Leaving the single market

Teresa May has set out the UK governments approach and aims in its negotiations to leave the European Union, causing immediate concern among Britain’s farmers.  After signalling a clear intention to leave the single market, real questions remain on how UK trade will operate post Brexit, particularly on the issue of tariffs and how WTO rules will effect the UK’s trading relationships. The EU accounts for 90% of the UKs beef and lamb exports, and these sectors will be hit hard if tariff free trade does not continue, in Q3 2016 over 70% of the UK’s food and drink exports were to the EU.

Even with the UK not wanting to remain within the single market the negotiations will be complex. There is the issue of Tariff rate quotas (TRQs) under which countries such as New Zealand and import lamb into the EU, and the UK and the EU will have to come to an agreement among themselves and the other countries affected about how these quotas are shared out.

Getting an agreement which complies with existing WTO rules could be more complex. The corner stone of the WTO agreement is the concept of “Most Favoured Nation” MFN status, all WTO members agree to accord each other MFN status, which means they cannot discriminate between each other in terms of trade deals offered. These rules could mean any future deal between the UK and the EU offering completely zero tariff free trade could be challenged by third countries seeking greater access into both these markets. Some exceptions are possible – in the case of developing countries, or for a regional free trade agreement. A UK-EU regional free trade agreement could be possible – but could not be concluded until after the UK has left the EU, which does leave the possibility of a period operating under WTO rules – with tariffs on many agricultural exports. This would not just effect UK exporters, but have a deep impact on the Irish beef industry, which sends 54% of its exports to the UK.

The key advantage of leaving the single market for the UK is seen as the ability to set its own trade policy with countries outside of the EU, and develop new trading partners. Many hope that greater flexibility outside the EU will help boost trade and opportunities with fast growing emerging markets and other major markets.  Many of the EU trade talks have been long – for example the CETA talks with Canada which began in 2009, but is still not in effect. A number of countries have expressed interest, however it is worth noting that many of these are major agricultural exporters such as Australia, New Zealand, and the US and this could lead to increased competition for UK agricultural producers.

Some farmers are also hoping that the withdrawal from the CAP will lead to more flexibility in terms of regulations, but it is also likely as well that the UK Treasury will seek to reduce to overall cost of farm support. The devolved governments in Scotland, Wales and Northern Ireland will also be seeking an increased responsibility in setting farm policies and different approaches to farm support may evolve across the UK.

What is now becoming apparent is that the vote last year, and the decision not to continue membership of the single market will have a profound impact on UK and EU agriculture over the next few decades.

 

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