While the EU has been urged to ‘take a more active role in trying to shape a Brexit outcome that is least damaging to its interests’, the ACP Group needs to ensure this approach is extended to the EU’s traditional developing country partners such as the ACP Group. It is becoming increasingly apparent that for major ACP agro-food export product groups, Brexit could have a major impact on the functioning of existing ACP supply chains currently serving the EU28 market. This needs to be fully assessed so that as the Brexit negotiations develop the key priorities for administrative and regulatory initiatives and marketing adjustment support are identified.
The UK government remains committed to the objective of ‘withdrawal from the Single Market and from any type of customs union with the EU’, but with an ‘ambitious free trade agreement’ between the UK and EU27 being the preferred option for the UK government (1). Given such an ambitious free trade agreement could take some time to negotiate the nature of transitional arrangements set in place prior to any new EU27-UK trade agreement will have an important bearing on the functioning of a range of ACP-EU supply chains, which either serves the UK market via EU27 members or EU27 markets via the UK. These supply chains will also be affected by the nature of the long term relationship set in place.
While after the 2017 elections there appears to be a growing acceptance that some form of transitional arrangement will be necessary, there remain ‘conflicting signals about what transitional arrangements might be acceptable’ to the UK government (1). In this context the prospect of a period in which the UK and EU27 trade with each other on MFN terms ‘after Brexit day is not a negligible one’ (1).
According to analysis from Professor Alan Mathews ‘this would mean the re-introduction of customs clearance checks at borders, the loss of automatic access to each other’s markets for a host of goods and service providers because compliance with regulatory standards would no longer be assured, and the re-introduction of tariffs on trade between the two sides. This it is held ‘would likely lead to the elimination or significant reduction in many current trade flows’ for agro-food products (see companion article ‘Agro-Food Sector Effects of the Application of MFN Duties on EU27-UK Trade: An Area of Potential ACP Concern and Opportunity’, 18 August 2017). This it is argued is ‘what is meant by the ‘cliff-edge’ Brexit outcome’ (1).
While the consequences of such an outcome would be ‘so immense that it seems unimaginable that sane political leaders would allow this to happen’, this prospect nevertheless exists. In this context what was described as an ‘acrimonious’ break-up of the July 2017 round of Brexit negotiations can be seen as a source of concern, with a ‘fundamental divergence’ existing over citizens’ rights and the Brexit bill. EC negotiators were reportedly ‘frustrated’ at the UK negotiating teams’ reluctance to engage on these issues.
Earlier, in addressing the House of Lords European Union Committee the EU Chief Negotiator Michel Barnier has expressed concern that any conscious effort by the UK to undermine EU social protections and environmental standards in an effort to attract investment would give rise to ‘major difficulties in obtaining ratification of any future agreement in all countries because there will be campaigns against the negotiations’ (2, 5). This situation in part may be related to the mixed signals and unresolved issues within the UK governments approach to the Brexit process (3).
Professor Mathews argues that while there may be confusion on the UK side ‘the EU needs to take a more active role in trying to shape a Brexit outcome that is least damaging to its interests’ (1).
This needs to be seen against the background of the uncertain prospects for future UK-EU27 trade relations in the agro-food sector. At the end of July the Economist in an article entitled ‘The six flavours of Brexit’, set out the various options for the future EU27-UK trade relationship:
- Continued full membership of the customs union and single market (an option already ruled out by the UK government);
- The UK joins the European Economic Area (EEA);
- The UK joins the European Free Trade Association (EFTA)
- The UK forms a customs union with the EU27 (modelled on the EU-Turkey agreement);
- The UK and EU27 negotiate a deep and comprehensive free trade area;
- Trade reverts to an MFN basis with existing external EU duties being re-imposed.
It was noted in passing how the customs union, EEA and EFTA options (options 2, 3 and 4) all exclude the agriculture sector from their coverage (4).
Despite the complexities faced in negotiating nay future EU27-UK trade relationship, the UK’s International Trade Secretary has claimed the FTA to be negotiated with the EU ‘should be one of the easiest in human history’ since the starting point is ‘zero tariffs and …maximal regulatory equivalence’ (3).
|Comment and Analysis
In addition to seeking to shape a Brexit which is least damaging to its interests, the EU should also be urged to assist in ensuring the damage to the trading interests of its long standing partners in the ACP are minimised. This is particularly important in the agro-food sector where options 2, 3, 4 and 6 would all result in import duties being reintroduced on EU27-UK agro-food sector trade. Only the option of a deep and comprehensive free trade area agreement could conceivably restore some level of tariff treatment resembling, the current basis for EU27-UK agro-food sector trade.
However such a deep and comprehensive free trade agreement is likely to be extremely difficult to negotiate, despite the assertion by the UK’s International Trade Secretary that an FTA with the EU ‘should be one of the easiest in human history‘ to negotiate. The general believe across the EU27 is that a free trade area with the UK which includes agriculture is likely to take a considerable amount of time to negotiate. This will be particularly the case if the UK moves towards dismantling tariffs on third country agro-food imports and de-regulating the agro-food sector. This accounts for the references in the EU negotiating mandate to the need for transitional arrangements (see companion article ‘What are the implications for the ACP of the UK’s formal application to leave the EU and the EU27s initial response? ‘6 April 2017).
In the first instance in the agro-food sector this requires scoping the scale of the challenges which will be faced under different scenarios for future EU27-UK relations. This will need to cover both the implications of any short term transitional arrangements for EU27-UK agro-food sector trade and the implications of any long term framework for EU27-UK agro-food sector trade.
Subsequently, as the Brexit process develops, this will require the formulation of appropriate administrative and regulatory responses to minimise disruptions to ACP supply chains currently serving all EU markets under the various trade arrangements in place. This will be particularly important under any transitional arrangements.
It may further require the establishment of market repositioning support measures to assist ACP producers serving supply chains which would face the most severe disruption under various Brexit scenarios. This can perhaps best be implemented under EC financed initiatives, implemented in close association with EU member states trade promotion bodies and associations of importers in the worst affected sectors.
In addition it needs to be recognised the Brexit process could also create certain opportunities for the structural development of ACP agro-food sectors, with opportunities being created for ACP producers to move up the value chain by directly serving UK markets. This however will be critically determined by the future basis for EU27-UK agro-food sector trade. Given the uncertainty over the future basis for EU27-UK agro-food sector trade, for these opportunities to be realised this is likely to require the mobilisation of investment support instruments (e.g. conditional risk capital loans – for some details of the situation in the cocoa sector see companion article ‘Agro-Food Sector Effects of the Application of MFN Duties on EU27-UK Trade: An Area of Potential ACP Concern and Opportunity’, 18 August 2017).
(1) CAP Reform, ‘Which EU countries will bear the brunt of a hard Brexit?’ Professor Alan Mathews, 21 July 2017
(2) Independent, ‘EU won’t sign trade deal if UK starts deregulation race to the bottom, warns Brussels’, 20 July 2017
(3) The Telegraph, ‘Liam Fox insists UK can ‘survive’ without post-Brexit free trade deal with the EU’, 20 JULY 2017
(4) The Economist, ‘The Five Flavours of Brexit’, 22-28 July 2017
(5) House of Lords, ‘Select Committee on the European Union, Corrected oral evidence: Scrutiny of Brexit Negotiations – Evidence Michel Barnier, EU Chief Brexit Negotiator; Sabine Weyand, Deputy Chief Negotiator; Stéphanie Riso, Principal Adviser; Tristan Aureau, Deputy Diplomatic Advisor’, Wednesday 12 July 2017, 5 pm
|Key words: Brexit, Cocoa beans, Cocoa paste, Cocoa butter, Cocoa powder,
Sugar, cut flowers, bananas, citrus fruit, fisheries products
Area for Posting: BREXIT, Sugar, Horticulture