Time has run out for a comprehensive free trade agreement
Whatever I may personally think about the Brexit project, and for those who have not followed my column before, I am not a fan, I believe its chances of success are seriously threatened by the UK government’s political imperative to get it done and dusted by the end of the Transition Period (TP), that is 23.00 hrs GMT on 31 December come hell or high water. This, in my view, puts at risk any chance that the process will run smoothly and promises massive disruption and economic damage some of which will last many months or may be permanent; not all businesses will survive it.
I am writing this a scant 5 weeks before the end of the TP, so I am taking a leap of faith and assuming that a deal will be done. Let’s certainly hope so, as without one, all bets are off. However, as my readers will know, I have made the point repeatedly that many of the problems we will face do not disappear with a trade deal unless they are negotiated away in detail.
A superficial deal which agrees zero for zero tariffs and no quotas only takes one issue, albeit important, off the table; we can trade with the EU without the additional burden of duties. But that is where it ends, and it is not just tariffs that threaten competitiveness; it is the panoply of processes, procedures and requirements that we will need to meet as a non-EU country in order to be able to export to the EU.
These will not only significantly add to operational costs but will make our ability to trade less flexible, create time lags and delays in the efficiency and speed with which we can deliver our products to EU customers and, without doubt, make certain forms of trade either very difficult or impossible. As a reminder, let’s look at some of these.
A recent survey by BMPA indicates that, on average 75% of consignments of fresh meat are grouped, either between different sites of the same business or with loads from other businesses. While a few businesses do not use groupage, for the majority it runs anywhere between 50 and 90% among the larger operators. For the smaller operators it will be at the upper end of this range. This means that some 300,000 tonnes of the total red meat and offal exports to the EU, worth some £800 million uses groupage.
DEFRA has developed a groupage scheme, the Groupage Export Facilitation Scheme (GEFS) but this is only for products packed for retail and specifically excludes fresh meat in in any form. While work is being undertaken by DEFRA to develop a scheme for fresh meat, as things stand a massive share of the total red meat trade to the EU is under threat if a procedure to allow the certification of grouped consignments of fresh and frozen meat is not found. The option of sending less than full truck loads or indeed full truck loads to importers who only want a pallet load is either economically unviable or not a commercial proposition for customers in the EU who can find alternative suppliers in manageable volumes closer to hand and take their business elsewhere.
The challenges in finding a solution revolve around the need for an agreed flow of information from the dispatching sites to the vet signing the Export Heath Certificate (EHC) at the point of final dispatch in a way that is cost efficient and not excessively burdensome. As groupage consignments move in both directions, there must be a mutual interest in making this work.
Veterinary resources and costs
It is increasingly clear, as meat companies try to find the resources needed to sign the massive number of EHCs that will be required, that there simply is not enough resource. DEFRA estimates that there will be a 500% increase in the demand for EHCs and place the total number of EHC’s per annum, principally for trade with the EU, at 300,000. This is a huge number in itself and exceeds 1000 per day across the working week. Feedback from the major meat exporters would indicate that this is, all the same, an underestimate. An EHC is required for each consignee and each destination so, related to the issues around groupage, a lorry load with product for 10 customer destinations will require 10 EHCs. EHCs will also be required for trade with Northern Ireland. There’s no doubt, and feedback from our EU counterparts confirms this, that veterinary resources are also under strain in their countries, so it must be of interest to find reciprocally acceptable solutions.
Third Country Listing & Export Health Certificate requirements
In order to be able to trade with the EU, the UK needs to be formally listed as an ‘approved’ country and, moreover, those establishments that want to export to the EU have to be listed as approved to do so. This can only happen when the Standing Committee on Plants Animals, Food and Feed (SCoPAFF) meet to do so. This will, I understand, take place at their meeting in mid-December. This means that the precise animal health requirements UK will have to meet under which we will be able to trade with the EU will not be known until 2 weeks before the end of the TP!
We should be quite clear as to the significance of this. It is highly likely that processors are producing products right now which they can legally export to the EU but will not qualify from 1/1/21. There are requirements imposed on non-EU countries which are not imposed on trade on the EU internal market. These include, for example, the trade in fresh meat preparations such as sausages, the trade in fresh mince, Trichinella testing requirements for pigs, possible standstill requirements on the last holding before slaughter and so on. Fixing these requires a negotiated solution.
Without going over old ground on this, with over 4 million freight units per annum moving through the Dover/Folkestone Corridor alone, a situation in which goods being traded between the EU and UK are treated in exactly the same way as those coming from distant non-EU markets will lead to lengthy delays and chaos. This is not about preparedness. Vehicles that are ‘border ready’ will still be subject to documentary checks and meat and other products of animal origin especially so, with physical checks on a proportion of trade inevitable.
The Government has announced that only single loads of seafood products and day-old chicks will be given priority. Fresh meat will not. This means that many perishable products will get caught up in delays and loss of shelf life means loss of value. With the clock ticking the government would have us believe that things will only go wrong if we are not ready but I believe that this is the inevitable consequence of a hard border, unless we can agree otherwise with the EU.
So enough of the moaning, what’s the answer? Time. Time to engage and negotiate the detail.
What is clear is that we can’t complete a detailed FTA with the EU in the time left and reaching an agreement which still results in very disruptive and trade limiting friction is in nobody’s interests. If the Government want to ‘sell’ Brexit as a positive thing it needs to be convincing. This requires a further period of discussion and negotiation to achieve this on the basis that, whether we reach a full trade agreement or just a framework agreement, many operational details will still need to be hammered out.
It is quite normal in trade agreements for there to be an implementation phase and this would be perfectly coherent with the Withdrawal Agreement as it could and should form part of the FTA. This would allow a sensible period, perhaps 12 months, to sort out groupage, export health certification, the level of process at borders and other issue which will be mutually damaging if we don’t.
The politics of extending the transition period are, I know, difficult and I have heard all the arguments about the process being disruptive whenever we do it, so we might as well get on with it. That may be true, all other things being equal, but we are not living in normal times. We are in the middle of a devastating pandemic which is wreaking havoc with businesses and the last thing that is needed is another shock. Let’s take the time to get it right.