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One year to Brexit: What’s been agreed - what’s still to be settled?

There are now exactly 12 months to go before the UK becomes the first-ever former EU member state, but there are still many questions still to be answered for those in the food and agriculture industries.

The tumultuous Brexit process, triggered by the June 2016 referendum on EU membership, was legally initiated on March 29 last year, when UK officials gave notice to the European Commission that it was triggering Article 50 of the EU Treaty - under which a member state gives two years’ notice of its intention to leave.

Today (March 29, 2018), halfway through the Article 50 process, the UK is still on course to leave the EU on March 29 2019 (even the precise time of the UK’s departure – 23.00 UK time on that day – has been specified).

But although the first year of the Brexit process has yielded some clarity about what Britain’s unprecedented step will mean for agriculture and agribusiness in the UK, the EU and worldwide, many questions still remain answered.

Moreover, with EU leaders having reached agreement last week on a 21-month transition period which will keep the UK within the EU, to all intents and purpose, until the end of 2020, it seems likely that the post-Brexit trade and regulatory environment will not become fully clear for another couple of years at the earliest.

The following is IEG Policy’s guide to where things currently stand on Brexit from the point of view of agriculture, food and ancillary industries:

What has been agreed so far?

  • There will be a transition period of 21 months between March 29 2019 and December 31 2020. During this period, the UK will still be inside the EU Single Market and Customs Union. The main difference will be that as from April 2019, the UK will no longer have any representation in the European Commission or in any other EU institutions (and the UK will not participate in the 2019 European elections). However, the UK may negotiate trade agreements with third countries during the transition period, as long as these do not come into effect until January 2021 or later.
  • The UK will continue to pay into the EU budget as at present until the end of 2020, and the Common Agricultural Policy (CAP) will de facto continue to apply to the UK during that period.
  • EU citizens resident in the UK will, broadly speaking, have their rights protected, as will UK citizens in EU countries. This is very important for UK farms and processing plants, many of which are heavily reliant on European labour to keep their operations going, and had feared a serious labour ‘drain’ if their workers’ futures in the UK were not secured.

What has still to be decided?

  • The nature of the future trade relationship between the UK and the EU. Britain is seeking to leave the EU Single Market and Customs Union, meaning that the current frictionless border between the two sides can no longer be sustained. The UK wants a ‘deep and special’ relationship with the EU, with elements of the current relationship preserved; the EU, however, is adamant that a country cannot be a ‘half-member’ of the Single Market, and has said it can offer nothing more than a basic trade agreement, analogous to that which it has concluded with Canada. It has at least been made clear on either side that there will be no tariffs on future trade between the EU-27 and UK - although non-tariff barriers are another matter entirely.
  • The trade status of the UK during the transition period. The transition agreement will keep the UK as a de facto member of the EU Single Market and Customs Union between April 2019 and December 2020, even though legally it would no longer be a member state. This means that if the UK wants to participate in EU trade agreements with third countries during this period, it will have to ask them to ‘pretend’ that the UK is still a member state for the duration, and to trade with Britain as if it were still a member state. The expectation is that most, if not all, of the EU’s trade partners will acquiesce to this request, but the arrangement could be on shaky ground if any party did decide to challenge its legality.
  • The fate of existing EU tariff rate quotas. It is looking increasingly likely that the preferred solution of both the UK and the EU-27, namely a simple division of existing EU-28 TRQs based on recent trade flows, will be applied on a provisional basis at the point at which it leaves the EU. This would apply pending either a negotiated settlement with a third country supplier, or (possibly) enforced changes via a WTO panel challenge. Major EU trading partners have said that a simple dividing-up of the existing TRQ between the two sides would damage their trade interests.
  • The status of the border between Northern Ireland and the Irish Republic. This is now the most difficult part of the Brexit negotiations. This border will form a land frontier between the EU and the UK after Brexit – but the 1998 Good Friday Agreement commits both the UK and Ireland to have no hard border infrastructure. It has been agreed that, if all else fails, this will be achieved by means of ‘regulatory alignment’ between Northern Ireland and the rest of the EU. But this would imply either a regulatory split between Northern Ireland and the rest of the UK, or else full regulatory alignment between the UK and the EU – neither of which would be politically acceptable. The UK government has suggested that blockchain technology, the use of ‘trusted trader’ status, and similar innovations could allow the border to function economically without any kind of physical infrastructure, but few believe that such a solution is practically deliverable in its entirety, and certainly not in such a short space of time.
  • The actual final destination of the UK outside the EU. The insolubility of problems like the Irish border question, and mounting concern over the logistical issues involved with applying border checks on UK-EU trade, are stirring growing speculation about whether it will ultimately be possible for Britain to divorce itself from the EU in the way that it is currently intending to. The UK opposition Labour Party has now come out in support of the idea of keeping the EU in some kind of customs union with the EU. This would go a long way towards resolving the Irish border issue, but would make it impossible for the UK to negotiate its own independent trade agreements with third countries.

What about domestic agricultural policy?

  • The UK (or at least England) is planning to make a significant break with the CAP after Brexit. A recent consultation paper presented by Environment Secretary Michael Gove included a commitment to reduce direct payments to farmers in England by up to £150 million in the first year after Brexit, by making cuts in payments to the largest farmers. The money saved would be used to reinforce payments to support environmental enhancement and other public goods. “A new environmental land management system will be the cornerstone of our agricultural policy in England,” the consultation paper states. Animal welfare standards, wildlife protection, public access to land, and the maintenance of ‘natural capital’ have all been identified as policy priorities.
  • Budget and timing: The UK government has pledged to maintain current CAP-guaranteed levels of funding to agriculture, in cash terms, until 2022 (when the current Parliament will end). It has also promised to retain direct aid payments in roughly the same form as at present for ‘a period of time’ after the end of the UK’s transition period (2024 has been widely mooted), to allow farmers time to prepare for the move away from the current subsidy system. There are no guarantees, however, that overall funding for the agri-food sector will remain at current levels in the medium or long-term.
  • Scotland, Wales and Northern Ireland could, and probably will, make different policy choices to those in England. Building on the regionalised policy implementation which has already been a feature of the CAP since 2005, the three devolved administrations are preparing their own agricultural policy frameworks. Central UK government has however pledged to ensure that the single market in agricultural products between the UK nations will not be compromised by whatever the four nations decide.

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