Milling News
Brexit: Where are we now?
Alex Waugh
As we enter extra time in Brexit discussions, with an extension of full UK membership of the EU until October 31st to allow time for a conclusion, what are the future prospects and implications for the flour milling industry?
The deal reached between the UK and EU negotiators – which has been rejected three times in UK Parliamentary votes - would do three things if it is ratified: Unlock a transition period during which the UK will no longer be a member of the EU and will forfeit rights of representation in the Council and the European Parliament, but will, in almost all respects, be treated as if it were a member. This period will last until the end of 2020, although it can be extended by up to two years. Establish some aspirations for a future relationship between the UK and the EU. It foresees a comprehensive free trade agreement with no tariffs on goods in either direction but could also allow for much closer regulatory alignment and/or a formal customs union (see below). However, it also contains a backstop position, which would apply at the end of the transition period unless it were superseded by an agreement with which both sides are happy. The backstop is designed to prevent the re-emergence of a hard border in Ireland and would mean that all of the UK was within a customs union for goods (except fish), ie no tariffs; and regulations applied in Northern Ireland would mean that no checks were required in North-South trade on the island of Ireland. There would also be no checks required on trade from NI to mainland GB, although some would most likely be required on trade from GB to NI, and also between GB and the Republic of Ireland. The backstop provisions are politically controversial, as some people don’t like the idea of the UK being tied to a customs union with the EU, and others don’t like the special status accorded to Northern Ireland seeing it as either a division in the UK or an exception that favours one part of the UK over others. The idea that an end to the backstop has to be mutually agreed is also disliked. On the EU side, it is argued that backstop arrangements are essential to the interest of the Republic of Ireland and to prevent future problems on the land border. Nevertheless, some concern has been expressed that they effectively give the UK access to the EU market with nothing in return and no guarantee of regulatory convergence. How can progress be made?
The UK Parliament has consistently voted against a “no deal” (which is the default outcome in UK and EU law), but so far not found agreement on what it could support. In practice this means that “no deal” is still a possible outcome. At present, the government is in talks with the Labour opposition to explore compromises that might command a Parliamentary majority. The Labour party favours a softer Brexit, with the UK remaining in a Customs Union with the EU. This would mean that UK tariffs were no lower than those of the EU, and that there would be no need to prove the origin of goods traded between the UK and the EU. So far, the government has been unwilling explicitly to concede this, nor to agree to a second referendum on EU membership (or confirmatory vote) that a majority of Labour party members would like to see. These talks may reach a conclusion, but the more likely outcome is that there will be a further series of “indicative votes” in Parliament as a means of working towards a consensus. What are the implications for flour millers? The UK government announced in March that in the event of the UK departing the EU without a deal in place, it would temporarily reduce tariffs. In the grain sector, import duties would fall to zero for all grains and processed products with the exception of milled and broken rice. This would ensure that millers in the UK continue, as now, to have access to wheat without paying a duty, and that the rest of the world, including the EU, would continue to have access to the UK market. However, the EU has made no such commitment, meaning that UK based businesses would face tariffs in the range 15-50 percent on their exports to the EU. The tariff situation would be disruptive to all trade, but especially to exchanges between the UK and the Republic of Ireland. Exports of flour and mixes from the UK to the EU in 2018 reached over 360,000 tonnes, and a further 300,000 tonnes is exported as baked product, so there is a lot at stake. The total potential loss is equivalent to about 15 percent of annual flour production. It remains to be seen what will happen in the next few months, but “no deal” would certainly be bad news for flour millers and their customers, who would be much better served by a Customs Union-type agreement which would ensure that new tariff barriers are not created and that existing trade patterns can be largely maintained. In any event, nabim will continue to speak up for flour millers in our discussions with politicians, government and colleagues in the food sector.
Alex Waugh is the Director General of nabim (National Association of British and Irish Millers) in the United Kingdom 16 | June 2019 - Milling and Grain