is most likely that a way will, eventually, be found to muddle through the current issues as this is what has occurred with the Brexit process to date.  We are probably into the territory of having Protocol 2.0, 3.0 etc. in the coming years.  This will most likely align, to some degree, with the vote that the NI Assembly will have on the Protocol every 4 years.  In some ways, this would be akin to new versions of MS Windows that Microsoft brings to the market periodically – each new version is fundamentally the same operating system (Protocol) but with scope for improvements, even if certain aspects remain imperfect to some. 

Further detail on the Foreign Secretary’s Statement to the House of Commons is available via: https://www.gov.uk/government/speeches/northern-ireland-protocol-foreign-secretarys-statement-17-may-2022