What about an agriculture-only trade deal?

If the Brexit talks break down completely, is there a way to help the Irish agri-food trade? Eoin O'Shea takes a look.

David Davis, the UK’s secretary of state for exiting the EU, warned last week that he will walk out of Brexit talks unless the EU backs down on its demand for the UK to pay a large exit bill. Mr Davis told the Sunday Times: “We don’t need to just look like we can walk away, we need to be able to walk away”.

If the Brexit talks do collapse, a big fear will be that the UK will leave the EU without a trade deal being in place, leading to EU/UK trade being affected by customs tariffs.

There is one particular part of UK/EU trade – an important part – where it may be argued that very special circumstances ought to apply post-Brexit: the agri-food industry. According to the ESRI, average tariffs on meat post hard Brexit would be roughly 49%; cereals, 46%; processed meat and fish, 33%; flour, 27%; and fruit and veg., 21%. These levels of tariffs would cause significant displacements of trade with serious consequences for agricultural employment in EU member states.

The UK is a significant net importer of food. According to the UK Department of Agriculture’s report Agriculture in the UK, in 2015 the UK exported food and feed valued at £11.5 billion but imported nearly three times more – £30.3 billion. In the same year, the UK imported 251,000 tonnes of bacon/ham and exported just 16,000 tonnes. Again, in 2015, the UK imported 2.3 million tonnes of fresh vegetables and exported just 156,000 tonnes. The vast majority of UK food imports come from the rest of the EU - for example 40% of the UK’s vegetable imports come from Spain and a further 28% from the Netherlands. The import of food is an important part of the UK’s food security situation – the UK’s own ‘food production to supply ratio’ was calculated at just 61% for 2015, compared to the EU average of over 90%. 

There are other reasons why the UK and the EU ought to have (even if nothing else is agreed) a trade agreement in respect of agri-food. First, a big displacement of markets could cause pressures on national and EU agriculture budgets, similar to what happened when Russia closed its markets to EU imports in 2014. Affected farmers needed financial assistance from the EU budget. 

Second, the agri-food industry is a traditional and large regional employer. Around 169,000 people are employed in the industry in Ireland and about 82% are employed outside Dublin. The situation is no different outside of Ireland. 

Third, given the high rates of tariffs on agricultural produce, a post Brexit scenario where there is no trade deal would give a significant boost to organised crime gangs (smugglers) operating along the Irish border and with potential negative effects for the Irish peace process.

In October 2016, the UK’s Civitas organisation (which is pro-Brexit) published the report Potential post-Brexit tariff costs for EU-UK trade which estimated the top tariff-attracting products exported from Ireland (and other EU countries) to the UK. By a country mile, the top three Irish tariff-attracting products were meat, dairy and meat preparations. The following EU countries have meat, dairy or meat preparations in their ‘top five’ tariff-attracting products exported to the UK: Ireland, Denmark, the Netherlands, France, Germany, Portugal, Croatia, Slovakia, Latvia, Greece, Italy, Romania, Belgium, Cyprus and Lithuania. Given the breadth of interest in same across the EU, it ought to be possible to build a coalition around the idea that, even if nothing else is agreed, agricultural trade ought to be protected from tariffs, post-Brexit. 

The final possible stumbling block to an agriculture-only trade deal between the UK and the EU post-Brexit is international trade law. Free trade agreements are supposed to cover “substantially all” the trade between participant nations, so an agriculture only deal would appear to fall foul of that rule. The situation is complex, but there are specific exceptions to world trade rules which could apply to a UK/EU agri-only trade deal during the first 10 years of negotiations and be aimed at achieving a full trade deal. Exceptions have been made in the past after Germany split – an exception could be requested on the same basis when the UK is being disentangled from the EU.

There happens to be no tariffs on pharmaceuticals or whiskey – these products will be traded between the UK and the EU on a tariff free basis however hard or soft Brexit turns out to be. However, the agri-food industry is an important one across the EU and, perhaps, there ought to be the political will, in Ireland and across the EU, to protect the agri-food industry even if all other Brexit talks happen to break down over the next 20 months. 

Eoin O’Shea FCA is a practising barrister, specialising in commercial and tax law.