Brexit – key events and potential outcomes in the coming months

From the beginning

Long before 2016 the FUW was discussing the possibility of an EU referendum and our fears that it would lead to the loss of farm support and cheap food imports. In the months running up to the referendum we met with the then Prime Minister, David Cameron, and highlighted that we want to remain part of the EU and that contingency plans for a potential Brexit were vital and needed to be drawn up quickly.

We highlighted that access to EU markets, especially for lamb, is vital to Welsh agriculture; argued that if the UK votes for Brexit then we need a level playing field for the UK Nations, a realistic timetable for negotiations and a smooth transition. The Union stressed that the prospect of free trade deals with countries such as New Zealand and the US and losing continental markets as a result of a ‘hard Brexit’ would be a perfect storm for Welsh Agriculture, and that a transition period of at least 10 years is necessary to phase in new agricultural policies post-Brexit.

We have been relentless is arguing that agricultural support should reflect levels which would have been in place if the UK had voted to remain and from the outset called for urgent economic modelling work to be carried out, following an admission by the Department for Exiting the European Union that the UK Government has done no work on crashing out of the EU with ‘no deal’.

Getting closer – or so we thought

With everything up for grabs we renewed our call for clarity on rural funding for Wales, following a keynote Brexit speech in 2018 by then Secretary of State Michael Gove.

The FUW stressed that certainty was needed over critical concerns specific to Wales, but with just thirteen months to go there was still no clarity over the post Brexit funding formula through which Wales would receive its allocation for agriculture and rural development, or how this would be protected to prevent distortion between the devolved nations.

2018 saw the launch of our ‘Fair Farm Funding’ campaign, highlighting the urgent need for the UK Government to clarify funding for the sector in Wales. Its aim was to secure fair funding for farmers in Wales after leaving the EU, ensuring the industry does not receive less than it did before the UK left the European Union, insisting that funding for farming should not be subject to the Barnett Formula.

In July 2018 we published our detailed ‘Filling the Void’ report, highlighting the need for a range of legal and financial frameworks to prevent market distortion and

unfair competition between farmers in different parts of the UK – an issue which is only now being woken up to by many politicians.

The FUW told the second Prime Minister to have Brexit in their portfolio, Theresa May, at the Royal Welsh Show 2018, that seeking an extension to the Article 50 period must be a priority if a hard Brexit in April 2019 becomes likely – a request she refused to consider at the time. We made it clear that the consequences of a hard Brexit would be so extreme for our industries, including farming, and for the economy of the country as a whole that it should not be allowed to happen.

Towards the end of that year we reiterated the Union’s view that the best way to minimise disruption and economic damage to agriculture and other industries is to remain within the Common Market and the Customs Union after leaving the EU.

There could be no doubt in our minds – anything that falls short of that would bring with it obstacles in terms of trade and other issues, with inevitable consequences for our industry and economy.

The draft withdrawal agreement may have been a step in the right direction away from the abyss, but it was impossible to tell whether that step would have been significant enough.

Facing the Cliff edge the first time round

At the end of 2018, we then threw our weight behind an amendment to the UK Government’s EU withdrawal deal motion aimed at giving greater protection against the UK leaving the EU without some form of solid framework for the future UK- EU relationship. The amendment, tabled by Labour MP Hilary Benn and signed by both Labour and Conservative MPs, was supported unanimously by FUW standing and county committee chairmen during a special meeting held at the start of December that year.

Nobody was left under any illusion as to what a hard Brexit would mean for our industry when at the FUW’s twentieth annual Welsh Assembly farmhouse breakfast in January 2019, President Glyn Roberts warned that the disastrous impacts of leaving the EU, the Customs Union and Single Market on March 29 2019 were already being felt.

“The impact will hit home more and more over the coming weeks: Contracts will be lost, prices will be affected and Welsh businesses will suffer,” he told those present.

Just a few weeks later, farmers and others reliant on agriculture for their income were increasingly frustrated with the lack of clarity on the UK’s exit from the EU and desperate for stability to continue running their businesses.

Our lobbying continued and we spoke to key figures in the European Commission and Parliament about Brexit and implications and highlighted the worries and concerns of our farmers at the St David’s Day reception at 10 Downing Street.

In March 2019 we renewed calls for Article 50 to be revoked to allow the UK to ‘take back control’ of the Brexit timetable in order to deliver a smooth Brexit that did not threaten millions of livelihoods. A report by capital markets think tank New Financial estimated that banks were moving around £800bn in assets as a result of Brexit, and that this and other moves by financial firms could reduce UK tax receipts by 1%.

Also in March came the UK Government’s publication of draft post-Brexit tariff rates that would have meant food imports attracting tariffs which were a fraction of the rates we would have to pay to export to the EU and elsewhere – a proposal reiterated in October 2019 but which has since been revised to reflect FUW concerns (see front page).

In addition to slamming the tariff rates and pointing out they played straight into the hands of foreign negotiating teams, we asked for clarification after the UK Treasury claimed ‘the UK’s temporary import tariffs will…not apply to goods crossing from Ireland into Northern Ireland’ – something that appears to fly in the face of World Trade Organisation rules.

We’ve left the EU – and faced Covid-19 – what about this deal?

Fast forward to January 2020; with a new Government in place backed by a significant Conservative majority, a slightly amended version of Theresa May’s original EU Withdrawal agreement was accepted by Parliament, paving the way for the UK to leave the EU while remaining within the Customs Union and Single Market until December 31 2020 – and starting an 11-month race against the clock to sort out the future EU-UK relationship.

In late February, a leaked email written by UK Treasury adviser Dr Tim Leunig claiming the UK could follow the example of Singapore ‘which is rich without having its own agricultural sector’ caused outrage in the media and within farming circles.

Within a few weeks, UK consumers had their first real experience of food shortages and empty shelves since World War II, and by the beginning of April Singapore had announced new measures to accelerate local food production as disruption of global food supply chains started to hit home.

Not surprisingly, the importance of food security was referred to repeatedly during the third reading of the Agriculture Bill in Parliament on Wednesday May 13 – the first such reading to be carried out under Parliament’s new coronavirus lockdown ‘hybrid’ proceedings and electronic voting process.

With food security now more in the limelight than ever, Labour’s Shadow Environment Secretary Luke Pollard described the Bill as an ‘odd beast’ given it ‘nearly entirely omits food, and therefore doesn’t even begin to solve all the problems that the virus has both caused, and revealed’.

The need to prevent imports from countries with animal welfare, environmental and other production standards that would not be legal in the UK became a rallying cry for opposition parties and some Tory backbenchers, and a change to the Bill correcting this position received cross- party support – but the motion was defeated by the Government and the Bill is now being considered by the House of Lords.

Meanwhile, comments from many government supporters about the ‘advantages’ of opening up our markets to such sub-standard imports echo precisely the FUW’s concerns raised years before the EU Referendum about what could follow Brexit.

So where are we now?

The UK is set to complete its exit from the EU in a little over five months, by which time it’s predicted that the pandemic will have caused the biggest recession seen since at least the Second World War.

Every credible analysis – including the Government’s own – predicts harder forms of Brexit will cause significant additional damage to the economy.

The UK Government’s rhetoric around sticking to the December 2020 withdrawal date and being prepared to walk away without an EU trade deal is alarming, not only for agriculture but also a host of other UK industries – many of which are already holding on by the skin of their teeth.

Meanwhile, trade negotiations with the US have started, and other nations and trading blocs are in the pipeline. Playing hardball in negotiations with the EU and refusing to consider an emergency extension will weaken our hand and play straight into the hands of the US and others.

With a majority of MP’s having voted to oppose amendments that would have protected farmers and consumers from trade deals allowing foreign sub-standard products onto our markets, our agriculture sector and food security are now open to additional post-Brexit dangers. And that at a time when the population has just woken up to the dangers of food shortages.

Adding to such concerns of food security is a recent report published in the journal Nature Food, which concludes that Britain relies on ‘frictionless trade’ to feed itself and that ‘disruption in Europe could lead to certain shortages’.

It further says that the UK has become ‘dangerously dependent’ on for example, imported fruit and vegetables from a small number of European countries, importing almost half of its food and 84% of it is fresh fruit.

This dependence, moreover, relies on the frictionless trade, which the single market provides. The degree to which this dependence can be sustained after Brexit is the point at issue.

Potential trade deal with the US puts strong focus on need for tariffs and standards

At the start of June more details emerged of trade negotiations with the US, which would see the UK allowing imports such as chlorinated chicken and hormone treated beef amongst other produce. The caveat being that high tariffs would be imposed on cheaply-produced food to minimise the impact on UK farmers.

The Government proposal for such a trade deal would see a ‘dual tariff’ regime imposed with varying levels of duty on imported food depending on whether they comply with UK animal welfare standards.

The FUW has been clear in lobbying for tariffs that prevent the importation of products that fail to meet our high standards. We therefore welcomed the announcement that key agricultural tariffs would be aligned with those of the EU and the UK Government should not move from this position.

Where lower tariffs are agreed as part of a trade deal there needs to be complete satisfaction that all standards are equivalent to ours, and that our producers will not be undermined either in terms of unfair competition or our ability to export to other key markets, not least the EU.

Some free-marketeers will be concerned by such proposals, as consumers may not see the benefits of leaving the EU in the form of cheap food in supermarkets.

Whilst there is no guarantee that the US will accept such an offer, especially as US President Donald Trump is an opponent of tariffs and may reject this out of hand – it could become the standard offer to other countries as the UK continues to broker deals.

Is no-deal a likely outcome?

As we speed towards what could potentially be the end of the Brexit process (for now), the question on businesses minds is ‘will we have a deal or are we going to revert to trading under basic WTO rules?’

With both sides more or less in deadlock, and each side occupied dealing with Covid-19, expectations for now remain low.

Worryingly, a recent poll by the UK in a Changing Europe, an academic think tank, found that over 70 per cent of its Brexit analysts believe a trade deal is unlikely to be agreed by the end of the year.

Therefore, unless we can agree on a extension (which had to be applied for before the end of June according to the withdrawal treaty) – things could get tight.

It seems unlikely that Mr Johnson will agree to an extension, let alone propose it, at this point, yet there may be some hope – 53 per cent of the 100 experts surveyed by the UK in a Changing Europe (May 2020), think that ‘despite the government’s promise not to extend the transition period, the terms will be extended beyond December 31 2020’.

The FUW has long argued and highlighted that the damage from reverting to basic WTO rules would be a disaster and a new study by ‘UK In a Changing Europe’ (UKinace) suggests that, compared to the status quo, it would lower GDP by 8.1 per cent over 10 years. This would be in addition to the impact of Covid- 19, which has caused the UK economy to shrink by a quarter – a change so vast and unprecedented that economists have had to change the scales on their graphs just to show the fall.

Time will tell where we go next but one thing is clear – if a decent UK-EU trade deal is not reached we will need an extension to the withdrawal period if severe additional economic impacts are to be avoided.

While we continue to hear the UK Government stating categorically that they will not seek an extension; that we will leave the EU in earnest at the end of December come what may and that an UK- EU deal must be reached by July, if the past four years has taught us anything it is that common sense can prevail to bring us away from the cliff edge, even if that means embarrassing U-Turns, Ministerial resignations or even snap elections.

So let us hope that the ‘Get Brexit Done’ slogan gets the word ‘Safely’ tagged on to it to allow this to happen in 2020.

What’s happening

June

A time for stocktaking.

An EU-UK political declaration, agreed as part of Boris Johnson’s Brexit deal, says a summit should take place in June so Britain and the EU27 can assess the progress of the talks.

June is also the final month for Britain to request an extension of its transition period beyond 2020, something Mr Johnson has pledged not to do.

If the end of June deadline is not met, Article 50 can no-longer be used because Britain is a third country. That means any extension in the autumn would have to go through a separate treaty. Such a treaty might have to be ratified by national, and in some cases, regional parliaments.

July 1

The political declaration that forms part of Mr Johnson’s Brexit agreement with the EU commits both sides to seek a deal by this date on access to UK fishing waters for European fishermen.

The issue is of crucial importance to about eight coastal states, among them France, and EU leaders have made clear that trade talks will grind to a halt unless there is a deal.

The two sides also have a target to reach decisions on access to each other’s financial services markets by this date.

Brussels sees this as another source of leverage in the talks, given the importance of the City of London to the UK economy.

November 26

EU officials say that a trade deal must be negotiated, checked, translated and presented to the European Parliament by this week if it is to be ratified by the end of the year.

MEPs will be in Strasbourg in the final week of November for their penultimate plenary session of 2020.

The final one, in mid-December, would come too late to sign off on any deal with the UK.

EU negotiators note that, in practice, this leaves only about six months to actually politically negotiate with Britain.

December 31

The cliff edge.

If a trade deal is not in place, then Britain will fall back on to basic World Trade Organization terms, meaning tariffs on goods and little practical cooperation to smooth border checks.

The outcome would effectively be a no-deal Brexit and both sides would need to make preparations for how they cope with the economic fallout in 2021

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