On 22 February 2018 ACT Alliance convened Seminar on the Implications of Brexit in the agro-food sector for ACP countries and for the forthcoming ACP-EU Post-Cotonou negotiations. A series of twelve 2 page summary notes were produced for the seminar covering both substantive issues arising within the Brexit process and the current state of play in the Brexit process. Note 12 explores what would constitute a ‘hard’ Brexit and the circumstances under which a ‘hard’ Brexit is likely to occur.
What a ‘Hard’ Brexit Entails
A ‘hard’ Brexit would arise if the UK left the EU without a successor EU27/UK trade arrangement being in place.
The absence of an agreement would not see a continuation of the current trading conditions, but would see a reversion to MFN tariff treatment on mutual trade between the EU27 and the UK.
Furthermore it would see the introduction of standard 3rd country customs controls, SPS and food safety checks on mutual trade, in a context where currently 97% of all freight wagons entering the UK do so without any form of control at the border.
Given infrastructure constraints at UK ports this could cause significant delays in the cross border movement of goods between the EU27 and the UK, disrupting ‘just-in-time’ supply chains and leading to additional trade costs in EU27/UK trade, above beyond the MFN tariffs introduced.
The Scenarios for a ‘Hard’ Brexit
There are three scenarios under which a ‘hard’ Brexit could occur:
- were there to be no long term trade agreement and no transitional trade agreement to cover the period immediately after the UK’s scheduled departure from the EU on the 29th March 2019;
- were there to be a transition period but no agreement on a long term trade agreement at the end of the transition period;
- were there to be a transition period but then a long term trade agreement was concluded which excluded agro-food products, as UK and EU tariffs and standards diverged as the UK concluded independent trade agreements.
Consequences of a ‘Hard’ Brexit
Under any of these three sets of circumstances MFN tariffs could be introduced on EU27/UK trade, with this then carrying implications for:
- the displacement of current UK/EU27 mutual trade onto third country markets, with a consequent intensification of competition on local and regional ACP market (initial sectors identified as most likely to be affected include the poultry meat sector, sugar sector and onion sector);
- the functioning of ACP triangular supply chains which serve the UK market through an EU27 member state or EU27 markets via the UK
- the costs associated with SPS and food safety requirements if EU and UK standards diverge (with this potentially having both positive and negative dimensions with this varying depending on the sector);
- the pace at which the erosion of the value of ACP tariff preferences on the UK market takes place.
How Soft Would a ‘Soft’ Brexit Be?
The alternative to a ‘hard’ Brexit is a ‘soft’ Brexit. Some interpretations of a ‘soft’ Brexit see a continuation of ‘frictionless trade’ between the UK and EU27 as a result of the conclusion of a transitional agreement followed by a ‘deep and comprehensive’ free trade agreement between the UK and EU27.
However EU representatives take the view that since the UK will have placed itself beyond the EU’s external borders, the continuation of the current free flow of goods between the UK and EU27 is simply not possible.
In addition the EU is coming under pressure from its other international trade partners not to treat the UK differently from any other 3rd country which is not a member of the EU.
It is being made plain to the EU that if any special trade dispensation is granted the UK, a range of third countries will seek equivalent treatment
As a consequence even a ‘soft’ Brexit is likely to involve the introduction of some friction in EU27/UK mutual trade.
The extent of this friction or restrictions on EU/UK mutual trade will depend critically on:
- the extent to which the UK decides to move away from EU tariffs and EU rules and regulations in its quest for new bilateral trade agreements with non-EU trading partners; and
- the extent to which the EU is allowed room for manoeuvre by its other international trade partners.
What Scenario Should ACP Governments Plan for the Agro-food Sector?
Against this background there will probably be varying degrees of ‘hard’ Brexit under different scenarios.
Thus even under a ‘soft’ Brexit option, if the UK sought to use agricultural market access to incentivise the conclusion of new trade agreements with partners where the EU does not yet have an FTA in place, then for products included in such UK trade agreements, the EU would be likely to introduce restrictions on imports from the UK.
The raises the question: to what extent are these different scenarios likely to impact on EU27/UK trade in particular products of export interest to ACP countries and domestic and regional markets where ACP producers currently have or are developing market interest?