The political shock of Brexit has yet to be translated in actual economic and commercial terms. The uncertainty as to which will be future model of the trade relationships between the EU and the UK is still paramount. Will we see a hard or a soft Brexit? To which degree will the UK retain access […]
THE UK-AUSTRALIA FTA WILL HURT THE EU BEEF SECTOR
News have circulated that the UK-Australia Free Trade Agreement (FTA) is reaching the final legs of negotiation.
The UK would have offered full free access to its market, including in beef and sheep, with a phasing-out of quotas and tariffs for these two sectors in 15 years. It is also rumoured that the UK would accept to reduce the phasing-out to only 10 years.
Our British friends will excuse us, but this note will focus on the knock-on effects into the EU agriculture, and in particular the beef sector.
A 10 years phasing-out on all import restrictions will likely consist of initial quotas being gradually increased, till full liberalization. The impact will depend on the size of the quotas (and less significantly on the in-quota tariff rates); and on whether or not the out-of-quota tariffs will also be gradually reduced.
It should be noted that at a certain point in time it will become profitable for the Australians to export their beef out-of-the –quota to the UK, paying whatever will be the full tariff, as the volumes exported under the quota make the overall exports economically viable.
Thus, in a shorter period of time than the 10 years foreseen, the quantities of Australian beef sold in the UK market will be similar to those under full free trade.
What happens to our exports of beef to the UK? They will face dramatic competition from cheaper Australian cuts, and their UK market will shrink accordingly.
This is no minor effect, as the UK is the top destination for Irish beef exports, over 1 billion euros annually. Ireland will be faced with the losses in the UK market and the difficulties in finding other export markets outside the EU that could compensate for those losses.
Inevitably a good part of prior UK exports will land in continental Europe, competing with other EU producers in a stagnant market, under pressure from all sides ( F2F, methane emissions, recommended diets).
Farm Europe has warned since Brexit was voted by the UK that, even with a fully-fledged EU-UK FTA, the EU agri-food sector would lose market share in the UK as a result of the UK opening up its market to other countries. So this does not come as a surprise, but the negative impact is coming closer with a CAP reform process coming to an end without fully integrating this new major challenge for the years ahead.
As bad news rarely fly alone, the fact that the UK is willing to phase-out all import restrictions on beef to Australia will set the tone for the remaining UK FTAs under negotiation. Specifically, it will flow logically that the US will accept no less. Therefore what we are saying about the impact of Australian imports will be compounded by US exports in the future.
This note focus on the beef sector. But we also know that the UK is willing to enter the Trans-Pacific Partnership Free Trade Agreement (TPP). Other sectors, like dairy, poultry and sugar, would benefit from preferential access conditions to the UK market. Top world exporters are part of the TPP – New Zealand for dairy, just to give an example. And again, this would have a negative knock-on effect on our exports to the UK.
There is very little we in the EU can do about decisions that are made in the UK. The best way to absorb the shock is to become more competitive, to conquer more export markets, in other words to be very strong and resilient economically. However, what we are witnessing as proposals coming out of the European Commission has the opposite effect, piling up further restrictions and increasing producing costs. It is urgent to change course, and address environmental and other issues using science, and mobilizing technologies and resources to achieve our objectives without making us all poorer and ultimately more dependant on imports.