GENEVA/BRUSSELS (Reuters) - Brexit has created an administrative and diplomatic minefield for Britain by triggering a reworking of its relations in the most contentious area of international trade — agriculture.
To stand on its own after it leaves the European Union, Britain needs a document setting out its own commitments at the World Trade Organization, the bedrock of global trade. Britain’s membership terms are currently included in EU’s, so it needs to disentangle itself, with less than two years on the clock.
While Britain can simply replicate the EU’s tariffs, the copy-and-paste method does not work for agriculture, where EU imports are limited by 128 “quotas”, often allocated to particular suppliers. Imports of goods such as meat, cereals, fruit, milk, wine and vegetables that are not covered by a quota are subject to a much higher import tariff.
Unless Britain agrees what share of each EU quota it will take, and what tariffs apply for some 2,000 agricultural products, businesses will be flying blind.
It is all supposed to be done within the two years of Brexit negotiations. Without an agreement, Britain would be in uncharted waters and might have to unilaterally announce its plans, at the risk of angering farm lobbies at home or abroad.
Suppliers will want the current EU quotas to be shared out between Britain and the other 27 EU nations, and some may see it as a chance to increase the size of their market.
Brazil, for example, might want to sell Britain more sugar, Thailand more rice and Switzerland more chocolate.
The EU itself may also seek to cut its own quotas to reflect Britain’s leaving.
“It’s going to have to be in place, not the day before Brexit but a year before Brexit because exporters and importers will want to know when they’re entering contracts,” said Alan Matthews, emeritus professor of European agriculture at Trinity College, Dublin.
Under WTO rules, nobody can stop Britain putting forward new membership terms, but diplomats say the quotas represent a pressure point for squeezing out concessions. If they felt Britain had damaged their interests, they could respond with a trade dispute and potential sanctions.
Indonesia has already tabled a formal question to ask how the quotas will be handled, prompting China, Russia, the United States and Argentina to signal their interest too.
No WTO partner will accept less than the current EU offer and in most cases will want more. If Britain did not agree to take on part of the EU quotas to soften that blow, it would anger EU members with which it plans a free trade pact.
It would also risk higher food costs for British consumers, already a hot issue due to a weaker pound after the Brexit vote.
The EU quotas cannot be easily shared out according to market size. Many are not fully used, many need translation from euros into pounds, and exporters may argue that they are being penalised because dividing the market reduces their flexibility.
One strong claim for a share of the British market will come from New Zealand, since it has 80 percent of the EU’s 284,000 tonne tariff-free lamb quota and Britain takes almost half the lamb it ships to the EU.
But if Britain opens up too much, it might cause a backlash among British farmers and also give away bargaining chips that can be used in future negotiations, said Chris Downes, trade expert at Brussels-based consultancy ECCO.
“A more defensive approach is probable and will, whatever the UK’s intention, likely be disputed,” Downes wrote in a paper.
In a further complication, Britain needs to prepare for the possibility that it fails to reach a new trade deal with the EU.
In such a scenario, France and Ireland would join China, Canada and Brazil in the fight for a slice of the British market.
British farmers would have no share of the EU’s quota and suddenly face huge tariffs for selling into the EU — at rates equivalent to over 60 percent for its Scottish beef, 50 percent for its Welsh lamb or 40 percent for its cheddar.
And New Zealand lamb would continue to flow in, oversupplying the British market.
Editing by Jeremy Gaunt