Big winners from no-deal Brexit: Irish smugglers

British plan could make Northern Ireland back door to UK market.

Ireland was once a smuggler’s paradise. If the U.K. leaves the EU in a no-deal Brexit, experts say, it will likely become one once again.

The British government’s no-deal contingency plan released early Wednesday morning would create enticing opportunities for smugglers, by slapping steep tariffs on agricultural products like beef and cheddar cheese while not applying checks at the border between Ireland and Northern Ireland.

“I assume this is more of a theoretical plan than a practical one,” said David Henig, director of the European Centre For International Political Economy, a think tank. “I cannot see this being in anyway sustainable beyond a short period. There are reasons we check things at borders.”

The move was intended to provide businesses and consumers with clarity and prevent a return to the period prior to the 1998 Good Friday Agreement, when the British army patrolled the borderlands between Northern Ireland and the Republic of Ireland, blockaded country roads and struggled to stop smugglers.

The U.K. said the plan would be temporary in nature, but offered little clarity about how it would be able to carry out checks on goods coming over to Britain from Ireland.

“We can see Northern Ireland really being the back door into the main Great Britain market” — Ivor Ferguson, president of the Ulster Farmers’ Union

The goods affected range from farm products to motor vehicles.

“You’re essentially saying ‘we’re not going to check anything on the border between Ireland and the rest of the U.K.,'” said Henig.

Someone could buy a car in Ireland, drive it across the border into Northern Ireland before shipping it over to Scotland, bypassing the U.K.’s 10.6 percent tariff on vehicles. “If you are not going to put something in place and check goods crossing the sea border, then it opens up all sorts of differentials,” Henig said.

The U.K. plan would put a tariff on beef amounting to 53 percent of the EU most-favored nation rate, while tariffs on poultry products would be set at 60 percent of the EU most-favored nation rate. Butter and cheddar cheese would have tariffs of 32 percent and 13 percent of the EU most-favored-nation rate respectively.

A farmer at work on Gola Island, Ireland | Charles McQuillan/Getty Images

EU farmers, particularly those from Ireland, would find it much harder to compete in the U.K. market under these terms. Up to 65 percent of Ireland’s cheddar cheese exports go to the U.K., along with large shipments of butter and infant formula. In total, 30 percent of Ireland’s dairy production is sold to the U.K, according to Bord Bia, the Irish Food Board. Ireland’s food exports to the U.K. made up 35 percent of the total in 2017.

“There is nothing to stop that [smuggling] at the moment,” added Ivor Ferguson, the president of the Ulster Farmers’ Union. “We can see Northern Ireland really being the back door into the main Great Britain market.”

Farmers in both the U.K. and Ireland expressed dismay at London’s plans.

Bord Bia said London’s plan “would be detrimental to Irish farmers and Ireland’s agri-food exporters,” while the Irish Farmers’ Association said the U.K.’s tariff proposals would devastate rural areas and inflict huge damage on the country’s beef sector.

“Our most exposed sectors, particularly beef, simply will not survive the kind of tariffs being talked about. This would have a devastating effect in the rural economy,” the IFA’s president, Joe Healy, said. “We export over 50 percent of our beef to the U.K.  If this is subject to tariffs, it will be a ‘direct hit’ of almost €800 million on the sector.”

The trade body Dairy Industry Ireland said London’s suggested tariff on cheddar would result in additional costs of €20 million per year. Currently, Irish cheddar exports to the U.K. are well north of €250 million in value.

“The proposed tariff levels are deeply unwelcome, would put Irish butter and cheddar under severe pressure in the U.K. markets … and would necessitate increases at consumer level,” Dairy Industry Ireland said.

Northern Irish sheep farmers would also stand to lose out | Charles McQuillan/Getty Images

While Irish agriculture producers might try to export to the U.K. through Northern Ireland, Dairy Industry Ireland said this is not an option as exporters would be keen to keep up their reputation by trading through legal channels

Northern Irish sheep farmers, who sell some 400,000 of their lambs in the Republic every year, would also stand to lose out. Added tariffs would crush the trade, Ferguson of the Ulster Farmers’ Union, said.

U.K. farmers meanwhile worry the selective tariffs would distort markets and leave parts of the industry vulnerable.

Sensitive agricultural goods, such as meat and dairy products, will be protected but cereals, potatoes and most fresh produce imports will face no tariff barriers and massive competition from abroad, said Tom Hind, chief strategy officer at the U.K.’s Agriculture and Horticulture Development Board.

“In simple terms, the U.K. grain and oilseed rape market would be open to all global exporters after previously seeing protection from the EU’s tariffs,” he said. He also noted that while lamb would be protected by a steep tariff under London’s plan, it would still face the EU’s common external tariff in a no-deal scenario. “This will impact trade flows and market dynamics,”‘ he said.

“It has been said that an open border in Northern Ireland will be an invitation for smuggling” — Holger Hestermeyer, reader in international dispute resolution at King’s College London

Minette Batters, the president of the U.K.’s National Farmers Union said: “While we are relieved that we are finally able to see the tariffs that will be applied on imported food in a ‘no-deal’ scenario, it is appalling that we only now have this opportunity to do so — a fortnight before they could come into effect. Farmers and food businesses have no time to prepare for the implications.”

The U.K. could also face legal challenges to its plans, said Holger Hestermeyer, a reader in international dispute resolution at King’s College London.

Hestermeyer said the plan would open up the U.K. to complaints inside the World Trade Organization because it would break the so-called most-favored nation rule, a principle that dictates that all special trade benefits outside of a trade deal must be shared with every other WTO member.

“It has been said that an open border in Northern Ireland will be an invitation for smuggling,” he said. “Quite possibly, the reality could turn out worse: Routing goods via the Northern Irish border could — depending on the details of the policy — become a legal alternative to paying tariffs that would be due anywhere else.”

Not everyone, however, sees things as being as gloomy as the Irish are suggesting.

“I’m not so sure a hard Brexit means as much pain for Irish beef farmers as they might want you to think,” said Ben O’Brien, director for the trade group Beef + Lamb New Zealand. “It takes some kind of front for an EU member state to complain about anybody else’s beef access arrangements.”


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Ireland’s no-deal Brexit tariff fears

‘The proposed tariff levels are deeply unwelcome,’ says dairy industry group.

If there’s one conclusion to be taken from the U.K.’s no-deal tariff plan it’s the following: Irish farmers are going to hurt.

The U.K. today said that a no-deal Brexit would result in a tariff on beef amounting to 53 percent of the EU most-favored nation rate, while tariffs on poultry products would be set at 60 percent of the EU most-favored nation rate. Butter and cheddar cheese would have tariffs of 32 percent and 13 percent of the EU most-favored-nation rate, respectively.

EU farmers, particularly those from Ireland, would find it much harder to compete and enter the U.K. market, a major export destination for the country. Up to 65 percent of Ireland’s cheddar cheese exports go to the U.K. along with large shipments of butter and infant formula. In total, 30 percent of Ireland’s dairy production is sold to the U.K, according to Bord Bia, the Irish Food Board. Ireland’s food exports to the U.K. made up 35 percent of the total in 2017.

“The proposed tariff levels are deeply unwelcome, would put Irish butter and cheddar under severe pressure in the U.K. markets at current consumer price rates and would necessitate [price] increases at consumer level in the UK — something that their government desperately wishes to avoid,” Dairy Industry Ireland said reacting to the announcement in London.

Digging down into the figures, the trade body said London’s suggested tariff on cheddar, to take one example, would result in additional costs of €20 million per year. Currently, Irish cheddar exports to the U.K. are well north of a quarter of a billion euros in value.

“I assume this is more of a theoretical plan than a practical one” — David Henig

Beef farmers in Ireland are also bracing for a huge hit in the event of a no deal. The Irish Farmers’ Association said that the U.K.’s tariff proposals in the event of a no-deal Brexit would devastate rural areas.

“Our most exposed sectors, particularly beef, simply will not survive the kind of tariffs being talked about. This would have a devastating effect in the rural economy,” the IFA’s president, Joe Healy, said in a statement.

One way to avoid the mayhem could be to export into England, Scotland and Wales through Northern Ireland as the U.K. said it would unilaterally waive checks on all goods crossing the Northern Ireland border in the event of a no-deal Brexit. But analysts point out that doing so would put a huge burden on port and customs authorities in Northern Ireland having to deal with extra traffic.

“I assume this is more of a theoretical plan than a practical one,” said David Henig, director of the European Centre For International Political Economy, a think tank. “I cannot see this being in any way sustainable beyond a short period. There are reasons we check things at borders.”

This insight is from POLITICO‘s Brexit Files newsletter, a daily afternoon digest of the best coverage and analysis of Britain’s decision to leave the EU available to Brexit Pro subscribers. Sign up here.


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UK to cut tariffs to zero on 87 percent of imports in no-deal Brexit

Mixture of tariff rates would be retained for some goods, including on agricultural imports and cars.

LONDON — The U.K. would temporarily cut tariffs to zero on 87 percent of imports in the event of a no-deal Brexit in order to avoid “potential price spikes” hitting consumers, ministers said Wednesday.

A mixture of tariff rates would be retained for some goods, including on agricultural imports and cars.

The emergency tariff regime would apply for up to 12 months, according to a government briefing issued Wednesday morning.

After Theresa May’s Brexit deal was rejected by the House of Commons for a second time Tuesday, MPs will vote later Wednesday on whether to leave the EU with no deal on the legal date of March 29.

Trade Policy Minister George Hollingbery said the government “must prepare for all eventualities.”

“If we leave without a deal, we will set the majority of our import tariffs to zero whilst maintaining tariffs for the most sensitive industries,” he said. “This balanced approach will help to support British jobs and avoid potential price spikes that would hit the poorest households the hardest.”

Tariffs on beef products would be set at 53 percent of the EU most-favored-nation rate, while tariffs on poultry products would be set at 60 percent of the EU most-favored-nation rate. Sheep meat would attract the existing EU most-favored-nation rate.

While finished cars would attract a tariff rate of 10.6 percent, no tariffs would apply to car parts required by manufacturers reliant on EU supply chains.

Some minimal tariff rates would also apply to ceramics, fertilizers and textiles.

A set of goods including bananas, raw cane sugar and some kinds of fish would also attract tariffs to protect preferential arrangements the U.K. holds with exporters in developing countries.

The tariff regime will not apply to goods crossing the Northern Ireland border, for which the U.K. today announced a set of temporary, unilateral measures for avoiding checks in the event of no deal.

For business, no-deal Brexit has already hit

Three weeks before Brexit day, the costs of no deal are mounting by the day.

The value of a Brexit deal is dropping by the day.

With three weeks to go until Britain’s scheduled EU departure, many U.K. businesses are already feeling the impacts of a no-deal Brexit.

Industry has spent hundreds of millions on contingency plans it will not be able to recoup even if a last-minute deal can be done, and U.K. firms are already reporting drops in sales, exports and investment. Farmers are also watching contract orders for this year’s harvest dry up.

Theresa May’s government is still seeking changes to the controversial Northern Ireland backstop mechanism — designed to avoid a hard border on the island of Ireland — that will satisfy skeptical MPs when the Brexit deal returns to the House of Commons for a second “meaningful vote” next week. But even if MPs approve the deal, the impact of months of uncertainty means that much of the economic damage of a no-deal Brexit has already come about.

“The specter of no deal is holding them back from investing in new factories, new overseas markets and new jobs.” — Rain Newton-Smith, CBI’s chief economist

According to a survey released Thursday by the Confederation of British Industry, there was widespread concern among 273 firms across the services, manufacturing, and distribution sectors about the impact the prospect of a no-deal is already having on sales and investment.

Potential tariffs on goods as a result of crashing out of the EU were “extremely” concerning for 57 percent of the firms who responded and “moderately” concerning for 19 percent.

The findings are backed up by U.K. government figures showing that domestic business investment has fallen for three consecutive quarters. The last time business investment fell for more than two quarters was in the aftermath of the 2008 economic crash.

“With Brexit stuck in stalemate, this only means growing damage today and a weaker economy tomorrow. Growth is at a near standstill and investment is evaporating; the economy is undoubtedly slowing down,” said CBI’s chief economist Rain Newton-Smith. “The specter of no deal is holding them back from investing in new factories, new overseas markets and new jobs.”

One example is in future contracts for agricultural goods. Matt Culley, the owner of a 300-hectare farm close to Andover in southern England, has spent the last four years exporting premium grade malting barley to buyers supplying the German beer industry.

The National Farmers’ Union has warned that Britain would “run out of food” if it cannot continue to easily import from the European Union | Dan Kitwood/Getty Images

Usually, all of his crop would have been bought up by now, even before all his fields have been planted. But not this year. Demand has dropped off and he is pondering how much land to leave fallow.

Over half of the U.K.’s 7 million ton barley harvest is exported to the EU. The worry for potential buyers is that if there is no deal, then the U.K. crop will be subject to tariffs.

“They are not taking or signing any new contracts for surplus I may have,” Culley said. “My question is: Do I plant all of the land or not? … Do we blindly go planting hoping it all comes right, even if the price might not be there?”

Jack Watts, chief combinable crops adviser for the National Farmers’ Union, said the uncertainty is affecting many crops beyond barley. “All this uncertainty has implications on the 2020 crop,” he said. “Typically farming would be looking to get contracts on board now.”

Phil Bicknell, market intelligence director at the Agriculture and Horticulture Development Board said beef prices have begun to dip as well due to fears that market access to the EU will be cut off in the event of no deal. Beef prices have fallen 10 pence to £3.44 per kilo, he said, compared to the same period a year ago.

WTO rules

A key issue for many sectors is uncertainty over the terms of trade that will operate after March 29. While the U.K. has sealed deals to roll over existing EU trade terms with the likes of Switzerland, Chile and a handful of other countries, it has yet to seal deals with lucrative markets like Japan — let alone sign new trade deals. The government has also postponed an announcement about the tariff schedule that would apply in a no-deal scenario until after the Commons vote on the Brexit deal next week.

“It’s difficult if you’re buying new clothes, books or electronic devices and you know the taxation is going to be higher, but not by how much” — Pauline Bastidon

“We will communicate a decision on market sensitive information to stakeholders and the public as soon as possible,” a government spokesperson said. “We will need to balance a number of considerations to avoid potential price rises for consumers and manage the impact on producers that rely heavily on supply chains as well as those who are currently protected from global competition by import tariffs.”

But that doesn’t help importers making decisions now on future purchases or exporters who don’t know what trade terms other countries will apply.

“It’s difficult if you’re buying new clothes, books or electronic devices and you know the taxation is going to be higher, but not by how much,” said Pauline Bastidon, from the U.K.-based Freight Transport Association. “It could go as high as 35 or 40 percent in certain cases. [Exporters] can’t do anything about it, but what they could have is clarity to calculate the total cost.”

Shipping times to Asia are around six weeks, so companies shifting British cars, gourmet snacks or electronics by sea have not been sure for weeks now of the trading regime their goods will encounter when they reach their destination.

In the coming days, products bound for the Middle East and India will also fall within that sphere as the exit date nears. “The horizon of nations is extending the closer we get to Brexit date,” said Bastidon.

Should the deadline arrive without an extension or without a withdrawal agreement, any cars being exported to the U.K. would be hit by standard tariffs that are set by the World Trade Organization | David Hecker/Getty Images

Bentley, for example, sends 60 percent of its cars to markets beyond the EU, with shipments primarily departing in vessels from Southampton. Aston Martin and Jaguar Land Rover follow similar export routes. If the U.K. is operating under World Trade Organization rules by the time these shipments arrive, their products will be subject to a 10 percent tariff.

‘Pointless costs’

Car manufacturers are also having to deal with the costs of stockpiling parts to hedge against supply problems in a no-deal scenario. That comes on top of a 9.1 percent drop in production in the U.K. — a five-year low for the sector. Honda, Nissan, Ford and Jaguar have all announced that they will scale back production in the U.K. or are diverting investment elsewhere.

“The clear and present danger remains the threat of a no-deal Brexit, which is monopolizing time and resources, undermining competitiveness,” said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, last week. “Every day a no-deal Brexit remains a possibility is another day automotive companies pay the price in additional and potentially pointless costs.”

The impact on U.K. research is already happening too. Pam Kearns, a pediatric oncologist and director of Cancer Research UK’s clinical trials unit at the University of Birmingham, said British researchers are losing out.

General Secretary of Unite the Union Len McCluskey joins Honda employees as they stage a protest over the planned closure of their Swindon plant | Dan Kitwood via Getty Images

“Although the U.K. is eligible for European Horizon 2020 funding, some EU partners have politely said it would be better if they did not have a U.K. partner because of the uncertainty — so the U.K. is losing out on funding at the moment because people are anxious because of the uncertainties,” she said.

“They worry that having a U.K. partner will disadvantage them,” she added. “We’re all working to get ready [for a possible no-deal Brexit] instead of working on these trials, we’re just treading water.”

For Culley, the grain farmer, he still hopes to recoup some future revenue if an 11th-hour deal can be done. “I have not sown all my seeds yet,” he said.

For many business though, that won’t be an option.

The curious effect of the EU Customs Union on the UK’s cars and carbs

One way to assess the value of the Customs Union to the UK is to track the trajectory of our principal export sectors over time. Since 1998, the UK’s fastest growing major goods exports (globally) have been pharmaceuticals, transport equipment and motor vehicles — in that order. None owe their commercial success to the Customs Union. […]

The post The curious effect of the EU Customs Union on the UK’s cars and carbs appeared first on BrexitCentral.

One way to assess the value of the Customs Union to the UK is to track the trajectory of our principal export sectors over time. Since 1998, the UK’s fastest growing major goods exports (globally) have been pharmaceuticals, transport equipment and motor vehicles — in that order. None owe their commercial success to the Customs Union. Pharmaceuticals are almost free of global tariffs and so are aerospace products, which contribute 92% to the UK’s transport equipment exports.

Meanwhile the UK’s motor vehicle exports to EU peaked in 2007; the UK’s outstanding growth in the vehicles sector is powered purely by global enthusiasm for British motors.

But any meaningful analysis of the impact of the Customs Union has to place UK sectors into proportion – which means ranking them according to two-way trade. Here, there are two easy winners. UK–EU trade in motor vehicles is easily the country’s biggest, worth £67.5 bn in 2017. Next comes trade in food products and agriculture, worth £39.8 bn.

As the leading sectors in UK–EU trade, these pair have three things in common: they enjoy the highest levels of protection of any manufacturing sector in terms of the EU’s external tariffs; they generate the UK’s biggest EU deficits (£28 bn and £19 bn, respectively), and they are both represented by industry bodies that want the UK to maintain seamless trade with the EU.

Motor mania

First, cars. Using a three-year average at the start and end of this period and adjusting for inflation, UK motor-vehicle exports to EU have managed only fractional growth in 20 years: just 0.4% per year since 1998, or 6.7% over the entire two decades. Unnervingly, that growth is concentrated in the first half of the 20-year period. Adjusting for inflation, the value of average exports for 2008‒2017 (£15.03 bn, in 2015 prices) was lower than 1998‒2007 (£15.92 bn). This means by some measures, motor vehicles exports to EU are falling. Zero tariffs; zero market barriers; zero growth.

But here’s the problem: since 1998, imports from the EU have motored along nicely, growing at 3.6% per year. The result is a gigantic £28 billion deficit just in motor vehicles and parts — almost sufficient to write off the UK’s entire surplus in its trade in services.

Meanwhile, in the non-frictionless, non-seamless, non-Customs Union world of non-EU trade, UK exports have leapt ahead by a staggering 7.9% per year. Virtually all of the UK’s growth in motor-vehicle exports since 1998 is attributable to selling premium models to countries outside the EU: principally China and the US, but also ultra-high-end luxury models to the Middle East. The result is that despite being worth just a third of EU exports in 1998, exports to non-EU countries zipped past EU exports in 2012 and are now worth substantially more — £25.3 bn to £19.6 bn in 2017.

And thanks to the iron laws of mathematics, this difference will now accelerate away.

So, for the UK’s most-valuable trading sector, the Customs Union has operated as a one-way street. EU-based car-makers have retained a vice-like grip on the UK’s most-valuable import market with an 83.8% share that has dropped only fractionally since 1998. But there’s no reciprocity. Instead, UK auto manufacturing has relied for growth on global markets, with the result that the EU’s share of UK exports has plummet from 73.5% in 1998 to 44.7% in 2017.

Incidentally, this is easily the fastest switch-around of any major UK export sector, in the sense of exports switching from EU to non-EU countries since 1998. What’s more, the prominence of North America and China as markets for the UK’s premium marques implies that the proportion of the UK’s global motor exports already conducted on WTO terms probably exceeds the 73% average for UK goods.

Thus, the net effect of the Customs Union since 1998 has not been to create a springboard for UK manufacturing into continental Europe. Instead, it has placed a springboard in continental Europe, for overseas car manufacturers to ramp up their exports into the UK. Net investment has drifted from the UK to elsewhere in EU, and the growth in the UK’s auto deficit from £8.1 bn in 1998 to £28 billion deficit in 2017 is the living, haemorrhaging proof of it.

In employment terms, that springboard has bounced, very roughly, the equivalent of 40,000 jobs straight into continental Europe (This calculation is approximate. The UK’s trade deficit with the EU has widened by £17.32 billion (in 2015 prices) from 1998 to 2017. In the US, NBC estimates that wages contribute 10-15% of the cost of the average motor vehicle, and the average salary of a UK car worker, according to Auto Express, is £39,000. Using the lower figure, gives a value equivalent of 44,410 jobs. ).

The lethal aspect to this trend, however, is the way it is now edging into the UK’s premium sector – the power-house of the UK’s non-EU export growth since 1998. Jaguar‒Land Rover has now inaugurated production of its I-Pace and E-Pace models at Magna-Steyr in Graz, Austria, while BMW produces its second-generation Countryman models at VDL Nedcar in the Netherlands. Tellingly, the UK job losses announced by Jaguar-Land Rover in January 2019 followed the opening of a new £1 bn factory at Nitra, Slovakia, an investment decision that predates the UK’s 2016 referendum, and was part-induced by €125 million of EU-approved Slovak state aid.

Thus, for the UK’s biggest traded sector, the theoretical benefits of the UK’s membership of the Customs Union have failed to translate into measurable benefit. The protection of a 9–10% external tariff has not stimulated demand for UK-made vehicles and parts among EU customers over the past 20 years. Nor yet have the supposed obstacles of trading on WTO terms held back British motors from tripling sales (in real terms) since 1998.

The only observable impact of Customs Union membership has been to preserve the UK as a highly lucrative captive market for EU producers, with an 83% share of motoring imports.

Food for thought

Trade isn’t just exports, though. The equally vital role of trade is to secure for UK consumers the best quality goods at the lowest price. And if there’s one sector where this matters more than any other, it’s the UK’s second-biggest EU trade sector: food and agriculture.

At 0.7% of GDP, the UK’s agricultural sector is easily the smallest per head of any major economy in Europe. The UK is, perforce, a massive importer of food and agriculture products — currently to the tune of £42.9 billion per year. And so, even for non-free-traders, this is one area of trade where the interests of UK consumers easily outstrip the interests of UK producers.

Consequently, the UK’s strategic interest should be uncomplicated: to enable UK citizens to buy the cheapest and the best-quality food available on global markets. Yet this is precisely what the Customs Union prevents. By imposing ultra-high tariffs on non-EU food and quotas on imports, the EU forces UK consumers to purchase food from EU producers, who just happen to be the highest-cost food-producers on the planet.

But here’s the kicker: thanks to the Customs Union, the UK’s forced dependency on high-cost food is actually rising (Tab 8, Food, in UK’s Top 10 Sectors). Back in 1998, the EU supplied 67.8% of food products imported into the UK; this has now risen to 76.3%. The balance moderates slightly if you include agricultural produce (e.g. cereal) but agricultural produce is just 23% of the food that the UK imports. Add that to the mix and the UK’s reliance on EU for imports of all food-stuffs is still increasing, and stands at a 69.9%, totalling £30 billion in 2017.

Does this matter? Recent analysis from the Institute for Fiscal Studies by Peter Levell downplays the effect which the removal of tariffs would have on consumer prices, asserting the net effect on average households of the removal of all tariffs would be just 0.7% – 1.2%. The excellent analysis misses three factors, however: the effect of competition, the role of regulation, and the qualitative impact of changed spending habits – especially on less-well-off households.

First, the opening up of a protected or captive market to global prices would instantly stimulate competition, and competition would then become the dominant price-setting factor, not the old tariff differential. If overseas food producers bit straight into EU producers’ market share, EU producers would have to do reduce prices and become more efficient to retain market share (or gain fresh subsidies). There’s no telling how far price reduction would go but the dynamic of fresh competition for market share is the factor that would drive price reduction, not the original tariff advantage.

Second, some tariffs are particularly high, and their removal would disproportionately impact some households’ quality of life. As the IFS itself has itself pointed out, the least-well-off 20% of UK consumers spend more than 20% of their income on food. Imagine, then, the consequence of eliminating the effective 60% EU tariff on beef. Argentinian and Brazilian producers would charge into the UK market, and prices would quickly drop. But the effect would be qualitative. Families – and individuals, more to the point – would change spending habits and start eating high-quality beef, while paying less for the novelty. On them, the effect of tariff-free food would be immense.

Third, creating an open market in UK food stuffs wouldn’t simply be a matter of removing tariffs, but of reforming regulation to ensure it becomes non-discriminatory. And for consumers to benefit, a post-Brexit UK would also need to ensure compliance among trade partners. Analysts need only contemplate the effect – on consumers and UK car production – of the 2015 demise of the Land Rover Defender, when Jaguar Land Rover decided to comply with EU emissions regulations which other European car makers chose to flout. Without re-regulation, and compliance among trade partner, UK markets – especially food markets – will not become genuinely open, and value won’t flow to consumers.

In summary, a practical test of the utility of the Customs Union has to rest principally on the experience of motor vehicles, and food/agriculture. They are the UK’s two largest two-way sector trade with the EU and it’s where protective EU tariffs have the greatest trade-distorting impact.

In both cases, the trade data for 1998–2007 show the effect of the Customs Union is to retain or grow the UK as an essentially captive market, without reciprocal benefit to UK producers (in the case of cars) or UK consumers (in the case of food). And even from UK food producers’ perspective, exports of food products to markets outside the EU have grown faster than inside it (3.5% to 2.7%) despite the high tariffs and regulatory burdens common in trade in food. The rise in salmon sales to Korea following implementation of the 2011 FTA implies that the UK has much to gain from negotiating access to Asian markets – not just for fish, but also cheese and beverages.

I invite you to step through the experience of all the UK’s biggest trades by downloading the spreadsheet The UK’s Top 10 Sectors. The story described above repeats to a greater or lesser extent in each. The UK’s record inside the Customs Union is so unrelentingly poor that it begs a bigger question: do other countries fare any better? Is the UK’s experience just uniquely, inexplicably bad?

To answer that question, in a final instalment I will compare UK performance against other EU countries, non-EU exporters, the US’s and the Eurozone’s own growth rate.

The post The curious effect of the EU Customs Union on the UK’s cars and carbs appeared first on BrexitCentral.

Cabinet ministers took May ‘hostage’ over Brexit delay, says former minister

George Eustice said that taking no deal off the table would ‘dramatically undermine your credibility as a country.’

The British government was “taken hostage” by Cabinet ministers who forced Theresa May into offering MPs a mechanism to delay Brexit, said former minister George Eustice.

Eustice, who resigned Thursday from his post as junior agriculture minister, told Sky News’ Ridge on Sunday that May was strong-armed into allowing MPs a vote on delaying Brexit which would damage her negotiating hand with Brussels.

“The government was taken hostage, and some Cabinet members in government colluded in that hostage-taking,” he said.

“Some members of the Cabinet were clear that Parliament had to have a vote that would, as they put it, take no-deal off the table. As soon as you take no-deal off the table, you dramatically undermine your credibility as a country, you undermine [Attorney General] Geoffrey Cox who is trying to get some final changes to this,” he said.

Asked who he meant, Eustice cited three ministers who wrote a joint article — apparently referring to an op-ed in the Daily Mail last weekend by Amber Rudd, David Gauke and Greg Clark.

Eustice warns that rejecting the option of a no-deal Brexit would box the U.K. in and severely weaken its negotiating position.

While noting he will vote for Prime Minister Theresa May’s deal, Eustice maintained that “we mustn’t be fearful of leaving without an agreement, if we can’t get an agreement in place.”

The former junior minister and Brexiteer made the argument that even in a no-deal scenario, EU governments would be willing to put temporary arrangements in place to avoid major disruptions.

A no-deal is “a bit of a misnomer,” he said. “No-deal probably in effect means an informal transition period for nine months. And we already know from all of our dealings with the European Union that pretty much across the piece they are looking for informal arrangements where there’ll be very little change for a period of nine months, and that gives you a window in which talks could continue.”

Don’t tie May’s hands 

Eustice warned that rejecting the option of a no-deal Brexit would box the U.K. in and severely weaken its negotiating position.

“The fundamental question is this: if parliament takes no-deal off the table and signals to the European Union that we’re too scared as a country to walk out the door, and then demands that the prime minister go cap in hand to Brussels, at the eleventh hour, with just maybe ten days go to, to beg for an extension, what happens next?” he asked.

“The EU will dictate the terms of that extension. They will come back, they may say it has to be two years, they may say there has to be a very large financial cost to that extension. And what will parliament do at that point, when it maybe at this stage has three or four days until Brexit day, and it’s faced with some impossible demands from the European Union?” he asked.

“So I don’t think those in parliament who sought to frustrate this process and sought to create an option to delay Brexit have fully thought through what they’re actually doing.”

Prime Minister May has “faced a European Union that’s seen weakness,” he said, adding that the EU “has not been in any mood to negotiate in good faith” and has “played games.”

Addressing growing fears in the British farming sector about the impact of a no-deal Brexit, the former minister said that the government would introduce tariffs on agricultural goods coming into the U.K. that would keep prices stable, but also protect key farming sectors.

“We have already agreed that we’ll have tariff-rate suspensions on goods that we don’t produce, things like citrus, so that we can keep prices stable. But we’ll also put in place tariffs to protect some of those sensitive sectors, including beef, including sheep, and possibly also some of the diary sectors as well,” he said, confirming a POLITICO Pro story about the planned tariffs published last week.

But Eustice added that other factors would also affect prices. “The biggest impact on food prices will be exchange rates,” he said.


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Trump’s UK ambassador hits out at US farming ‘smears’

The EU has a ‘Museum of Agriculture’ approach to farming that blocks innovation, said Woody Johnson.

The U.K. should ignore “smears” about U.S. farming methods and move away from the EU’s “Museum of Agriculture” approach, said Woody Johnson, Washington’s ambassador to the U.K.

Writing in the Daily Telegraph, Johnson urges U.K. citizens to embrace a bilateral trade deal that includes a loosening of the EU’s agriculture standards.

During negotiations over the now-abandonned TTIP trade deal between the EU and U.S., the prospect of imports of genetically modified tomatoes and “chlorinated chicken” from the U.S. led to protests in the U.K. ButPresident Donald Trump’s administration is hoping for a second chance to open the U.K. market to these products after the country’s EU divorce.

Johnson said that U.K. consumers had been presented with a false choice. “Either stick to EU directives, or find yourselves flooded with American food of the lowest quality. Inflammatory and misleading terms like ‘chlorinated chicken’ and ‘hormone beef’ are deployed to cast American farming in the worst possible light,” he wrote.

“It is time the myths are called out for what they really are: a smear campaign from people with their own protectionist agenda.”

Different approaches in the U.K. and EU are “not a question of quality but philosophy,” Johnson argued. The U.S. embraces innovation to bring “safe, affordable food” to the world, while the EU emphasizes tradition — a “Museum of Agriculture approach.”

Johnson rebutted some specific concerns: Chlorine washing chicken is a “public safety no-brainer” to eliminate germs, he wrote, pointing out the EU producers do the same to decontaminate fruit and vegetables. And he argued that using growth hormones meant beef could be produced at “lower cost to both the environment and the consumer.”

He urged Britons to join the U.S. to “shape the agricultural revolution of the future.”

UK food supply under threat from no-deal Brexit

Farmers and food suppliers say they need more guidance about what to do in case of no agreement.

Britain’s farmers and food suppliers are begging the government for Brexit answers.

With just five weeks to go until Britain leaves the EU, businesses across the food supply chain say they remain in the dark about how they should operate in the event of no deal.

Nobody knows yet what tariffs will be applied on goods both leaving and entering the U.K. — though an announcement on that could come as early as Friday.

In Calais and Dover, no new infrastructure has been built to prepare for customs checks should controls be required. London has yet to provide exporters and importers any clarity around its proposed trading regime with countries outside the EU. And companies from supermarket chains to big food processors such as Nestlé say they have no idea what labeling requirements will be in place should no deal be reached.

“Obviously as importers of food, it’s really important that we know if there will be tariffs applied and if so what that is going to look like,” said Andrew Opie, director of food and sustainability at the British Retail Consortium, which represents supermarkets in the U.K. “There are a number of countries such as Iceland, Norway and Mexico — important for imports of food — where we are still uncertain what the trading arrangements will be on day one of a no-deal Brexit.”

A lack of trading schedule means that supermarkets such as Tesco, Asda and Sainsbury’s still have no idea where they should buy from if there is no Brexit deal.

Nearly one-third of the food eaten in the U.K. comes from the EU.

This concern is particularly acute as Britain produces very little fresh fruit and vegetables in the months of March and April. At this time of the year, 90 percent of lettuces, 80 percent of tomatoes and 70 percent of soft fruit is sourced from the EU. Environment Secretary Michael Gove told attendees at the annual National Farmers Union conference this week that an announcement on the U.K.’s tariff schedule in the event of a no-deal could come out as early as this week.

Moreover, Opie said that the level of uncertainty means there is no guarantee retailers and food processors could send products into Ireland, as meat plants exporting into the EU have still not been registered. In addition, meat labeling to assure health and safety standards has still not been designed.

Last month, the chief executives of 12 retailers, including Marks & Spencer, Waitrose and Lidl wrote to lawmakers in the House of Commons to remind them that nearly one-third of the food eaten in the U.K. comes from the EU. They said the level of uncertainty has led to a considerable amount of stockpiling. But now, “all frozen and chilled storage is already being used and there is very little general warehousing space available in the UK,” they wrote.

Uncertainty is also acute for sheep farmers. Lambs entering British abattoirs for slaughter now will arrive at their destination in the EU after Brexit, meaning farmers aren’t sure their product will even reach its final destination should labels fail to be recognized.

Farmer Pip Simpson, and his son Ted, aged 2, prepare to present his store lambs to buyers in northern England | Oli Scarff/AFP via Getty Images

“What meat stamps will be recognized in the EU?” asked Phil Stocker, chief executive of the National Sheep Association. “One or two traders I’ve spoken with have said trade is already being dampened … People here and at the end destination don’t know if they will be caught out.”

Around 40 percent of the 300,000 tons of lamb produced in Britain annually is exported, of which 96 percent enters the EU — mainly France, Belgium, Germany, Spain and Italy.

“It’s a real muddle. There is a lot of work going on … But there is still no decision made and industry has been given no guidance on what to do. There has been a total lack of understanding,” Stocker said, adding that the government has also failed to clarify how it plans to attract seasonal contractors to work in the country’s abattoirs in the event of a no-deal. A huge proportion of abattoir staff currently come from Eastern Europe.

On Thursday, U.K. Farm Minister George Eustice said the government is exploring slashing tariffs on goods coming into the U.K. as a way of sheltering consumers from price hikes in the event of a no-deal Brexit.

But the Cabinet is divided on the tariffs issue, with Environment Secretary Michael Gove pushing for higher tariffs to protect British farmers, while Chancellor Philip Hammond and International Trade Secretary Liam Fox want lower duties to protect consumers from higher prices in the shops.

If there is no deal, the EU is likely to levy full external tariffs on food coming in from the U.K., meaning an increase of at least 40 percent on sheep meat and beef — with 100 percent tariffs on specific cuts. With the threat of EU tariffs imminent, Minette Batters, president of Britain’s National Farmers’ Union, this week gave Secretary Gove a public dressing down at the NFU’s annual conference — speaking of her dismay at the “insanity” of politicians.

A no-deal Brexit would require the government to put tariffs on sheep meat, beef, poultry, milk, cheese and pig meat in order to safeguard domestic production.

“Britain was … assured that a trade deal would be the easiest deal in history, that Britain holds all the cards in the negotiations. Well, conference, in a few weeks’ time if there isn’t a deal with the EU, high export tariffs could effectively mean we have no market for four and a half million lambs,” she told delegates as Gove looked on. “With 900 hours to go, it’s unacceptable for government to leave British businesses having to take this gamble.”

Gove conceded in his speech that a no-deal Brexit would require the government to put tariffs on sheep meat, beef, poultry, milk, cheese and pig meat in order to safeguard domestic production. He also underlined that all animal products entering the EU would face health and safety checks, resulting in delays in loading ferries in Calais.

U.K. exporters will also need to comply with new customs paperwork and a new labeling scheme will be required for products of animal origin exported to the EU. “I emphatically do not want to run the risks that leaving without a deal would involve,” Gove said.

But if no deal cannot be avoided, his department’s preparedness will come under intense scrutiny, Batters said.

“It’s often said that the first responsibility of government is to defend its people and that the second responsibility is to feed its people,” she said “On March 29, you [Gove] will be the first secretary of state in over 40 years with the responsibility, the duty of ensuring Britain is fed.”

Major retailers warn of empty shelves under no-deal Brexit

Chains including Sainsbury’s and KFC said they are ‘extremely concerned’ about impact on customers.

Leading U.K. retailers on Monday warned MPs that a no-deal Brexit would jeopardize food security in the country, leading to empty shelves and increased prices.

“We are extremely concerned that our customers will be among the first to experience the realities of a no-deal Brexit,” said the letter sent by the British Retail Consortium (BRC) and signed by executives of chains including Marks & Spencer, Sainsbury’s, KFC and Waitrose.

The warning comes ahead of debate and vote in the House of Commons Tuesday on amendments to a motion on Theresa May’s Brexit plan.

The BRC said there would be “significant risks” to the choice, quality and shelf life of food products due to things like higher transport costs, should the U.K. crash out of the EU without a deal on March 29.

The letter also predicts price increases should the U.K. revert to World Trade Organization rules and said it is now difficult to stockpile any more products because “all frozen and chilled storage is already being used and there is very little general warehousing space available in the U.K.”

The BRC wrote that the British parliament should “urgently” work to “find a solution that avoids the shock of a no-deal Brexit … and removes these risks for U.K. consumers.”


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The great British Brexit stockpile

From airplane food to car parts, companies are hoarding goods to prepare for a no-deal Brexit.

With the prospect of crashing out of the EU looming, the U.K. is battening down the hatches.

Companies are stockpiling food, medicine and car parts — but they’re running out of space to store it all.

Tesco, Britain’s largest supermarket, has rented an emergency supply of refrigerated units to mitigate any chaos in the event of a disorderly Brexit. Marks & Spencer has begun stockpiling non-perishable goods. Pharmaceutical giants, meanwhile, have secured additional U.K. warehouse space for medicines and vaccines that require cold storage. And automakers like BMW are frantically looking to store components.

In all, warehouse space is already 75 percent full, according to data from the UK Warehousing Association, whose members have roughly 9.3 million square meters of space nationwide.

“We are facing a ‘perfect storm’ in the warehousing and logistics industry, with little speculative build in the pipeline [and] urban development land earmarked for residential but not for the warehousing required to fulfill rising consumer demand,” UKWA said in a statement. In the last quarter of 2018, 85 percent of UKWA’s members received Brexit-related inquiries.

“There is a little bit of a worry that if you talk about it too much, you might create the problem you are trying to avoid” — Retail industry official

Whether it’s supermarkets, drugmakers or car manufacturers, it’s hard to find a segment of British industry that is not undergoing a costly process of contingency planning, especially now that U.K. lawmakers have rejected Prime Minister Theresa May’s Brexit deal.

“Retailers are planning ahead to meet consumer demand in all eventualities. Where it is feasible, given the nature of the product and available storage space, they are doing the prudent thing and increasing some stock,” said Andrew Opie, director of food and sustainability at the British Retail Consortium, whose members include the Sainsbury’s, Asda and Tesco supermarket chains.

Although the stockpiling of dry goods such as tinned tuna, baked beans and pasta is possible, Opie said perishable produce such as fruit, vegetables, fresh fish and meat “cannot be stored for any prolonged length of time.”

Marks & Spencer declined to specify its stockpiling plans, and Asda did not reply to questions. Tesco declined to comment but pointed to comments made by its chief executive, Dave Lewis, on January 10, when he told reporters Tesco had “sat down with each individual supplier partner and decided what, if any, is the need for stock and where that is best to most appropriately [be] kept and maintained.”

Shoppers walk past a Marks & Spencer shop on Oxford Street in central London | Tolga Akmen/AFP via Getty Images

As the March 29 deadline approaches and May looks to Brussels to make changes to the so-called Irish backstop — which is designed as a fail-safe mechanism to avoid the need for a hard border on the island in all circumstances — companies like Gate Gourmet, which supplies 20 airlines at 10 airports in the U.K., have begun stockpiling frozen entrées, pizzas, dried snacks and sandwiches at warehouses in Peterborough and London to ensure passengers will stay fed, a company spokesperson said.

Gate Gourmet produces most of its meals in Germany and Spain and fears any holdup at the British border could disrupt its business model.

Panic fears

Two industry officials in the retail sector, who spoke on the condition of anonymity, said supermarkets are extremely reluctant to talk about finer details or the scale of their contingency planning for fear of sparking a bout of panic buying. Worries among the public about possible shortages have prompted the creation of Brexit “prepper” Facebook groups, while manufacturer Emergency Food Storage is selling so-called Brexit Boxes for £295, containing freeze-dried meals, a water filter and a fire starter.

“There is a little bit of a worry that if you talk about it too much, you might create the problem you are trying to avoid,” one of the industry officials said, adding that some supermarkets have studied which products would be hit hardest by tariffs in the event of a disorderly Brexit and have begun prioritizing those items.

Many retailers are also frustrated about having to invest more in storage facilities when a Brexit deal could still be negotiated before March 29, the two officials said, noting that the cost of warehouse space has risen markedly of late as fears of a no-deal rise.

Very little can be done to stockpile fresh produce though. Strawberries, for example, can be irradiated — a technique already deployed in Belgium — and apples can be stored in a dark, cool room with high levels of carbon dioxide as a way of keeping the fruit fresh for months on end. But the vast majority of fresh items like cheese and meat will simply perish if held up at the border due to customs controls.

“We are looking for additional [warehouse] space but in the end, it’s not possible” — Stephan Freismuth, BMW customs manager

“The whole point in ‘just in time delivery’ is that you don’t have to put aside cash to store goods,” said Neil McMillan, director of political affairs and trade at EuroCommerce, a lobby organization for the retail sector. “The scale of movement across the Channel is just immense. If fresh veg is stuck for even a couple of days, it’s off by the time it comes across.”

There are similar limitations for automakers.

BMW Customs Manager Stephan Freismuth said that stockpiling could be achieved for a matter of days. Anything longer would require building “the highest building in the world.”

“We are looking for additional [warehouse] space but in the end, it’s not possible. We are producing ‘just in time,’ and just in sequence,” Freismuth said, noting that BMW in the U.K. imports about €2 billion worth of car parts from the EU every year, or double the amount it sources from inside the country.

Carmakers such as Nissan, Toyota and Honda face similar problems as hundreds of trucks carry components into the U.K. on a daily basis to snap into just-in-time supply chains at plants across the country.

In the pharmaceutical sector, U.K. Health Secretary Matt Hancock is working to ensure Britain is prepared for a no-deal Brexit. According to the Association of the British Pharmaceutical Industry, AstraZeneca has increased the number of finished medicines available to pharmacies and hospitals in both the U.K. and EU by 20 percent as a response to the risks of no deal.

British Health Secretary Matt Hancock | Dan Kitwood/Getty Images

It has also spent £40 million preparing for a no-deal Brexit, including building labs in Sweden to duplicate product testing.

The French pharmaceutical giant Sanofi has secured additional U.K. warehouse space for medicines and vaccines that require cold storage and is also moving some manufacturing operations from the U.K. to elsewhere on the Continent.

Don’t speak out

Aside from being worried about the possibility of a panic if they disclose too much about their plans, companies are also limited in what they can say publicly. The British government has used non-disclosure agreements to prevent organizations and businesses from revealing information about Brexit-related stockpiling.

Over the last few weeks, Labour MP Rushanara Ali has questioned the government over its use of non-disclosure agreements, which prevent organizations and businesses from revealing any information related to contingency plans drawn up by government departments in no-deal Brexit preparations.

Following her inquiries, the government admitted the Department of Health and Social Care has used 26 non-disclosure agreements to restrict what businesses and organizations could say publicly.

Nissan’s production plant in Sunderland, England | Christopher Furlong/Getty Images

“It is unacceptable that the government continues to pursue a policy of silencing businesses and industry from speaking out about the disastrous implications of a no-deal Brexit,” she told POLITICO.

“By effectively ‘gagging’ these organizations, these secretive agreements are preventing essential information from being shared, are undermining transparency, and are hampering businesses’ ability to speak out.”

When asked by POLITICO, a U.K. health department spokesperson said that signing non-disclosure agreements allows the department to “talk to the industry in confidence prior to making public statements and issuing advice. This means that when we go out to the whole industry we can be confident that any requests of them are clear, appropriate and deliverable.

“As part of any standard contract, in government or the private sector, we use these clauses to protect the commercial interests of government and its suppliers in a reasonable way.”

Helen Collis contributed reporting.