{"id":1733,"date":"2018-02-14T09:10:43","date_gmt":"2018-02-14T09:10:43","guid":{"rendered":"http:\/\/blogs.sussex.ac.uk\/uktpo\/?page_id=1733"},"modified":"2018-11-21T08:58:59","modified_gmt":"2018-11-21T08:58:59","slug":"world-trade-rules-and-the-policy-options-for-british-agriculture-post-brexit","status":"publish","type":"page","link":"https:\/\/blogs.sussex.ac.uk\/uktpo\/publications\/world-trade-rules-and-the-policy-options-for-british-agriculture-post-brexit\/","title":{"rendered":"World Trade Rules and the Policy Options for British Agriculture Post-Brexit"},"content":{"rendered":"<h4>Briefing Paper 7 &#8211; January 2017<\/h4>\n<div id=\"attachment_1937\" style=\"width: 232px\" class=\"wp-caption alignright\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2017\/01\/Briefing-paper-7.pdf\"><img aria-describedby=\"caption-attachment-1937\" loading=\"lazy\" class=\"size-medium wp-image-1937\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/Briefing-paper-7-front-page-222x300.jpg\" alt=\"\" width=\"222\" height=\"300\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/Briefing-paper-7-front-page-222x300.jpg 222w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/Briefing-paper-7-front-page-768x1036.jpg 768w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/Briefing-paper-7-front-page-759x1024.jpg 759w\" sizes=\"(max-width: 222px) 100vw, 222px\" \/><\/a><p id=\"caption-attachment-1937\" class=\"wp-caption-text\">Download Briefing Paper<\/p><\/div>\n<h4>Alan Swinbank<\/h4>\n<p><a href=\"#keybp7\">Key Points<\/a><\/p>\n<p><a href=\"#introbp7\">Introduction<\/a><\/p>\n<p><a href=\"#taxpayerbp7\">Taxpayer Support for Agriculture<\/a><\/p>\n<p><a href=\"#tradebp7\">Trade Policy and Agriculture<\/a><\/p>\n<p><a href=\"#foodbp7\">Food Prices and Availability<\/a><\/p>\n<p><a href=\"#conclusionbp7\">Conclusion<\/a><\/p>\n<p><a href=\"#annexbp7\">Annex: Customs Unions, Free Trade Areas, Rules of Origin, and the Single Market<\/a><\/p>\n<p><a href=\"#referencesbp7\">References<\/a><\/p>\n<p><a href=\"#furtherbp7\">Further Information<\/a><br \/>\n<a name=\"keybp7\"><\/a><!--more--><\/p>\n<h2>Key Points<\/h2>\n<ul>\n<li>The EU has influenced UK food supplies and prices, the profitability of farm businesses, the rural environment and land use, in a number of ways, for example through agricultural subsidies and a highly protective trade regime. UK agriculture is probably larger and less efficient than had it been less subsidized.<\/li>\n<li>Brexit is an opportunity to redesign policies to better suit the UK. Post Brexit, taxpayer support to the farm sector is likely to be reduced, and to become more focused on environmental goals. But WTO rules on financial support to agriculture would have to be respected.<\/li>\n<li>Maintaining a \u2018soft\u2019 border with Ireland could be difficult if trade barriers are erected between the UK and the EU.<\/li>\n<li>New trade deals with third countries could be incompatible with any future UK-EU trade regime: and may expose UK farmers to tariff and quota-free access from highly competitive overseas suppliers.<\/li>\n<li>Food prices will be influenced by: the post- Brexit exchange rate; extra transaction costs involved in trading outside the Customs Union and Single Market; and the UK\u2019s new food trade regime. Liberal, free-trade, policies could result in lower food prices in the UK, whilst a protectionist policy could see them increase.<\/li>\n<\/ul>\n<p><a name=\"introbp7\"><\/a><\/p>\n<h2>Introduction<\/h2>\n<p>EU policies have directly influenced UK food supplies and prices, the profitability of farm businesses, and the rural environment and land use, in at least four ways. First, through the Common Agricultural Policy (CAP), considerable transfers of taxpayer funds have supported the farm sector and paid for the delivery of environmental services. Second, very high import taxes (known as tariffs or duties) on many agricultural commodities and processed foods and drinks, coupled with preferential access to the EU market from many developing countries, have helped determine the UK\u2019s agri-food trade flows and food prices. Third, many of the regulatory conditions relating to agricultural production, and food and drink processing, are currently based on EU provisions. Finally, the horticultural sector and dairying, and food processing and catering, are often heavily dependent on migrant labour.<\/p>\n<p>These are issues that were discussed and debated before the referendum, largely from an agricultural perspective (for example in Buckwell, 2016, Swinbank, 2014, and YAS, 2016), but to a large extent, it remains uncertain how they will be addressed post-Brexit. Other policy themes that impact on agriculture and the rural environment could be added to the list: for example support for biofuel, and renewable energy targets; the challenge of climate change and agriculture\u2019s role in reducing emissions of greenhouse and other obnoxious gasses; support for research.<\/p>\n<p>The UK\u2019s exit from the EU means that policies can be redesigned to better suit British preferences and circumstances; and understandably various lobby groups are keen to influence that outcome.\u00a0However, the UK does not start with a blank sheet of paper, as various political, financial, and international constraints will apply.<\/p>\n<p>This Briefing Paper explores the issues encompassed by two of the four policy foci outlined above: i) existing and continuing support for farm businesses and the rural environment, and ii) the UK\u2019s future agri-food trade relations. Both are constrained by the rules of the World Trade Organization (WTO).<br \/>\n<a name=\"taxpayerbp7\"><\/a><\/p>\n<h2>Taxpayer Support for Agriculture<\/h2>\n<p>Under the CAP farmers can claim &#8220;direct payments&#8221; based on the area of farmland at their disposal. Until 2015 this was known as the Single Payment Scheme, but the 2013 recalibration of the CAP reformulated the arrangements (see chapters in Swinnen, 2015). Currently, these payments are fully funded by the EU budget (i.e. by taxpayers across the EU). In 2015 this paid \u00a32.2 billion to UK agriculture as detailed in the penultimate row of Table 1.<\/p>\n<p>Second, under the so-called 2nd pillar of the CAP, farmers can be paid to implement environmental schemes (in England, in 2015 for example, the Environmental Stewardship Scheme). These are co-funded by the EU and the Member State concerned, and in 2015 paid out \u00a3605 million to UK agriculture. The bottom row of Table 1 shows the UK Agriculture Departments\u2019 preferred measure of farm income \u2014TIFF, Total Income from Farming\u2014 in 2015. The 2015 outcome is substantially lower than that recorded in earlier years (about \u00a35.3 billion in both 2013 and 2014 for example), but nonetheless, the relative magnitude of the CAP payments to TIFF is evident. In the middle of the Table, these CAP payments have been deducted from TIFF to give what has here been labelled &#8220;Farming Income&#8221;. In 2015 this results in a negative number for Wales and Northern Ireland. If these CAP payments were to be withdrawn the farm sector would over time undoubtedly shrink, but as a result of restructuring the overall impact on Farming Income would not be quite as dire as this static comparison of numbers seems to imply. Restructuring could be facilitated by a phased removal of support, possibly with those residual payments fully decoupled from farming, as advocated by Tangermann (2016).<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 1: UK Farm Income, and CAP Payments, 2015: \u00a3 million<\/span><\/p>\n<div id=\"attachment_1821\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t1.jpg\"><img aria-describedby=\"caption-attachment-1821\" loading=\"lazy\" class=\"wp-image-1821 size-large\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t1-1024x368.jpg\" alt=\"\" width=\"800\" height=\"288\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t1-1024x368.jpg 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t1-300x108.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t1-768x276.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1821\" class=\"wp-caption-text\">Adapted from Tables 3.2 and 10.3 of Agriculture in the United Kingdom 2015.<br \/>Provisional data.<br \/>* \u2018Total Income from Farming (TIFF) represents business profits and remuneration for work done by owners and other unpaid workers.\u2019<\/p><\/div>\n<p>The Prime Minister\u2019s announcement that the Government will introduce a \u2018Great Repeal Bill\u2019 to remove the European Communities Act from the statute book, and to transcribe the existing body of EU law into British law, together with her assurance that any subsequent \u2018changes in the law will have to be subject to full scrutiny and proper Parliamentary debate\u2019, potentially extends the CAP policy mechanisms beyond Brexit (May 2016).<\/p>\n<p>Earlier, in August 2016, the Chief Secretary to the Treasury had reassured \u2018the agricultural sector that it will receive the same level of funding that it would have received under Pillar 1 of CAP <em>[i.e. the direct payments discussed above] until end of the [EU\u2019s]<\/em> Multiannual Financial Framework in 2020 &#8230;\u2019 He went on to write:<\/p>\n<blockquote><p>\u2018The government will work closely with stakeholders to ensure that funding in the period immediately after exit is used to help the agricultural sector transition effectively to a new domestic policy framework. These funds will be allocated using the principles of CAP Pillar 1, and we will of course consider the opportunities post exit for making any short-term improvements to the way the system operates once we cease to be bound by EU rules\u2019 (Gauke, 2016).<\/p><\/blockquote>\n<p>The letter also gave an assurance \u2018that all multi-year projects administered by government <em>[e.g. environmental projects under CAP\u2019s Pillar 2, as discussed above]<\/em> with signed contracts or funding agreements in place, and projects to be signed in the ordinary course of business before the Autumn Statement, will be fully funded, even when these projects continue beyond the UK\u2019s departure from the EU.\u2019 As the Autumn Statement has now been delivered, farmers would probably be unwise to enter into new multi-annual environmental projects.<\/p>\n<h3>What will happen to these schemes after 2020?<\/h3>\n<p>Successive British governments have been critical of the EU\u2019s blanket approach to supporting farm incomes through Pillar 1, although the devolved administrations are rather more wedded to the idea (Swinbank, 2015b). It is difficult to justify the policy in social welfare terms. A farm household\u2019s income (or lack of) is not a factor determining entitlement, or the size of the payment: this depends on the area of farmland in-hand. Thus the bigger the area farmed, the larger the payment; and \u2014because of the link with land\u2014 the expectation that the landowner, rather than the tenant farmer, will be the main beneficiary of the policy\u2019s largess (although the larger part of UK farmland is owner-occupied).<\/p>\n<p>Furthermore, to the extent the policy inflates land prices it will hinder the expansion of existing farms and deter new entrants. Less-efficient producers will be cushioned in their loss-making operations, absolved for a time from the need for change. In short, we might expect UK agriculture to be larger and less efficient than it might otherwise be in a less subsidised environment.<\/p>\n<p>Nor would an appeal to agriculture\u2019s multifunctional role in protecting an environmentally diverse and attractive countryside necessarily justify these payments. Cross compliance, and more recently \u2018greening\u2019, do make payments conditional on some effort by the farm business to protect the environment, but payments are usually well in excess of the cost of compliance, and \u2014as flat rate payments\u2014 are not calibrated to site-specific conditions.<\/p>\n<p>The UK is a net contributor to the EU budget, even allowing for a substantial rebate (Matthews, 2016: 14). Thus, with a repatriation of the UK\u2019s budget contribution following Brexit, there would appear to be ample scope to fund continuing support for British agriculture into the foreseeable future (although of course the changing fortunes of the British economy, and the electorate\u2019s expectations, could derail that prognosis). But in the referendum campaign, Vote Leave (2015: 30) gave the distinct impression that this money would not be available for farm support.<\/p>\n<p>All this suggests that the Treasury will be keen to reduce the level of taxpayer support to the farm sector once the current guarantees of continued funding expire in 2020. However, the highly influential farm lobby will doubtless seek to retain a generous budget, and will probably be backed in this by the devolved administrations which are more dependent upon the rural economy than is the UK as a whole, and whose farmers tend to rely more on CAP subsidies than their English counterparts (see Table 1). Agricultural support is a devolved policy arena, but funding would be dependent upon Treasury support; and so a clash between London on the one hand, and Edinburgh, Cardiff and Belfast, can be expected.<\/p>\n<p>Whilst downward pressure on Pillar 1 payments might well prevail, there is considerable lobbying to retain the same pot of money but switch it to other on-farm uses. The Tenant Farmers Association (2016: 3) has advocated retention of \u2018the current UK budget of approximately \u00a33 billion allocated to agricultural support through the CAP but spent \u2026 according to new priorities.\u2019 They would ditch the current system of direct income payments, but retain a revised agri-environment programme; and introduce various new schemes. Similarly, in its post-Brexit consultation paper, the National Farmers\u2019 Union (2016: 15) pointed out that: \u2018Eliminating direct support does not necessarily imply ending all policies which benefit farmers and growers. If the same total budget could be preserved, there would be considerable sums available for, to take one example, encouraging investment and improving competitiveness.\u2019<\/p>\n<p>The environment lobby has, understandably, suggested shifting the funding focus from the farm to the rural environment. Thus the National Trust \u2014one of the larger recipients of CAP support, reflecting its huge estate\u2014 has called on the government \u2018to put the recovery and future resilience of the natural environment at the heart of any funding system that replaces CAP.\u2019 [1]<\/p>\n<p>Helm (2016: 13) is particularly critical of Pillar 2 support. He suggests that \u2018payments under Pillar Two are designed to protect land from the pollution and destruction that would otherwise take place\u2019, and goes on to comment: \u2018In any other industry, such damage would be subject to regulatory restraints and pollution taxes.\u2019 Thus he would not only phase out Pillar 1 support, but change the focus of Pillar 2 as well: \u2018Pillar Two is not &#8230; the panacea for improving the natural environment that a number of NGOs suggest. It is not obvious that the payments should go direct to farmers\u2019 (pp. 14-5).<\/p>\n<div style=\"width: 720px;float: centre;background-color: #cfdbc5;margin-left: 18px;padding: 12px\">\n<h4>Box 1: The UK\u2019s WTO Commitments?<\/h4>\n<p>For the purpose of this Briefing Paper it is assumed that the UK \u2014a founder member of the WTO\u2014 will continue as a WTO Member post-Brexit (as in UK Trade Policy Observatory, 2016), and be bound by the full repertoire of the WTO\u2019s multilateral agreements, including for example the Agreement on the Application of Sanitary and Phytosanitary Measures. A more open question relates to the UK\u2019s Schedule of Commitments. Again, for the purpose of this Briefing Paper, it is assumed that the UK will simply inherit (or in some way share) the existing EU28 schedule. If that is not the case, establishing a new Schedule could prove time consuming and messy. But a precedent, of sorts, exists.<\/p>\n<p>When the former Czech and Slovak Federal Republic (Czechoslovakia) became two independent republics on 1 January 1993, and each became GATT Contracting Parties, they both assumed the MFN (most-favoured-nation) tariff bindings of the former Czechoslovakia. The situation was unusual, and the US delegate recorded a number of reservations including his observation that \u2018that the new States were not contemplating important reorientations to their basic trade and economic policies which would nullify or impair trade opportunities enjoyed by other contracting parties in their markets\u2019 (GATT, 1993: 4). It is then perhaps important to recall that the Czech Republic and the Slovak Republic established a custom union between themselves, considerably reducing the possibility that the new arrangements would \u2018nullify or impair trade opportunities.\u2019<\/p>\n<p>Administratively there would be no difficulty in the UK and the EU27, post-Brexit, both applying the MFN tariffs currently imposed by the EU28. Whether other WTO Members would consider this new arrangement nullified or impaired the trade opportunities they had previously enjoyed might be a more problematic issue.<\/p>\n<p>What would appear to be a more difficult issue to resolve is the division of other elements of the EU\u2019s current schedule between the UK and EU27. For example the extent to which the EU can provide trade-distorting support to agricultural producers is limited; and the EU is currently obliged to offer import opportunities at a reduced tariff on a range of agricultural products (so-called Tariff Rate Quotas: TQRs). How will these \u2018entitlements\u2019 and \u2018obligations\u2019 be shared between the EU27 and the UK, if at all; and what role, if any, will the wider WTO membership play? These complex questions go far beyond the remit of the present Briefing Paper (and the expertise of its author!) but form the backdrop to the discussion in the main text.<\/p>\n<\/div>\n<h3>But there will be WTO constraints<\/h3>\n<p>The scope and generosity of the UK\u2019s support for agriculture will be constrained by WTO rules (see Box 1). In particular, the Agreement on Agriculture (AoA), in conjunction with other WTO provisions, has rules relating to \u2018domestic support measures in favour of agricultural producers\u2019.<\/p>\n<p>The AoA identifies three categories of \u2018domestic support measures in favour of agricultural producers\u2019 for developed economies such as the UK (see Daugbjerg &amp; Swinbank, 2009: 59-62). First, those that are deemed to have \u2018no, or at most minimal, trade-distorting effects or effects on production\u2019, and meet a number of policy-specific criteria: the so-called Green Box. For these policies, no expenditure limits apply. Second, \u2018direct payments under production-limiting programmes\u2019, such as area payments or \u2018livestock payments \u2026 made on a fixed number of head\u2019: the Blue Box. Currently, no expenditure limits apply, but in the Doha Round of trade negotiations proposals to apply limits looked as if they would be accepted had the round been successfully concluded. All other support, by default, falls within the Amber Box, which is subject to limits. There are, however, two de minimis provisions: product-specific support that does not exceed 5% of the value of that product\u2019s output that year is disregarded, as is non-product-specific support which does not exceed 5% of the country\u2019s total agricultural production. Barring the exception set out below, any Amber Box support that exceeded these de minimis provisions would violate that country\u2019s WTO obligations.<\/p>\n<p>A number of WTO Members had applied Amber Box support in excess of these limits prior to the Uruguay Round, and they were allowed to continue doing so, albeit at a reduced level. The EU was one such entity, and its current Amber Box limit (its Final Bound Aggregate Measurement of Support (AMS)) stands at \u20ac72.4 billion:[2] well in excess of its annual declarations of Amber Box support, as illustrated in Table 2.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 2: EU Declarations of Amber, Blue and Green Box Support, 2012-13<\/span><\/p>\n<div id=\"attachment_1826\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t2-cropped.jpg\"><img aria-describedby=\"caption-attachment-1826\" loading=\"lazy\" class=\"wp-image-1826 size-large\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t2-cropped-1024x253.jpg\" alt=\"\" width=\"800\" height=\"198\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t2-cropped-1024x253.jpg 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t2-cropped-300x74.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t2-cropped-768x190.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1826\" class=\"wp-caption-text\">Source: WTO (2015)<\/p><\/div>\n<p>A succession of CAP reforms, and some creative accounting, has switched the bulk of what was once Amber Box Support into the Green Box (Swinbank, 2015a). In 2012-13, the latest data available, decoupled income support payments amounted to \u20ac39.5 billion. Whether these payments really met the WTO\u2019s strict Green Box criteria is immaterial. Taken together, the EU\u2019s Amber Box declaration, de minimis trade-distorting support not counted in its Amber Box, Blue Box support, and the \u20ac39.5 billion of decoupled income support, add-up to just less than \u20ac50 billion: well short of the EU\u2019s \u20ac72.4 billion AMS \u2018entitlement\u2019.<\/p>\n<p>But the situation could be rather more critical for a post-Brexit UK. It is not yet known whether the EU27 and the UK will share the existing EU28 AMS Binding of \u20ac72.4 billion (and if so, how the shares would be divided, or how a decision would be reached), or whether the EU would retain the entire entitlement leaving a zero share for the UK. If the latter, the UK would have to rely on the AoA\u2019s de minimis provisions. But Table 1 shows that, in 2015, direct income support in the UK was equivalent to 9.1% of Gross Agricultural Output. Had this been post-Brexit UK, with a zero AMS Binding, other WTO Members might have been tempted to challenge the UK\u2019s invocation of the Green Box to house its direct income support payments. Given that these are annual payments, claimed on the area farmed that year, it might be difficult to satisfy the condition that: \u2018The amount of such payments in any given year shall not be related to, or based on, the factors of production employed in any year after the base period\u2019 (Paragraph 6(d) of Annex 2 of the AoA). If it was found that this condition was not met, the payments could be deemed to offer non-product-specific Amber Box support in excess of the de minimis provisions.<\/p>\n<p>Public support for \u2018income insurance and income safety-net programmes\u2019 would have to adhere to the provisions of paragraph 7 of the AoA if these schemes were to count as Green, rather than Amber Box support. Similarly, a post-Brexit UK would have to ensure that its environmental payments to farmers met the Green Box criteria: \u2018a clearly-defined government environmental or conservation programme \u2026 dependent on the fulfilment of specific conditions under the government programme\u2019; and \u2018payment \u2026 limited to the extra costs or loss of income involved in complying with the government programme\u2019 (Paragraph 12, Annex 2, AoA). Failing that, these payments would be Amber Box measures; and again the de minimis provisions could be critical.<\/p>\n<p>A further complication to bear in mind is that the UK Government would be responsible for providing the WTO with an aggregate listing of all UK support on an annual basis. How the UK will ensure that support across all its devolved parts fits within its WTO commitments is no doubt one of the issues to be negotiated between London and the Devolved Administrations in the months to come.<br \/>\n<a name=\"tradebp7\"><\/a><\/p>\n<h2>Trade Policy and Agriculture<\/h2>\n<p>Whilst taxpayer-funded support programmes have an important role to play in shaping the fortunes of the UK\u2019s farm economy, rural land use and the environment, trade policy is also critical. While the UK remains within the EU, agri-food imports from other Member States (and some important shipments, such as sugar, from developing countries) can enter the UK duty-free, although of course EU prices are often well in excess of world prices because EU agriculture is very heavily protected in many sectors (sugar, dairy products, beef, lamb, for example). In the main, imports of competing products from other origins face prohibitively high tariffs (see the examples in Table 3). There are of course some exceptions: there is a duty-free tariff rate quota (TRQ) for carcasses of lamb from New Zealand for example, which would otherwise face a full MFN tariff of 12.8% plus \u20ac1,713 per tonne. The EU currently administers 128 TRQs on agri-food imports (WTO, 2016). In 2014 some 6% of the EU\u2019s agri-food imports, by value, benefitted from these TRQ commitments in the WTO (European Commission, 2015: 6).<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 3: The EU&#8217;s MFN tariffs on selected products and their support prices under the CAP<\/span><\/p>\n<p><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t3.jpg\"><img loading=\"lazy\" class=\"aligncenter wp-image-1823 size-large\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t3-1024x266.jpg\" alt=\"\" width=\"800\" height=\"208\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t3-1024x266.jpg 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t3-300x78.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t3-768x199.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a>New Zealand\u2019s TRQ for lamb might be thought to be one that the EU27, New Zealand, and the UK would be happy to see transferred to the UK. But the commercial interests involved might not be quite that simple. The UK currently produces about as much lamb as it consumes, with its imports from New Zealand offset by exports of UK-sourced lamb to France and other EU countries. But if the UK\u2019s exports of lamb now faced the EU\u2019s full MFN tariff, would the UK be quite so keen to accept onto its market New Zealand produce? Reaching an equitable solution to the complex web of TRQs and other preferential arrangements, and reconciling differing commercial interests over sugar, could be even more challenging.<\/p>\n<p>The range of potential trade policy scenarios for the UK\u2019s future trade in agri-food products with the EU is large. Elsewhere I identified a number of different tariff regimes (Swinbank, 2016), ranging from no change in tariff barriers (by either remaining in the present Customs Union, if that were possible, or by negotiating a new UK-EU27 customs union), to a free trade scenario involving the complete elimination of all tariffs as advocated by some economists (see also Gasiorek, Holmes &amp; Rollo, 2016). Some of these scenarios could be combined with remaining in the Single Market, as illustrated in Table 4. As the terminology can be confusing, and not all interlocutors adhere to the same definitions, the Annex on p.8 sets out some of the terminology used in this Briefing Paper.<\/p>\n<p style=\"text-align: center\"><span style=\"color: #008080\">Table 4: Schematic View of the Possible Treatment of Agri-food Products in the Future UK-EU Trade<\/span><\/p>\n<div id=\"attachment_1824\" style=\"width: 810px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t4.jpg\"><img aria-describedby=\"caption-attachment-1824\" loading=\"lazy\" class=\"wp-image-1824 size-large\" src=\"http:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t4-1024x187.jpg\" alt=\"\" width=\"800\" height=\"146\" srcset=\"https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t4-1024x187.jpg 1024w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t4-300x55.jpg 300w, https:\/\/blogs.sussex.ac.uk\/uktpo\/files\/2018\/02\/BP7t4-768x140.jpg 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/a><p id=\"caption-attachment-1824\" class=\"wp-caption-text\">* Although, of course, agri-food trade is not formally included in either the EU-Turkey Customs Union or the EU-Norway FTA!<\/p><\/div>\n<p>One of the many known unknowns is the length of time it will take to negotiate new trade deals with the EU27 and with the many WTO Members with which the EU has FTAs. Unless the UK and EU27 agree on some form of customs union \u2014which seems to be highly unlikely, and which would preclude the UK determining its own trade policy\u2014 then the default position would appear to be that, on Brexit, the UK would perforce trade at arms-length over MFN tariffs. Unless that is, transitional arrangements could be agreed with the EU27 and the wider WTO membership. For example, Gasiorek, Holmes &amp; Rollo (2016 9) have suggested a \u2018grandfathering of existing trade arrangements to \u2026 say 5 years after Brexit\u2019.<\/p>\n<p>Some FTA deals that the UK might eventually strike with Third Countries could expose UK agriculture to tariff and quota-free access from highly competitive overseas suppliers: sugar from Australia or Brazil (Mercosur) for example (although, as with CETA, some &#8220;sensitive&#8221; sectors could be left out of the FTA or subject to restrictive TRQs). Consequently, it will be the combination of changes to the domestic support arrangements and the trade regime that will determine the impact on British agriculture. The more liberal the trade regime \u2014exposing UK farmers to external competition\u2014 the greater the lobbying for a continuation of financial support is likely to prove.<\/p>\n<p>Both the Irish and British governments have said that they want to avoid the creation of a \u2018hard\u2019 border dividing the island of Ireland; but this outcome is particularly difficult to achieve for agriculture. If a FTA between the EU27 and the UK is agreed that does include agriculture, then tariff barriers between the two parties on that politically sensitive border would be avoided, even though border controls to apply rules of origin \u2014and regulatory provisions should the UK not retain free access to the Single Market\u2014 would probably remain.<\/p>\n<p>A UK-EU27 FTA that did include agriculture, however, would probably preclude the UK unilaterally embarking on ambitious FTAs with competitive agricultural suppliers such as Australia and Brazil. Despite rules of origin, how eager would the EU be to accept free access onto its markets of \u2018British\u2019 agri-food supplies, if the UK could then provision itself duty-free from its other FTA partners? A similar outcome would arise if the UK unilaterally adopted free trade or reduced its MFN tariffs on key products to zero; and why would the EU conclude a FTA with the UK if it could in any event gain duty-free access to a free-trade UK?<\/p>\n<p>If the EU27 and the UK fail to conclude a FTA that includes agriculture, then both the EU27 and the UK would, by virtue of the WTO\u2019s most-favoured-nation clause, have to apply their MFN tariffs against each other. Considerable disruptions to existing trade flows would ensue. Again, the Irish border springs to mind. Ireland is a major exporter of livestock products to the UK; highly integrated supply chains link manufacturing activities north and south of the border; and shoppers are readily attracted by price differences between border towns. Whilst modern computer and tracking systems could minimise the need for border checks on manufactured goods, would that suffice for livestock, agricultural commodities, and food? Smuggling of livestock in particular was a feature of this border during the Troubles in the past.<br \/>\n<a name=\"foodbp7\"><\/a><\/p>\n<h2>Food Prices and Availability<\/h2>\n<p>Suggestions that the security of the UK\u2019s food supplies will be compromised, as a result of Brexit are, in my view, unduly alarmist. Whilst a whole host of economic, climatic, and other influences will impact on future world food supplies and prices, three Brexit-related factors for the UK are identified in this Briefing Paper.<\/p>\n<p>First, there is the exchange rate. The decline in the value of sterling following the referendum, widely regarded as referendum-induced, will feed through into the price of traded goods, including food. Second, withdrawal from the Customs Union and the Single Market will increase the cost of trade with the UK\u2019s erstwhile EU partners, because of the extra customs formalities and border delays involved. In a pre-referendum study for the National Farmers\u2019 Union, van Berkum et al. (2016: 17) assumed these additional trade facilitation costs would amount to between 5 and 8%. Third, there is the new galaxy of tariffs that will impact on the consumer cost of traded goods.<\/p>\n<p>But the UK does have trade policy choices, with two pole outcomes. If it adopts a free trade commercial policy, consumer prices (for sugar, beef, dairy products, etc.) would be lower than they might otherwise be. If, however, it adopts a protectionist policy, taking full advantage of the MFN tariffs inherited from its EU membership, and applies them to imports from EU27, food prices could increase. Irish beef, and Danish bacon, for example, would face hefty tariffs and consequently be more expensive when on sale in the UK. The Food and Drink Federation points out that 70% of the UK\u2019s imports of food and non-alcoholic drink in 2015 (and 72% of its exports) were from the EU.[3] Thus the reorientation of trade flows to take advantage of changed trading circumstances, could be substantial.<br \/>\n<a name=\"conclusionbp7\"><\/a><\/p>\n<h2>Conclusion<\/h2>\n<p>Devising new domestic and trade policies for UK agriculture, food and the rural environment, will not be straightforward or easily compartmentalised. It is highly unlikely that agricultural issues will determine the UK\u2019s future trade policy, as easy access for sugar, beef or butter to the UK\u2019s market for example could well be some of the key demands of potential FTA partners. FTAs, in turn, will be difficult to negotiate until likely trade partners have some clarity over what is at stake: what are the UK\u2019s MFN tariffs, for example, and what is the nature of the new UK-EU27 relationship? A unilateral reduction in tariff barriers, to lower food prices and increase competitive pressures, would probably be unwise (although appealing to a number of economists) as it is those high tariffs that strengthen the UK\u2019s negotiating capital.<\/p>\n<p>These trade policy decisions will feed through and interact with domestic policy concerns. What implications do these alternative trade scenarios have for UK agriculture and the rural environment, and what domestic policies might then be requested to counteract any adverse impacts? After all, the individual farm income, and site-specific agri-environmental impact, of freer trade in sugar is likely to be rather different from that in beef. A large number of farms could be put under considerable financial pressures, with an uncertain impact on farming practices and the environment. The environmental lobby might be quite content to see a reduced area of sugar beet <em>(but what would the health lobby feel about lower sugar prices?)<\/em>\u00a0but express considerable concerns if trade policies reduced the viability of upland farms. Farmers might reluctantly accept a drastic cut in direct income support (or greater emphasis on enhanced environmental outcomes) if tariff protection remained, but would probably protest vigorously if both tax-payer funded support and tariff protection were removed in a double-whammy. And Conservative MPs with rural constituencies could well support their cause.<\/p>\n<p>The policy debate has scarcely begun!<br \/>\n<a name=\"annexbp7\"><\/a><\/p>\n<h2>Annex: Customs Unions, Free Trade Areas, Rules of Origin, and the Single Market<\/h2>\n<p>Both the terms <em>Customs Union<\/em> and <em>Free Trade Area (FTA)<\/em> have specific meanings in the WTO, as regulated by GATT Article XXIV (Similar provisions apply with the General Agreement on Trade in Services: GATS). A customs union involves the abolition of tariff barriers and \u2018other restrictive regulations\u2019 on \u2018substantially all the trade\u2019 between its constituent members. Quite what is meant by the word \u2018substantially\u2019 has never been entirely resolved. The Turkey-EU Customs Union excludes agriculture for example; but it is difficult to believe that WTO Members would now agree that a new agreement was WTO-compatible if it excluded a major sector of the economy such as agriculture. Similarly, all of the members of the customs union apply \u2018substantially the same duties\u2019 on trade with Third Countries. The EU is itself a customs union, with <em>complete<\/em> product coverage, and a <em>common external tariff<\/em>, meaning that goods once imported into the EU are in free circulation and can be transferred to other EU states without further payment of customs duties.<\/p>\n<p>A <em>Free Trade Area<\/em> (FTA) is rather different. This involves the elimination of tariffs and other restrictive regulations of commerce on \u2018substantially all the trade\u2019 in products <em>originating<\/em> within the FTA. Many FTAs have only partial coverage of agricultural, food and drink products. Thus the European Commission (2014: 3-4) has reported that the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada will eliminate tariffs and quotas on 91.7% of agri-food tariff lines on EU products entering Canada, and on 93.8% of EU tariff lines faced by Canada. TRQs will apply on imports of beef and pigmeat into the EU, and on some dairy products into Canada, whilst some poultry products will be excluded from the FTA altogether.<\/p>\n<p>The parties to a FTA still determine their own trade barriers against Third Countries. Consequently <em>rules of origin<\/em> (which can often be extremely complex) have to be negotiated to determine what constitutes an originating product <em>(what minimum level of processing is required?)<\/em>. Moreover, border controls are still needed at the FTA\u2019s internal borders to differentiate between originating products (entitled to duty-free access) and non-originating products (on which duty is payable). If this did not happen, <em>trade deflection<\/em> would be an issue, as traders tried to import their goods into the FTA via the country with the lowest external tariff. The problem becomes more acute when commodities (such as bulk sugar) are involved, where product substitution could readily occur. Thus if the EU maintained its very high tariffs on sugar and negotiated an FTA with the UK that did include sugar, but left the UK to freely import sugar from the world market, the outcome might be that the UK would source all its supplies for domestic consumption from world markets, while exporting all its domestic production (produced from sugar-beet grown on British farms) to the EU.<\/p>\n<p>It is not just tariffs that can restrict trade. Divergent regulatory provisions (e.g. covering food safety, animal and plant health) can do so too. Although the WTO has attempted to provide a framework within which such provisions can apply <em>(the Agreement on the Application of Sanitary and Phytosanitary Measures for example)<\/em> many FTAs now include agreements that go beyond the WTO rules. The European Commission has talked about Deep and Comprehensive Free Trade Area (DCFTA) agreements. However, its ambition has on occasion proved deeper and more comprehensive than can be readily delivered. Thus the proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU has had difficulty with a number of regulatory issues, including US reluctance to accept the EU\u2019s policy on Geographical Indications (GIs) of origin on many food and drink products, and EU concerns about the chlorine washing of poultry carcasses to reduce pathogens (Josling &amp; Tangermann, 2015: 241-6).<\/p>\n<p>The EU\u2019s <em>Single Market<\/em> goes beyond regulatory convergence on selected topics. A key element in achieving the free movement of goods \u2014one of the \u2018four freedoms\u2019 for goods, services, capital and workers\u2014 is that the same regulatory regime applies in all the Member States (or the principle of mutual recognition results in products legally produced in one Member State being accepted throughout the Single Market). With a customs union covering all goods, and regulatory harmonisation or equivalence achieved, there is no need to apply border controls within the EU.<\/p>\n<p>Norway, through the <em>European Economic Area<\/em> (EEA), applies EU regulatory provisions enabling it to participate in the Single Market;[4] but paradoxically it is not in the Customs Union as the EEA is built on a series of FTAs (and nor do its FTA provisions apply to agriculture). Consequently, border controls are still necessary to apply rules of origin. Turkey, despite its partial customs union with the EU, is not in the Single Market, and so border controls are needed to ascertain that traded products do fall within the remit of the customs union, and that the EU\u2019s regulatory provisions are met.<br \/>\n<a name=\"referencesbp7\"><\/a><\/p>\n<h2>References<\/h2>\n<p>Agriculture in the United Kingdom 2015 (2016): <a href=\"https:\/\/www.gov.uk\/government\/statistics\/agriculture-in-the-united-kingdom-2015\">https:\/\/www.gov.uk\/government\/statistics\/agriculture-in-the-united-kingdom-2015<\/a>, accessed 20 October 2016.<\/p>\n<p>Brink, Lars (2016), \u2018UK Brexit and WTO farm support limits\u2019, CAP Reform.eu: <a href=\"http:\/\/capreform.eu\/uk-brexit-and-wto-farm-support-limits\/\">http:\/\/capreform.eu\/uk-brexit-and-wto-farm-support-limits\/<\/a>, accessed 24 October 2016.<\/p>\n<p>Buckwell, Allan (2016), Agricultural implications of Brexit. Worshipful Company of Farmers: London.<\/p>\n<p>Daugbjerg, Carsten &amp; Alan Swinbank (2009), Ideas, Institutions, and Trade: the WTO and the Curious Role of EU Farm Policy in Trade Liberalization, Oxford University Press: Oxford.<\/p>\n<p>European Commission (2014), CETA \u2013 Summary of the final negotiating results, European Commission: Brussels.<\/p>\n<p>European Commission (2015), Distribution of EU agri-food imports by import regimes (2014), MAP 2015-2, European Commission: Brussels.<\/p>\n<p>Gauke, David (2016), \u2018EU Funding\u2019, Letter to the Secretary of State for Exiting the European Union, 12 August: <a href=\"https:\/\/www.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/545767\/CST_letter_to_SoS_for_DExEU_August_2016.PDF\">https:\/\/www.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/545767\/CST_letter_to_SoS_for_DExEU_August_2016.PDF<\/a>, accessed 20 October 2016.<\/p>\n<p>General Agreement on Tariffs and Trade (GATT) (1993), Summary Record of the Third Meeting Held at the International Conference Centre, Geneva on Thursday, 3 December 1992 at 3.30 p.m., SR.48\/3, GATT: Geneva.<\/p>\n<p>Gasiorek, Michael, Peter Holmes &amp; Jim Rollo (2016), UK-EU Trade Relations Post Brexit: Too Many Red Lines?, UK Trade Policy Observatory Briefing Paper 5, University of Sussex and Chatham House: Falmer.<\/p>\n<p>Helm, Dieter (2016), British Agricultural Policy after BREXIT, Natural Capital Network \u2013 Paper 5. Downloadable at: <a href=\"http:\/\/www.dieterhelm.co.uk\/natural-capital\/environment\/agricultural-policy-after-brexit\/\">http:\/\/www.dieterhelm.co.uk\/natural-capital\/environment\/agricultural-policy-after-brexit\/<\/a><\/p>\n<p>Josling, Timothy E. &amp; Stefan Tangermann (2015), Transatlantic Food and Agricultural Trade Policy: 50 Years of Conflict and Convergence, Edward Elgar: Cheltenham.<\/p>\n<p>Matthews, Alan (2016), \u2018The Potential Implications of a Brexit for Future Agri-food Policies\u2019, EuroChoices, 15(2): 17-22.<\/p>\n<p>May, Theresa (2016), \u2018Britain after Brexit: A Vision of a Global Britain\u2019, Conservative Party Conference, 2 October: <a href=\"http:\/\/press.conservatives.com\/post\/151239411635\/prime-minister-britain-after-brexit-a-vision-of\">http:\/\/press.conservatives.com\/post\/151239411635\/prime-minister-britain-after-brexit-a-vision-of<\/a>, accessed 20 October 2016.<\/p>\n<p>National Farmers\u2019 Union (2016), Arrangements for English Agriculture and Horticulture outside the European Union. Policy options, circulated to members, NFU: Stoneleigh.<\/p>\n<p>Swinbank, Alan (2014), \u2018If the British left: Agricultural policy outside the CAP?\u2019, EuroChoices, 13(2): 36-9.<\/p>\n<p>Swinbank, Alan (2015a), \u2018The WTO: No longer Relevant for CAP Reform\u2019, in Swinnen (ed.) (2015).<\/p>\n<p>Swinbank, Alan (2015b), \u2018CAP Reform, 2005-14, and the Muted Role of he Dis-United Kingdom\u2019, in Swinnen (ed.) (2015).<\/p>\n<p>Swinbank, Alan (2016), \u2018Brexit or Bremain? Future Options for UK Agricultural Policy and the CAP\u2019, EuroChoices, 15(2): 5-9.<\/p>\n<p>Swinnen, Johan (ed.) (2015), The Political Economy of the 2014-2020 Common Agricultural Policy: An Imperfect Storm, Rowman and Littlefield International: London.<\/p>\n<p>Tangermann, Stefan (2016), \u2018What future for direct payments in the UK after Brexit?\u2019, Agra Europe online, 11 November, at: <a href=\"https:\/\/www.agra-net.com\/agra\/agra-europe\/brexit\/analysis-what-future-for-direct-payments-in-the-uk-after-brexit-532497.htm\">https:\/\/www.agra-net.com\/agra\/agra-europe\/brexit\/analysis-what-future-for-direct-payments-in-the-uk-after-brexit-532497.htm<\/a><\/p>\n<p>Tenant Farmers Association (2016), A Post EU Farming Policy for Britain, TFA: Theale.<\/p>\n<p>UK Trade Policy Observatory (2016), The World Trade Organisation: A Safety Net for a Post-Brexit UK Trade Policy?, UK Trade Policy Observatory Briefing Paper 1, University of Sussex and Chatham House: Falmer.<\/p>\n<p>van Berkum, S., R.A. Jongeneel, H.C.J. Vrolijk, M.G.A. van Leeuwen &amp; J.H. Jager (2016), Implications of a UK exit from the EU for British agriculture, LEI Report 2016-046, LEI Wageningen UR: Wageningen.<\/p>\n<p>Vote Leave (2016), Vote Leave, take control, Vote Leave: London.<\/p>\n<p>World Trade Organization (WTO) (2015), Notification, EU\u2019s domestic support commitments for the marketing year 2012\/2013, G\/AG\/N\/EU\/26, WTO: Geneva.<\/p>\n<p>World Trade Organization (WTO) (2016), Notification, EU\u2019s administration of tariff quotas for calendar year 2016 and marketing year 2015\/2016, G\/AG\/N\/EU\/31, WTO: Geneva.<\/p>\n<p>Yorkshire Agricultural Society (YAS) (2016), The Implications of \u2018BREXIT\u2019 for UK Agriculture (prepared by Wyn Grant (Chair), Michael Cardwell, Alan Greer, Chris Rodgers, Fiona Smith and Alan Swinbank), YAS: Harrogate.<br \/>\n<a name=\"furtherbp7\"><\/a><\/p>\n<h2>Further Information<\/h2>\n<p>This document was written by Alan Swinbank, University of Reading, with inputs from other members of the UKTPO.<\/p>\n<p>Alan Swinbank asserts his moral right to be identified as the author of this publication. Readers are encouraged to reproduce material from UKTPO for their own publications, as long as they are not being sold commercially. As copyright holder, UKTPO requests due acknowledgement. For online use, we ask readers to link to the original resource on the UKTPO website.<\/p>\n<p>_________________________________________________________<\/p>\n<h2>Endnotes<\/h2>\n<p>[1 ] The future of our countryside: <a href=\"https:\/\/www.nationaltrust.org.uk\/news\/the-future-of-our-countryside\">https:\/\/www.nationaltrust.org.uk\/news\/the-future-of-our-countryside<\/a>, 4 August 2016, accessed 21 October 2016.<\/p>\n<p>[2] This number is a self-declaration on the part of the EU, following enlargements in the 2000s, which has not yet been formally accepted by the WTO\u2019s membership (see Brink, 2016).<\/p>\n<p>[3] <a href=\"https:\/\/www.fdf.org.uk\/eu-referendum-food-drink-statistics.aspx\">https:\/\/www.fdf.org.uk\/eu-referendum-food-drink-statistics.aspx<\/a> (accessed 25 November 2016).<\/p>\n<p>[4] Of the various Directives regulating agricultural production (the Nitrates Directive, the Water Framework Directive, etc.) the National Farmers Union (2016: 32) identified only two \u2014the Habitats and the Birds Directives\u2014 that Norway is not obliged to apply for it to participate in the Single Market.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Briefing Paper 7 &#8211; January 2017 Alan Swinbank Key Points Introduction Taxpayer Support for Agriculture Trade Policy and Agriculture Food Prices and Availability Conclusion Annex: Customs Unions, Free Trade Areas, Rules of Origin, and the Single Market References Further Information<\/p>\n","protected":false},"author":213,"featured_media":0,"parent":364,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":[],"_links":{"self":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/1733"}],"collection":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/users\/213"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/comments?post=1733"}],"version-history":[{"count":19,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/1733\/revisions"}],"predecessor-version":[{"id":2223,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/1733\/revisions\/2223"}],"up":[{"embeddable":true,"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/pages\/364"}],"wp:attachment":[{"href":"https:\/\/blogs.sussex.ac.uk\/uktpo\/wp-json\/wp\/v2\/media?parent=1733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}