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Theresa May laid out clearly last Tuesday what she wants from the Brexit negotiations which will start after she triggers Article 50.
That creates a narrow negotiating window (in trade negotiation time) to create a new trading relationship between the UK and EU.
The UK wants a free trade agreement (FTA) which would be similar to continued membership of the single market but excluding the free movement of people and governance by EU courts as opposed to UK courts. In Brussels, opinion ranges from wanting to try and accommodate the UK to blunt hostility telling them to be on their way.
Labour reliance
It is difficult to imagine the UK food and agriculture industry without migrant labour, as it is understood up to 70% of the sector's workforce at present comes from outside the UK. In Northern Ireland, dependence on external labour is not so great given that the family farm model is very much in place, but the processing sector is extremely dependent on the wider EU for its workforce.
However, we have to assume that while the UK may decide to take control of migration, they would continue to be fairly liberal in granting access, probably with a condition that the potential migrant could demonstrate that they had a job offer and wouldn’t be a burden on the state when they arrive. We can visualise a solution.
The sticky wicket of the courts
When it comes to the courts, it gets more complicated.
Negotiating a forum for disputes resolution has become one of the more controversial aspects in negotiation of international trade treaties. One of the reasons for hostility to the TTIP discussions between the EU and US was the fear that the EU courts could be usurped by the creation of an International disputes resolution forum that would have ultimate authority to adjudicate on matters of trade. The example of a US tobacco giant taking on the Australian government on the issue of plain cigarette packaging is highlighted as an example of how countries and indeed the EU could lose its autonomy to legislate.
Australia won on this occasion but the ruling was determined on grounds not associated with the country’s right to legislate as it wished but on technicalities on how the tobacco company structured itself to pursue the claim and also that it should have been aware prior to making the investment about Australia’s legislative intentions on cigarette packaging.
Farmers to carry the pain
Moving from these high-level issues to daily trade is where farmers on both sides of the Irish border stand to take the hit. In the worst case scenario where the outcome is as May described as no deal being better than a bad deal, WTO tariffs are likely to kick in. These are penal, with agricultural products being amongst the highest across all categories.
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An ESRI report late last year demonstrated the impact of a Brexit based on WTO tariffs on Ireland.
It compared Ireland with Germany which makes up 28% of the UK’s imports from the EU, while Ireland just accounts for 5%. However, Germany’s sales to the UK are mainly industrial, which attract relatively low tariffs, while the 5% it takes from Ireland is dominated by agricultural produce, which is at the top end of tariff rates. What this means in a WTO-based tariff scenario is that Germany’s 28% would account for 18% of import tariffs imposed on EU countries whereas their 5% of total imports from the EU would account for a massive 20% of tariffs charges on their former colleagues!
This is most dramatic in lamb exports and milk sales to processors south of the border
By way of example, the tariff on beef is calculated at 12.8% of the product’s value plus a volume charge of up to €3/kg. If we take steak meat worth a notional €20/kg, a WTO tariff would add €2.56/kg plus €3/kg, amounting to €5.56/kg overall, making the cost of the steak meat to a British customer now €25.56. Although the rates are lower, the impact on lower-value cuts of meat is even more dramatic.
Northern Ireland farmers, though somewhat protected by being part of the UK market, a net importer of food, would still take a hit on their export sales to the EU. This is most dramatic in lamb exports and milk sales to processors south of the border.
Pressure on Government to deliver
These realities will hopefully focus minds when negotiations begin, though agriculture will not be the highest priority for the UK. The Irish Government has to make sure its EU negotiators are conscious of the impact on Ireland.
We have to hope we are hearing are the opening negotiating positions being stated and both parties will still find a mechanism that preserves the free market or a variation of it.
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