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This is a transcript of episode two of the Down to Agribusiness podcast. Visit the show page here.


Global agri trade policy and prospects in a changing world | Part two - UK and EU focus

Roger Bernard

Hello, and thank you for joining us on this podcast from agribusiness intelligence. I’m Roger Bernard, policy analyst within agribusiness intelligence in the United States. Joining me is Chris Horseman, editorial director for agribusiness intelligence in London. As we talked about previously, there’s a lot on the international trade front that has developed, with a focus on the shifts in the US administration and what that could mean for the United States and other countries around the world on international trade policy. 

However, we’ve also had some other changes from across the pond, if you will, on the European side, as the international trade landscape is now being altered somewhat with the European Union, with the exit, or Brexit, of the United Kingdom from the EU.

Chris, as we look at this international landscape, the EU may have some potential to make some free trade gains as well, but with the situation there comes of course uncertainty, much like in the United States we have uncertainty on the trade policy side. The Brexit situation I think has injected a rather interesting dynamic here. How long are the negotiations on the trade side between the EU and the UK going to take, and when can we expect to see some real, I guess, concrete expectations on the future path of trade policy in Europe?

Chris Horseman
Well, the timing of Brexit is one of the key issues under discussion at the moment. What we know is that as of the end of March the UK triggered article 50 of the European Treaty, which is the clause by which a country gives notice that it wants to leave. The clock is now ticking, and the UK now has two years in which to negotiate the terms of its exit from the European Union. Now what is a little bit under dispute at the moment between the UK and the EU on the other side is exactly what that agreement should entail in the first instance. It’s agreed that there needs to be negotiation and agreement first on topics like how much the UK will need to pay to settle its bills, as it were, at the point where it leaves, to cover future budgetary liabilities. There’s an important imperative to resolve things like the residency and citizenship rights of UK citizens living in EU countries and vice versa. What there isn’t so much clarity on is exactly when and how the two sides need to come to an agreement on future trade relationships. The UK wants to start talking about that as soon as possible, the European side has said that they want to make good progress on some of these other points, the sort of divorce settlement as it’s being termed, before they will start talking in depth about trade issues.

There is, I think, a growing acceptance that it’s unlikely that all of these matters will be tied up within two years, and increasingly there is discussion of the possibility of a kind of interim extension period whereby the UK, although it’s formerly no longer part of the EU, trades as if it were a member state for possibly a couple of years or three years after it leaves, before a final settlement is reached. All of that is really still to be negotiated.

Roger
What are the, you know, sectors then, for UK agriculture, that have a great focus, or maybe have some fears or unease about these negotiations between the UK and the EU, you know, relative to their trade prospects, because obviously those other 27 countries are a rather important market for the UK, aren’t they?

Chris
Absolutely, yes. I mean, well over half of all of the UK’s agri-food exports go to the EU, and any disruption of those markets, whether that be in the form of tariffs, or probably more likely the introduction of new non-tariff barriers to trade, would be very unwelcome. The whole of UK agriculture is nervous, really, about what might be entailed by this, but some sectors more than others. One area in particular is the sheep meats sector, which is a lot of UK sheep meat is exported, well over 90% of those exports go to the UK. You know, sheep meat is quite a sensitive product, particularly in countries like France and Spain and Ireland, where there might be some incentive to consider whether completely free trade and the acceptance of free imports of goods from the UK is something that could continue, or should continue, post Brexit. It’s really the meats and livestock sectors and the dairy sector which are probably most vulnerable to any disruption in trade. But really it’s the whole of the UK agri-food industry which has a stake in keeping trade with the rest of the EU as frictionless as possible.

Roger
Chris, obviously, you know, those impacts, keeping that access to those other 27 markets key for the UK, how about for the UK agribusiness industry on products coming from the other 27 members? You know, how is that going to play into these renegotiations?

Chris
It is a real concern. There is a lot of bilateral trade in a lot of different areas. One of the big areas of concern has been flagged up by the fresh produce sector, which has raised the prospect of possible delays at the border if there were to be non-tariff barriers, or kind of bureaucratic barriers to trade. At present a lot of goods simply come straight through the channel tunnel and arrive in the UK, and there’s virtually no disruption to their progress there. Now, if there were to be border controls there, people checking for proof of origin and suchlike, then that could cause significant bottlenecks, and when you’ve got fresh produce in your truck that’s not necessarily good news. There are concerns about this, and although there is an aspiration I think on all sides to make trade between the EU and the UK as seamless as possible once Brexit happens, the reality of the situation is that that cannot be guaranteed if the UK is no longer part of the European Single Market.

Roger
As we’ve talked previously, this administration, you know, I think is much warmer to the idea of negotiating with the UK on their own, a UK that is going to be out of the EU. Aren’t there some impacts that, you know, could happen in terms of, how fast could a US-UK trade deal be negotiated?

Chris
Well, that’s a complicated question, in the sense that the UK, before it can really negotiate with other third counties, and do brand new trade deals, such as the one which has been suggested with the US, first of all it has to regularise its own trade relationships with the EU, and also with the World Trade Organisation. I think that it’s important that the UK establishes its own trade commitments and schedules with the WTO, that’s going to be a vital first step. The initial stages of that process are in place. Of course, the UK is already a member country of the WTO, a founder member since 1995, but until now all of its business in terms of actual trading activity has been negotiated and handled on its behalf by the European Commission. Now of course, after Brexit that will no longer be the case, so the UK needs to establish its own trading schedules. Once it’s done that, and once it has got clarity about its trading relationship vis-à-vis the EU, and in particular whether or not it has any connection with the European Customs Union, then it will be in a position to talk to other countries about new trade deals.

I think that will take quite a bit of time. Certainly discussions can go on in the background, but certainly nothing can be concluded until these technical issues with the UK’s trading status have been clarified, and that could take a while.

Roger
Taking a look from the broader European Union perspective, as the United States starts its renegotiation process with Canada, with Mexico, on our North America Free Trade Agreement, the EU has, you know, a trade deal with Canada. How do you see this, you know, is there any impact that could arise from these US renegotiation efforts with Canada, and that EU-Canada trade deal?

Chris
Well, this is an interesting point, where the EU-Canada trade agreement is only just coming fully into force, there was a long delay in its ratification, that seems to have been overcome now. The European side is watching what’s happening quite closely in the United States. Any change to the terms of NAFTA might possibly even open up additional opportunities for suppliers within the EU. I mean, for example, if it were to become more difficult for United States dairy producers to sell into Canada as a result of some change in the terms of trade within NAFTA, then that might be an opportunity for European exporters of cheese and other similar products to capitalise on the tariff quotas which have been opened up as a result of that Canadian deal. Such a disruption I think would not be welcomed on the European side. The EU is quite keen to get that EU-Canada agreement up and running.

Of course, it has its own complication from the fact that the United Kingdom will no longer be party to that EU-Canada agreement, and one of the many things that will need to be sorted out over the next couple of years, is whether, and if so to what extent, the UK is entitled to access any of the trade concessions which the EU has previously negotiated with the Canadians. The same actually goes for all of the EU’s other multiple trade agreements with countries around the world. It’s a real patchwork of interlocking trade deals, which have to be unpicked one by one as a result of Brexit.

Roger
Well, I think there are those in the US administration, and certainly the US dairy industry, who would already argue that we’re having some trade issues with Canada on dairy as it stands now. Figures to be a big part of that renegotiation effort anyway. Looking at the other player in the NAFTA negotiations for the US, Mexico. There’s started to be some overtures between the EU and Mexico also, you know, as far as trade prospects there. What products do you think, or what sections of agribusiness in the EU then would like to see, you know, something negotiated with Mexico?

Chris
Well again, where the EU sees itself having a particular strength and a particular ability to expand exports of, particularly its sort of higher quality food products, would be in the livestock sector, and again dairy. Of course, Mexico is a big importer of skimmed milk powder, that might be an area that the EU could have its eye on. Of course, trade agreements are a two-way thing, and the Mexicans will be very keen to sell more of its fruit products, fruits and vegetables, to the European market where they only have a comparatively modest foothold at present. There are opportunities I think on both sides, but the EU is currently talking to a range of different partners around the world about setting up new trade agreements. The EU-Japan negotiations are actually quite advanced at this stage, there’s been relatively little media attention on those discussions, certainly compared with the EU-US discussions of the recent past. The EU is also talking to Australia and New Zealand about possibly doing trade deals with them. Both of course very significant agricultural producers and exporters.

There’s going to be more and more of these bilateral trade deals certainly being discussed, being negotiated, and the EU certainly hopes, agreed and ratified over the years to come.

Roger
Yes. It certainly seems that, as these trade flows unfold between the United States, between Europe, between Canada, between Mexico, and the rest of the globe, that agriculture trade is a topic that is going to continue as a key focal point for agribusiness producers, etc. around the globe. It certainly is a prospect that would easily be something we will be revisiting in coming months as we continue with these podcasts. With that, I thank you Chris for joining us, and thank you all for listening.


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