What to expect from UK agrifood trade policy after the Brexit transition
With the UK’s imminent departure from the EU, there are four emerging trends in UK trade policy that have implications for agrifood.
On 29th October, the Secretary of State for International Trade, Liz Truss, delivered a speech at Chatham House in which she set out the UK Government’s vision for new independent trade. The UK Government intends to determine a path independent from the EU which will focus on “neither sacrificing core values of freedom, democracy, human rights and the environment, nor economic opportunities”. The speech was short on specifics and a full trade strategy document is expected. For now, it is possible to identify four emerging trends in UK trade policy that are relevant for the agrifood sector.
1. “Free and fair trade” will be at the core of UK trade policy going forward
The UK’s agrifood tariffs (import taxes), as set out in the UK’s Global Tariff (UKGT), will take effect on 1st January 2021. These tariffs will apply to imports from countries with which the UK does not have a trade deal. The UKGT largely replicates the EU’s agrifood tariffs at present, with some simplification on 10% of all agrifood tariffs.
This emphasis on free trade might signal an ambition (at least in the Department of International Trade) to gradually reduce those tariffs over time to coincide with UK farmers adjusting to the new market conditions in terms of the UK’s new trade relationship with the EU, as well as the changes to farm support set out in the Agriculture Act 2020, which came into force on 11th November. There is no indication of such a move yet, and certainly any changes in that direction should take into account what impact further agrifood tariff liberalisation might have on the UK’s farmers’ competitiveness.
2. Trade policy will be values driven
The UK Government has made it clear on several occasions that it intends to retain existing high food quality, food safety and environmental standards for domestically produced and imported agrifood products. In November, Liz Truss strengthened this commitment by placing the Trade and Agriculture Commission (TAC) on a statutory footing.
The TAC will now produce an annual report evaluating the impact on animal welfare and agriculture of each trade deal signed by the UK after the end of the transition period on 31st December, though its current remit over environmental provisions will be removed.
Whilst the TAC’s new statutory powers will head off concerns that the dreaded chorine washed chicken is headed for UK plates, it is less certain that the same kind of scrutiny will exist for concerns about pesticide residues. It should be noted though that the House of Commons Environment, Food and Rural Affairs (EFRA) Committee has already indicated it intends to carry out detailed scrutiny of the impact of the UK’s new trade agreements on food quality, food safety and environmental standards. As a consequence, concerns about environmental protection can be raised before the EFRA Committee in oral or written evidence instead.
3. The UK will champion a return to a rules-based trading system under the World Trade Organization (WTO)
The WTO has experienced headwinds of its own in recent times, so the UK’s leadership on WTO reform will be welcomed by many WTO members. WTO rules did not prevent the UK-China trade war and the consequential effects for US-China agrifood trade. In July 2018, the Chinese imposed a 25% retaliatory tariff on imports of US soy, resulting in a 75% drop in US soy exports to China between 2017 and 2018. US exports of wheat to China also declined by 90% and dairy exports were reduced by 30% during the same period. There was some trade diversion as US farmers sought new markets, but trade patterns remain difficult to predict. The dispute is ongoing. These market distortions make it difficult for companies operating within global value chains on a ‘just in time’, rather than ‘just in case’ supply model, to accurately predict agrifood trade flows.
The UK’s leadership in the WTO on these and other issues might help unlock some of the WTO’s current institutional challenges. Negotiations to change the WTO’s rules to accommodate trade policies designed to combat the effects of climate change on agrifood production are stymied. President Trump blocked the appointment of the front runner candidate, Ngozi Okonjo-Iweala, to be the new WTO Director General in October. She was to be the first woman, and the first African to take on the role. She is a strong advocate for WTO regulatory reform that recognises the link between trade and environment, as well as the need to reform the rules on agricultural subsidies and export restrictions. President-elect Biden’s new trade policy focus is yet to be announced, but it is hoped he will withdraw the US objection to the new WTO Director General appointment, and he will also enable some movement on changes to the multilateral trade rules.
4. “Friends and family first”
The UK intends to channel 80% of all its trade through bespoke trade agreements by 2022. This is an ambitious target. As of mid-December, the UK has concluded 27 trade agreements with 55 countries. The number of agreements signed so far is impressive. These are slightly amended versions of existing agreements entered into by the EU that the UK benefited from during its EU membership, so there is no substantial change to the UK trading position with these countries.
Liz Truss made it clear in her Chatham House speech that as far as wholly new trade agreements are concerned, the UK Government intends to prioritise negotiations with “longstanding allies and nations who share [the UK’s] values”. Consequently, negotiations with the US, Australia and New Zealand, as well as a UK-EU deal will be prioritised. While the UK-EU trade deal lurches ever closer to the 31st December cliff edge without signs of a conclusion (at the time of writing), there is more hope for the US, Australia and New Zealand negotiations.
Indeed, there is a draft text “at an advance stage of preparation” for the UK-US deal, which includes an ambition to increase market access for Scottish salmon and whisky exports to the US market. The US election has slowed progress. President-elect Biden has made it clear that the US will not enter into a trade deal with the UK unless the UK resolves how it will achieve frictionless trade across the Northern Irish border. Whether the UK-EU agreement concluded on the 9th December that exempts tariffs on 98% of goods travelling across the Northern Irish border and reduces some border checks will allay President-elect Biden’s fears, remains to be seen. The UK-Australia and UK-New Zealand trade negotiations are less advanced. The second round of trade negotiations with Australia occurred in October this year and the UK only issued a formal invitation to New Zealand to enter into negotiations in July.
Where does this leave the UK trade policy after the Brexit transition?
The UK is the first major country to leave a large trade agreement with its close geographic neighbours, as well as the first to reintroduce trade restrictions. As such, the UK is writing the rulebook. There is no precedent for how the UK should craft its trade policy, particularly in relation to agrifood. Despite the political rhetoric, the initial phases of UK trade policy have focused on renegotiating many trade agreements the UK already benefitted from while an EU Member State. Rollover of these existing benefits after the end of the transition period on 31st December 2020 is not automatic, as every trade agreement is the product of a negotiation between two (or more) states.
Many of these countries – like Japan, with whom the UK struck a deal in October – are keen to renegotiate market access commitments with the UK that they had to concede to the EU. The UK seems to be pivoting away from Europe and towards Asia too. Liz Truss has already signalled the UK’s intention to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) in September this year. Whether membership of the CPTPP delivers new markets particularly for meat cuts not eaten by UK consumers, is currently unknown. The significant distances over which goods must be transported and the costs of doing so may deter some UK exporters despite the existence of a trade agreement. And, it should be mentioned that the UK will be negotiating these trade agreements with significant headwinds, including the impact of COVID-19; the call for reshoring of agrifood production; and a shift from ‘just in time’ to ‘just in case’ supply chain models.
Whether the UK can become “a major voice in global trade” once again remains to be seen. What is clear, is that the ambition to pivot the UK to being a hub for trade to create more export opportunities, provides new possibilities for UK agrifood business in the medium-to-long term.