Over here in Australia we are curious spectators of the Brexit dramatics in the UK and like many of us, you probably have some questions.
Like, what’s actually going on with Brexit? What happens if the UK leave the EU without a deal? What does it mean for Australia and Australian agriculture? We’ve sought answers from the NFF’s trade and economics expert, who has been closely watching events unfold…
We’re hearing a lot about Brexit in the press.
At its core is the question of how (and some continue to ask if) the United Kingdom will withdraw its membership of the European Union.
No one yet knows where Brexit will land. But I’ll have a go at trying to explain where Brexit’s been, some of the key issues for Australian farmers, and where it might possibly end up.
A bit of background
The United Kingdom first joined what was then called the European Economic Community (EEC) (now called the European Union (EU)) in 1973. Since that time there have been calls for the UK to leave the EEC/EU. This included the first referendum on leaving in 1975 (which voted to remain by a big margin), and a number of political parties committing to subsequent withdrawal referendums as part of their election platforms. This included the Conservative Party of Prime Minister David Cameron committing to hold a referendum if re-elected at the 2015 general election. Cameron was re-elected and kept his promise.
Cameron was a strong supporter of remaining in the EU and must not have believed there was any hope of the referendum resulting in the UK actually voting to leave. It’s probably safe to say most of the media and political commentators in the UK and around the world had a similar view. They were wrong. The UK voted 52% to 48% in favour of leaving the EU.
David Cameron fell on his sword and Theresa May took up the responsibility of implementing the referendum outcome and managing the UK’s withdrawal from the EU.
The process for exiting the EU provides a 2 year window for negotiating the terms of the withdrawal. Some might ask why does the UK need to negotiate the terms of how it leaves the EU – why doesn’t it just leave? The reason the UK and EU need a ‘withdrawal agreement’ is because of the extensive integration of UK and EU law, processes and institutions.
Since 1973, UK law has been fundamentally influenced by decisions made jointly with other members of the European Union. The UK currently applies about 12,000 EU regulations and other rules under the European Communities Act 1972.
These impact on agriculture policy, economic and monetary policy, environment, consumer and health protection, science, information, education and culture, customs, movement of workers, employment law and social policy, rules on setting up a business, fisheries, transport, competition policy, taxation, foreign relations, energy, industrial policy, security and justice policy.
The UK also has financial commitments under its membership of the EU that need to be settled. These include payments under the EU Common Agricultural Policy, payments for EU officials and their pensions, contributions to research programs, and outstanding loans. While the final bill is yet to be determined, UK officials have put the potential bill at between £34-39 billion.
The battle for a Brexit agreement
The need for an agreement on how the UK will leave the EU, therefore, is to ensure there is as much certainty as possible for both UK and EU citizens and businesses, as well as non-citizens who live, work and do business with the UK and EU, as to how UK rules will work post-Brexit. Without this certainty, you could bet on exit being pretty chaotic.
Theresa May negotiated two agreements with the EU that were released in November 2018. The first – called the ‘Withdrawal Agreement’ – established a transition period that set out temporary arrangements on how the UK would leave the EU up to 31 December 2020.
The second part of Theresa May’s deal provided a broad framework for post-Brexit relations between the EU and UK with the final detailed agreement to be negotiated during the transition period. The Withdrawal Agreement essentially provided some certainty for the short term and some breathing space to enable further negotiation on a final deal.
The key part of the Withdrawal Agreement for Australian farmers is the part that has the UK remain as a member of the EU Customs Union for the duration of the transition period and potentially longer.
Continued membership of the customs union means most of the UK’s trade policy, at least for goods and agricultural trade, would continue to be run by the EU. The UK could not negotiate new trade agreements with other countries while it was in the customs union and access for Australian agricultural exports to the UK pretty much stay the same.
The point supporters of this Withdrawal Agreement have made, however, is that the arrangement would only be in place until the UK and EU negotiated a final agreement – which the UK intends will return control of trade policy to the UK.
The UK Parliament has rejected Theresa May’s deal twice. One of the key reasons UK Parliamentarians rejected the deal was due to what has been called the “Irish Backstop” and its implications for the UK remaining in the EU Customs Union.
The Irish border issue
In a nut shell, the Irish Backstop could potentially lock in Northern Ireland to the EU Customs Union, which would effectively lock in the UK to the EU Customs Union.
At the core of the Backstop issue is how to keep open the border between Ireland and Northern Ireland (and avoid reopening old wounds that the ‘Good Friday’ Agreement sought to heal) and enable the UK, including Northern Ireland, to take back control of its trade policy. It’s a very tricky dilemma.
The UK Government, however, is putting its faith in its ability to eventually come up with an agreement with the EU that keeps the Irish border open AND returns control for UK trade policy to the UK.
In the meantime, the Australian Government and UK Government have had talks about negotiating a free trade agreement as soon as the UK is in a position to negotiate one – whenever, and if ever, that comes about.
If we are able to negotiate a free trade agreement with the UK, then the NFF would seek really ambitious outcomes for Australian farmers. We’d be looking for complete elimination of tariffs and quotas on our agricultural exports over time.
Australia and UK share strong historical (and sporting) ties, we welcome lots of Poms to Australia and lots of Australians spend time and work in the UK. We have strong investment links and generally really like each other! There’s real scope to improve our trade with the UK should their exit from the EU include withdrawal from the Customs Union.
So where to from here?
As I said – no one yet knows where Brexit will land.
There are, however, a couple of scenarios.
The first is that the UK Parliament agrees to Theresa May’s deal and the UK exits the EU on 22 May 2019 – though after rejecting it twice and current blocks placed on a third vote – this is looking unlikely in the short term. (The EU agreed on 23 March to delay the day the UK leaves the EU from 29 March to either 22 May – if Parliament agrees to the Withdrawal Agreement – or 12 April if it doesn’t.)
The second is that the UK leaves the EU on 12 April 2019 with no deal – they are calling this a ‘Hard Brexit’. While this might hand complete control of its trade and all other laws and policies to the UK, so much still needs to be done to prepare for complete exit it’s like to be pretty chaotic and damage the UK economy, the EU economy and have ripple effects across the global economy.
The UK could ask EU for a further extension of time. Even if they get an extension, all the current contentious issues holding up agreement on a withdrawal agreement will still need to be resolved. And more time won’t necessarily make them any easier to resolve.
Another proposal is that the UK hold another referendum on whether the UK stays or leaves the EU. This has some support, though Theresa May has said there would not be a second referendum.
It’s also possible the UK Government, under pressure from Parliament, withdraws Article 50 and stays in the EU for at least the short term.
And we could see another UK General Election in the meantime. The Labor Opposition want a soft Brexit with the UK remaining in the EU Customs Union.
As for the EU’s role in all this, they are keen to limit damage to EU members and the EU economy from Brexit so are unlikely to move very far from the deal they have already struck with Theresa May. And it’s not really in their interest to let the UK off too lightly in case other EU members get similar ideas and unravel the Union.
What does this mean for Australian agriculture?
Where do Australian farmers sit in all this – well, we, like people around the globe, continue to watch on as the drama unfolds. That said, Australia is in negotiations with the EU on a free trade agreement (FTA). If the UK does remain in the EU Customs Union, then these negotiations are the only opportunity we have to improve access to the EU, including the UK, for our agricultural exports.
At this stage, we’ve been told the EU will not remove all tariffs and quotas for Australian agricultural exports but they might provide some additional access.
The real benefit of an FTA with the EU for Australia is really the size of the new market access we can secure for our agricultural exports. Australia already has good merchandise and services trade with the EU, and our investment relationship is strong. Unless the FTA significantly lowers EU tariffs and increases the quotas for Australian agricultural products, it will be hard to say these negotiations were a good use of time and resources.
We’d also hate to see Australia agreeing to a bunch of new regulations Australian farmers have to meet just because the EU require us to under the terms of the FTA.
The NFF is keeping track of negotiations and continuing to remind our negotiators of the importance of a big market access outcome and avoiding the EU imposing additional and unnecessary regulation on us. Watch this space for updates.