Analysis: Could the UK and EU be about to agree a Brexit trade deal?

The situation is improving, but there’s still a real risk of a cliff-edge exit

Last month, there appeared to be Brexit deadlock between Britain and the EU. Both parties were sticking hard to their positions, and when Michael Gove clearly stated there would be no extension to the transition period ending 31 December, all the talk about cliff edges came back hard and fast.

But trade talks now appear to be in a better place. There are positive noises coming from both the British side and the EU side, whereas previously there had been ominous messages and sarcastic briefings.

In June, the Joint Committee, which is overseeing issues such as the Northern Ireland protocol, held a meeting which passed smoothly; an unusual event. Some issues have been ironed out that could have ballooned into crises. The EU had demanded an office in Belfast in order to monitor trade flows, which had the potential to inflame unionists, but this has now been dropped by the EU in the spirit of trust and compromise. Who would have thought those two qualities could have been brought to bear in Brexit negotiations?

Gove’s announcement that there really would be no extension to the 2020 transition year has brought some welcome clarity. The EU side had become convinced that the already exceptionally tight schedule in which to negotiate a trade deal during 2020 had tipped over into impossible thanks to COVID-19. It was assumed Britain would have to extend the transition period. The double whammy of an impending global recession caused by the pandemic, combined with a total overhaul of trading relations was just too much to contemplate, the EU thought.

But by reaffirming Britain’s position that it will end the transition period on 31 December, cliff edge or no cliff edge, the two negotiating sides finally know where they stand. This is helpful.

If there is no extension, both sides really do have to reach agreement if they are going to avoid trading on World Trade Organisation terms from next January, which will mean tariffs and border checks.

These negotiations really are unusual. Normally, if two sides fail to reach an agreement they simply walk away and continue trading as they have done before. In this case, not reaching a deal will be costly and disruptive. The clock is ticking and everyone knows it.

Michel Barnier, the EU’s chief negotiator has indicated he will compromise on certain areas, where before he had refused, including on fishing rights.

The UK too will have to compromise if it wants a deal. So far it has played a game of brinkmanship, and last winter, it won, with the EU reopening discussions after it categorically said it would not renegotiate Theresa May’s withdrawal agreement.

But this cannot work forever. Gove has said Britain would rather pay tariffs than agree to the ‘level playing field’ demands. The EU says there isn’t time to renegotiate the tariff schedule on every single product traded across the border. But there could be wiggle room here for the UK to say that as part of any deal it could start from the point of the level playing field, with no tariffs, but that the UK maintains the right to decide at any point to deviate from this if it better suits its interests, with the understanding that the EU will impose tariffs on UK products should the UK choose to do this.

However, there are still big obstacles, including one nobody foresaw last year. The COVID crisis also means the EU has other matters to focus on. The EU budget and the package of support that will be needed for poorer struggling EU states, means Angela Merkel and Emmanuel Macron will have pressing concerns other than Brexit.

But the poultry and egg sectors still have significant concerns that there are big obstacles to a deal. Farming organisations from across the EU have joined the NFU in its call for an urgent breakthrough in trade talks in order to establish a UK/EU free trade agreement.

The call came at a webinar on 17 June which highlighted the significant impact that not reaching an agreement would have on farming businesses.

More than 150 politicians, food and farming groups and stakeholders attended the discussion, which was jointly hosted by the NFU and six other UK/EU farming organisations.

NFU President Minette Batters says the possibility of a WTO exit is very real: “It is disappointing that there has been little progress in UK/EU trade talks to date, but I’m encouraged to hear that negotiators have agreed to increase the intensity of trade talks over the next couple of months to try and break the impasse.

“Farmers in the EU and UK rely on trade to support their businesses. The EU takes more than 70% of the UK’s agri-food exports, and it is essential this relationship is maintained through a zero tariff, zero quota agreement.

“This event has shown that we, as colleagues and competitors across the UK and EU, are united in our call for free trade. We all stand to benefit from a close trading relationship and from a thriving and competitive marketplace, and we all stand to lose if our relationship reverts to trading on hugely unsatisfactory WTO terms and barriers are erected across borders.”

The UK government is not sure a deal will happen and is preparing for a WTO exit in case it doesn’t. This will place a huge burden on business. In June it announced border controls for EU goods imported into Great Britain will be introduced in stages throughout 2021 to give businesses more time to prepare. It had been assumed that from day one on 1 January the full administrative and logistical burden would come into effect, but now importers of meat and eggs (among other agricultural produce) will have until April.

This is not a reciprocal arrangement so the EU will apply full checks from 1 January.

The government said it was adopting a “flexible and pragmatic approach” to give industry extra time to make necessary arrangements.

From January 2021 traders importing standard goods will need to prepare for basic customs requirements, such as keeping sufficient records of imported goods, and will have up to six months to complete customs declarations. While tariffs will need to be paid on all imports, payments can be deferred until the customs declaration has been made. Businesses will also need to consider how they account for VAT on imported goods. There will also be physical checks at the point of destination or other approved premises on all high-risk live animals and plants.

From April 2021 all products of animal origin (POAO) – for example meat, pet food, honey, milk or egg products – and all regulated plants and plant products will also require pre-notification and the relevant health documentation.

From July 2021 traders moving all goods will have to make declarations at the point of importation and pay relevant tariffs. Full Safety and Security declarations will be required, while for SPS commodities there will be an increase in physical checks and the taking of samples: checks for animals, plants and their products will now take place at GB Border Control Posts.

The government is ploughing money into building the necessary infrastructure at ports, with a total of £84 million going to provide support to customs brokers, and freight businesses to invest in recruitment, training and IT.

Additionally, the Government has committed to building new border facilities in GB for carrying out required checks, such as customs compliance, transit, and Sanitary and Phytosanitary (SPS) checks. The Government is consulting with ports across the UK to agree what infrastructure is required.

This approach is for GB/EU trade. This approach does not apply to the flow of trade between Northern Ireland and Ireland, or between Northern Ireland and GB which is covered by the Withdrawal Agreement.

 

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