Both the EU and the UK are eager to achieve a Brexit deal. However, with time running short and red lines continuing to be drawn on both sides, a no-deal Brexit scenario remains a possibility. For this reason, both the EU27 and the UK are expediting preparations for a hard Brexit. Absent any temporary arrangements, if the UK leaves the EU without a deal on 29 March 2018, it will become a “third country” EU trading partner overnight. Trade in agri-food between EU-UK would then be governed by World Trade Organization (WTO), EU and UK rules, and food products would no longer move freely throughout the EU.
Agri-food business operators should roll out their contingency measures. Contingency planning for a “hard” Brexit includes making possible revisions to supply chains, buying-ahead, stockpiling, warehousing, relocating food production, transferring import function, re-labelling, obtaining relevant authorizations and certifications, and taking other practical measures to avoid business disruptions. Companies need to ensure proper controls are in place with regard to import and export regulations.
Agri-food businesses should be particularly attentive to several aspects of a hard Brexit. First, be mindful of the added costs of customs clearance and regulatory checks. Goods customs-cleared in the UK would no longer be able to circulate freely within the EU and would be subject to the EU common tariffs, processes and conformity assessment procedures upon exportation from the UK. The cost of new tariffs imposed on agri-food trade between the UK and the EU can be high, especially for some types of products. Fully processed food and drink products, for instance, attract higher tariff rates than semi-processed food and drink and primary products and raw materials. Certain agri-food products also are subject to “specific duties,” which are tariffs levied on the basis of a unit of measure, e.g. by weight or volume of the imported good. Products that attract both a category tariff and a specific duty tariff can have particularly steep duties. Regard need also be had to further costs resulting from customs declarations, compliance with EU Sanitary and Phytosanitary (SPS) requirements and food labelling regulations.
Second, delays at the EU-UK border. Delays are to be expected in a no-deal Brexit scenario due to customs formalities, physical and documentation inspections of food consignments, and a range of possible Brexit effects on cross-border transport systems e.g. air transport designation/traffic rights, since the UK would automatically cease to be covered by EU transport agreements. Agri-food companies should consider how these factors affect not only their operations, but also those of suppliers and/or distributors and related business risks.
Third, a hard Brexit has implications for access to talent, contractual and taxes. EU workers in the UK are not expected to receive any preferential treatment in a hard Brexit scenario, with a limited exception for temporary agricultural workers. Under the UK’s proposed post-Brexit immigration rules, it also will be very difficult for low-skilled workers to obtain visas. Similar rules would likely apply for UK migrants in the EU countries. Existing contracts also will need to be scrutinized with respect to customs considerations, continuity and performance. Regarding tax implications, the EU has several directives in place that reduce tax burdens within the single market, and while the UK has a number of double tax agreements to fall back on, these do not cover all types of taxes between taxpayers in the UK and the EU27.
Fourth, be mindful of the “WTO terms” the EU and the UK may fall back on in the event of a no-deal Brexit. The EU and the UK are currently in the process of disentangling their trade rules at the WTO to allow the UK to act independently on international trade. While the UK is a WTO member in its own right, its membership rights have not been set out distinctly from the EU, which also represents the UK at the WTO. On 24 July 2018, the UK submitted to WTO Members its draft schedule outlining the UK’s post-Brexit WTO market access commitments for goods, which largely replicates EU concessions and commitments. The draft schedule of commitments is considered approved under WTO rules if there are no objections from other WTO Members within three months. WTO Members – including the U.S., Canada, Australia, New Zealand – have already indicated that they disapprove of the terms of the divorce, however. WTO tariff-rate quotas (TRQs), which are proposed to be apportioned between the EU and the UK based on their respective market shares, are particularly controversial as agricultural suppliers have indicated that they would lose flexibility to switch agricultural exports between the UK and the rest of the EU. Their objections are likely to force the EU and the UK into wider negotiations. While the EU has agreed to negotiations on TRQs, this is not the case for the UK. In any event, to negotiate legally binding market access is a somewhat arbitrary exercise where there is uncertainty remaining about the shape of the future EU-UK trading relationship. Agri-food businesses should monitor developments at the WTO to understand what WTO terms will apply in case of a hard Brexit and in the meantime put contingency measures in place.