Commodities Brexit Update: Food for thought

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Introduction

The United Kingdom’s referendum on membership of the European Union (EU) was the most fundamental political development of our modern time. It is a topic which is continually subject to daily media scrutiny and there exists a great deal of uncertainty as to how Brexit will affect the UK domestic market, as well as the UK’s trading relations with the EU and non-EU states.

A manifestation of the anxiety caused by this is the governments’ delay in triggering article 50 of the Convention to commence the 2 year time limit for negotiations on Brexit.

Despite the High Court’s recent decision that Parliament must vote before Article 50 is invoked and irrespective of the result of the appeal before the Supreme Court, it is expected that Parliament will uphold the will of the people and invoke Article 50.

The issue as to what type of Brexit will be pursued however, hard or soft (as the press like to term it), is an issue which had not formed part of the question put to the people in the referendum. People were not presented with alternative models for Brexit. The form that Brexit will take is therefore the subject of serious inter-party and Parliamentary discussions and disagreements which, unless resolved before, will continue even after Article 50 is invoked.

Concerns for Commodities

Naturally this has caused great commercial uncertainty, and those associations dealing with agricultural products, such as Gafta and Fosfa may be particularly concerned with how UK’s exit from the EU will affect the production and import/export of agricultural commodities to and from the UK.

More particularly these concerns may include:

Freedom of trade, import and export quotas and duties

  • Whether tariff free trade with the EU is maintained or tariffs be implemented. If so, what tariffs and will the logistical and technical requirements of such tariffs be mature enough to function post Brexit?
  • What systems will be used to ascertain the amount of imports and exports of agricultural products into the UK?
  • Whether and on what basis EU trade agreements with non EU countries (which at the moment have been entered into by Britain as an EU nation) will be re-negotiated and the time that any such renegotiations will take. Will Britain go to the back of the queue?

Adoption of a Norwegian or Swiss model (soft Brexit) would allow free movement of goods to continue within the EU, but at the expense of continuing with free movement of people.  It will be interesting to see how the government balances the interests of profitable trade with the voters concerns about immigration. A hard Brexit and negotiating a separate new trade agreement with the EU and other nations could be a long hard process the results of which may well turn out to be of advantage for British traders and farmers, but are at the moment unpredictable and uncertain.

Environmental regulations

  • Whether the various EU environmental laws, such as minimum EU standards on pesticides, MRLs, contaminants and GMOs will be maintained post Brexit, or will the UK adopt a more comprehensive standard? Alternatively, will such rules be relaxed to promote production and supply, possibly at the expense of harming the environment?

The EU member states have worked together to implement environmental obligations successfully so it will be important to see how these implementations are affected post Brexit.

If the Norwegian Model (soft Brexit) is adopted the EEA Agreement incorporates the EU Emissions Trading Scheme and key EU environmental Directives, but not all Directives are incorporated so the environmental protection overall could be adversely affected.

If the Swiss model is adopted or there is a total exit (hard Brexit) then the UK would no longer be bound by EU environmental law but would continue to be bound by international obligations and agreements to which the UK is or may become a party. The UK could, like Switzerland, join the European Environment Agency providing information on the environment.

To have access to the EU markets it is expected that the UK would still have to adhere to environmental, health and safety requirements regarding goods to be sold to the EU.

Financial Regulations

  • Whether the financial systems and arrangements with the EU banking system will be maintained?
  • What system will replace the EU’s farming subsidy policy which will ensure that UK agricultural products remain profitable and competitive with other areas of the world?

Comment

No doubt such concerns will form a large focus of negotiations with the UK government and the EU and it will be important that whatever alternatives are agreed, there be a quick and smooth integration/implementation to ensure that the confidence of the markets is maintained and profitable trade continues.

It has been reported by the Times Newspaper that according to a leaked memo prepared for the Cabinet dated 7 November 2016 the relevant government departments appear to be struggling to keep up with Brexit project workloads:

“Individual departments have been busily developing projects to implement Brexit, resulting in well over 500 projects, which are beyond the capacity and capability of government to execute quickly”

The Times further reports that splits within the Cabinet may also mean that the government may need another six months to decide on its priorities and that:

“...'major players’ in industry are expected to ‘point a gun at the government’s head’ after ministers gave assurances that the car maker Nissan would not suffer when Britain left the EU”  (Times Newspaper dated 15th November 2016 issue no 72068 page 1)

While the reference to metaphoric guns being pointed may be extreme, the article does alert us to the genuine concerns of industry as whole (whether in trade, farming, shipping, banking or any other). It appears from this report that a quick untangling and replacement of EU policy/law is unlikely. In the meantime we can find some security in the fact that the status quo remains for now.

 

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If you would like information on the possible effects of Brexit on litigation, we direct you to an article produced by Partner Maria Gerakaris-Michanitzis on this.

View Summary on Brexit and Possible Consequences for Litigation.