It would be very difficult for the EU to replace a high volume and high price agrifood market like the UK, writes Ellen Huan-Niemi.
The government of United Kingdom (UK) has been preparing for the possibility of leaving the European Union (EU) without a deal four times already with deadlines in March 2019, April 2019, October 2019 and January 2020. The two sides finally signed a withdrawal agreement last year ahead of the UK leaving the EU on 31 January 2020. The withdrawal agreement does not lay down provisions on the future relationship between the EU and the UK.
The so-called transition period – the UK continues to be subject to EU rules and remains as a member of the single market and customs union – will end on 31 December 2020. The two sides are still trying to secure an agreement on their future relationship, but Prime Minister Boris Johnson said that if a deal is not reached by the European Summit on 15 October 2020, both sides should “move on”, meaning that the UK would leave the EU without a deal.
In fact, the EU has been preparing actively for both an agreement and for a no-deal, considering the circumstances. If a deal can’t be agreed with the EU, then the UK will default to World Trade Organization (WTO) terms from 1 January 2021 onwards. Every WTO member has a list of tariffs and quotas that they apply to countries outside their customs union. The UK would have to apply tariffs and quotas to goods coming from the EU, and the EU would apply its “third-country” tariffs and quotas to the UK.
Tariffs on agricultural and food products tend to be among the highest in international trade. The exporters of dairy, meat and sugar products will confront huge increase in tariffs because tariffs are among the peak for these products, which are currently traded without tariffs and quotas within the EU custom union. The exporters of agrifood products from both the EU and UK will struggle with the prohibitive tariffs on WTO terms. EU countries export large volumes of agrifood products to the UK, notably fresh and processed fruit and vegetables, meat products, and food preparations with a total value of €40 billion in 2017.
The first time ever in trade negotiations two parties are focused on loosening the ties that bind them.
The European Commission is experienced in implementing exceptional measures at times of market disturbances, such as during the Russian import ban of 2014–2016 to address market imbalance via private storage aid and promotion programmes as well as to help farmers in short-term cash flow difficulties through targeted aid, advanced payments, state aids, and incentives to reduce production. Support regimes can also be solicited from EU member states to cater for the most damaging effects in certain EU countries. However, the EU agrifood exports to the UK is many times bigger than the exports to Russia, therefore it would be very difficult to replace a high volume and high price market like the UK even if new markets are secured internationally.
The UK government has admitted it expects massive border queues and persistent delays for six months or longer in the UK if it leaves without securing a deal. France has indicated to immediately implement post-Brexit border controls at its ports. The UK government has estimated that 50% to 85% of truck drivers would not have the necessary documentation to enter the EU via France. The Financial Times reported that British businesses would spend £15 billion extra a year on paperwork in the event of a “no-deal” Brexit. Therefore, it is essential to secure a trade agreement.
The first time ever in trade negotiations that two parties are focused on loosening the ties that bind them rather than creating new and closer bonds. There are plenty of issues to resolve and it normally takes many years to do a trade deal, but this process has only a few months left. All negotiations are inter-linked: EU-UK free trade talks, the process to implement their divorce deal, negotiations on fishing rights, competition regulations, and Brussels’ deliberation on UK financial service. What happens in one area very much affects progress in the others.
The EU wants the UK to agree to follow its rules on fair and open competition so British companies given tariff-free access to the EU market can’t undercut their European competition. It has warned that the UK won’t be allowed a “high-end” market unless it signs up to EU social and environmental standards. The EU also wants the European Court of Justice to have legal powers to police any free trade agreement reached between the UK and EU. The explosive issue is the UK government trying to override parts of the withdrawal agreement, for example, the Northern Ireland Protocol designed to prevent a hard border returning to the island of Ireland.
If the negotiations fail, businesses from both the UK and EU could have only a few weeks to prepare for an abrupt change in the way they trade, at a time when many are already struggling with the impacts from the Covid-19 pandemic. Even with a deal, the UK’s relationship with the EU will be very different after it leaves the EU single market and the customs union at the end of the year.