Trade Anxiety: the struggle for Brexit continues
Britain is poised to sign a slew of important post-Brexit trade deals. But the Remain tendency is crying foul. Victor Hill investigates.
The struggle for Brexit continues
Brexit, even for the most fervent Brexiteers, was never an end in itself. Leaving the European Union meant that for the first time in 48 years the UK could formulate its own trade policy. One of the reasons for Britain’s disaffection with Europe was that the EU was becoming increasingly protectionist. Prime Minister Johnson has spoken of the UK re-emerging after decades of hibernation as a campaigner for global free trade. Brexit without free trade agreements (FTAs) would be a bicycle without wheels.
So why is there so much controversy around a prospective trade deal with our Australian kinsmen? Apparently, the deal could be announced during the G-7+ summit due to take place in Cornwall next week (11-13 June) at which Australian PM Scott Morrison will be present. One reason is stasis. Much of the UK government machine, unions, industrialists and yes, even farmers, think with an EU mindset. The customs-union-single-market is still the default setting. Much of the debate around the prospective UK-Australia deal echoes the tedious ding-dong between Remainers and Brexiteers over 2016-20. Such partisanship makes it more difficult to plot a steady course.
The Johnson government had form on free trade. It negotiated a tariff-free and quota-free trade deal with the EU (though the provisions for Northern Ireland are a slow-motion car crash). And it managed to roll over 35 trade deals covering 65 countries that previously had agreements with the EU. The new UK Global Tariff regime is simpler than the EU’s Common External Tariff and imposes lower tariffs. Concluding FTAs with strategic partners is the logical next step.
Aussie mates
The UK and Australia have near-identical political, legal, accounting, financial, regulatory and educational systems (unlike the countries of the EU). That should not surprise anyone who knows history – the two countries share the same head of state. We have fundamentally similar legal frameworks around labour relations, food safety and animal welfare. Wages and living standards are parallel. (OK, the Aussies are better off than we are – but not by much.) The two countries have complementary centres of excellence. The UK is world-beating in life sciences, financial services, the performing arts – and much more. The Aussies are world-beating in mining, wine production, educational services – and much more. Oh, and the Aussies speak English – in fact, rather well. It should not be beyond the wit of man to conclude an FTA between these nations which is win-win and win again.
Reportedly, the upcoming FTA will be one of the most comprehensive in the world, covering investment, procurement, digital media, financial services – and there will be some first move in the direction of freedom of movement. Until the Nationality Act (1981) pushed through by Margaret Thatcher, all Australians were automatically British citizens. Mrs Thatcher, in her European fervour, deprived English-speaking peoples of their common citizenship. (She campaigned adamantly to remain in the EU in the referendum of 1975.) Australia retaliated and made it much more difficult for Brits to live and work in their country. Many of us think it is time to return to complete freedom of movement between all the CANZUK (Canada, New Zealand, Australia and the UK) nations.
But there is a body opinion, led by the National Farmers Union (NFU), the Mail on Sunday and others, against any UK-Australia deal. The principal issue seems to be that British livestock farmers will be exposed to unfair competition from cheap imports of Australian lamb and beef. Mark Drakeford, the Welsh First Minister, said that the deal was a threat to the identity of Wales as a nation. That is melodramatic. Britain’s geography and climate make the country highly favourable to grass-reared meat. Australia relies on huge ranches which are subject to drought. Welsh and Queensland lamb are totally different products.
Australia exports only a tiny quantity of beef to the UK at present and not much more lamb. We already import about 250,000 tons of beef every year, over 90 percent of which is from the EU – yet British farmers don’t seem to complain about that. Currently, a minuscule one percent of our beef imports is sourced from Australia, given the 20 percent tariff and shipping costs. If Australian beef imports do surge after any deal, then that would most likely be at the expense of European imports. At present, the UK is just 75 percent self-sufficient in beef; so the other 25 percent has to be imported. But Australian farmers are mostly focused on the East Asian and Gulf markets which already buy almost everything they can produce. Ditto New Zealand, which I described a while back in these pages as the larder of Asia.
Inevitably, however, there were reports of a cabinet split. Reportedly, International Trade Secretary Liz Smith favours zero tariffs and zero quotas; while Environment Secretary George Eustace wants to curtail the import of agricultural products. Both ministers represent rural constituencies in the Commons. Mr Johnson is supposed to have sided with Ms Truss. Mr Eustice and his predecessor at DEFRA, Michael Gove, are said to be calling for a tiered system by means of which a limited amount of beef or lamb could be imported tariff-free before tariffs kick in.
By opening to Australia, Britain would come closer to achieving a deal with the Pacific trading system, the CPTPP. The green light for that was given this week. As a result, British farmers would increase their chances of selling their quality products in East Asia, where the middle classes pay premium prices for quality products, and where demand is growing. Here, supermarket beef costs about half of what the Japanese and South Koreans pay.
As it happens, most of the leading supermarket chains in the UK have opted to sell only British and Irish beef anyway – led by Morrisons (LON:MRW) and Aldi (private). That is not likely to change if tariffs are cut on Australian beef. Many consumers these days (myself included) will only buy home-reared and butchered meat. A few pence off the price of an Aussie steak will not change that. The 2013 horse meat scandal – when equine DNA was detected in beef burgers sourced from France – has left an indelible impression. Even shoppers with tight budgets are concerned about provenance. Most restaurants declare the provenance of their meat – and if they don’t, they are poorly run.
NFU president Minette Batters admits that there is a trade-off between opening up to new imports and securing new export markets abroad. But she says we should only trade meat with countries that have similar animal welfare standards. (Amen to that). Explicitly, hormone-treated Australian beef will be banned. In practice, a UK-Australia trade deal will have only very marginal impact on the contents of our shopping trolleys – though Barossa Valley and Murray River reds might undercut those from Côtes du Rhône and Rioja.
And, by the way, Scotland will be a major beneficiary if the five percent Australian tariff on Scotch whisky is removed – and if Edinburgh fund managers can sell their skills to the dynamic Aussie pensions industry. (SNP hysteric Ian Blackford doesn’t get that.)
If trade talks with Australia fail, then there is little chance of reaching agreement with New Zealand for which the UK-Australia deal is likely to form the model – or with Canada for that matter. Ottawa has confirmed its keenness to supply the UK with agricultural products. George Brandis, Australia’s high commissioner to the UK warned that the failure of the talks would send a catastrophic signal.
New Zealand’s agricultural sector accounts for six percent of its GDP whereas agriculture accounts for just one half of a percent of the UK economy. Yet New Zealand operates a zero-subsidy agricultural policy and does not impose tariffs on imported food. The economist Roger Bootle wrote last week that:
If the protectionist lobby in this country scuppers a deal with Australia, then there is next to no chance of securing a deal with America and a host of other countries. If that happens, we could kiss goodbye to a large part of the possible economic benefits of Brexit.[i]
Indian aspirations
India has a tradition of protectionism with some of the highest tariffs in the world. But the country recently signed an FTA with Japan which cancelled tariffs on 90 of Japanese imports to India. Ms Truss wants the prospective UK-India agreement to go beyond even that, with provision for Britain’s services sector – insurance, digital, legal – to get access to the rapidly growing Indian market of 1.4 billion people. She thinks that an interim deal could be achieved next year. The Department for International Trade (DIT) has launched a 14-week consultation with British business before formal talks begin with Indian officials in the autumn. The aim is to double UK-India trade from its current level of £23 billion a year by 2030.
The Indian middle class is already partial to Scotch whiskey; it may become keen on British-made electric cars such as those manufactured by JLR (which is, of course, owned by India’s Tata Motors (NSE:TATAMOTORS)). Talks between Delhi and Brussels on trade have stalled but are due to restart soon.
An FTA between the UK and India could open the way for one with the Gulf countries – the Gulf Cooperation Council(GCC) – UAE, Saudi Arabia, Oman, Qatar, Bahrain and Kuwait, which Ms Truss has described as a definite target. The UK’s trade with the six Gulf states amounted to £45 billion in 2019. Human rights issues (especially concerning Saudi) could well be an impediment to negotiations. The UK government is reportedly close to securing a deal with the Abu Dhabi sovereign wealth fund Mubadala. That could open up £5 billion of new investment into the UK.
American dreams
Talks with the USA have all but ceased under the Biden administration, which has recently imposed tariffs on imports of British steel and aluminium products. This week, the US slapped tariffs on British clothing, footwear and furniture, suspended for six months pending negotiations on Mr Biden’s proposed global tax deal (on which more soon). So, the mood music is not good. But even under Anglophile Mr Trump the major sticking point was agriculture. The US poultry lobby is hugely influential in Washington – but US poultry production relies on forms of intensive farming which are not acceptable to the British public.
The future of the WTO
Last week, Ms Truss met virtually with fellow G-7 trade ministers to discuss possible reforms of the WTO itself. The international trade body has been paralysed in recent years by trade tensions between the US and China. The WTO rule book has not been reformed in decades even as the world economy has evolved beyond recognition. One salient issue is the advent of vaccine nationalism, not least in America. Longstanding tensions will no doubt come to a head at the WTO ministerial conference scheduled for November – the first for three years.
Food and landscape
Where I agree with Mr Drakeford is that the way we produce our food shapes our landscape. Wales is beautiful because of its hill farms, not despite them; just as Kent enjoys its reputation as the Garden of England for its orchards (or did, until the EU paid fruit growers subsidies to chop them down). Our landscape is the product of centuries of animal husbandry, and, in turn, it has shaped us.
One possible measure which has been proposed recently to protect British farmers from cheap imports from countries with inferior animal welfare and environmental regulations is that of a carbon tax on imported foods. The argument is that it is futile for us to cut carbon emissions at home only to import high-carbon goods from abroad. The former trade minister, Liam Fox MP, has called for the UK to lead on carbon taxes in the run-up to the COP26 climate conference to be held in Glasgow over 01-12 November this year.
At present, Britain’s Emissions Trading Scheme (ETS) covers heavy industry – steel production, electricity generation and aviation. The government is considering an expansion of the ETS to embrace agriculture and land use. Ms Batters has recently expressed support for carbon pricing as the UK moves away from the EU’s farm subsidy scheme. But reportedly, DEFRA and the Department of Business, Energy and Industrial Strategy are reluctant to impose a carbon tax until other major countries do the same. That is, indeed, the key theme of tax reform at present as in corporation tax. Brussels is set to unveil proposals for a carbon tax by 14 July.
Any carbon taxes are likely to be opposed by large agricultural producers such as India and Brazil, as well as other developing nations which are already frustrated by the lack of international cooperation on vaccine availability.
The consensus view amongst ecologists – especially those indulged by the BBC – is that meat-eating is bad for climate change because it causes CO2 and methane emissions. There is seemingly a correlation between eco-activism and veganism. Yet, there is also a growing understanding that grass-fed meat is good for the environment. The food writer Clare Finney has abandoned vegetarianism because, she says, she came to realise that grass-fed beef, lamb and dairy products were sustainable[ii].
Regenerative agriculture means that virtually all the CO2 produced from livestock-rearing is retained in the soil. Furthermore, livestock produce organic fertilizers (manure) which obviates the need to use chemicals and pesticides which pollute the water table. Some of the most fertile soils in the world are those which are rotated annually between crops and grazing ruminants in mixed farming. Prince Charles has sought to run the entire Sandringham estate on this basis since he took over its management in 2017 as a cover feature in Country Life recently explained[iii].
British beef and lamb are overwhelmingly grass-fed; but that is not the case with their American and Australian counterparts which are often grain-fed – something that entails a quite different environmental dynamic.
Plant-based diets, much in vogue today, also raise problems. They drive monocultures of, for example, soya, to displace woodland and rain forest; and such crops are often genetically modified. Many vegan diets permit the use of palm oil, the production of which is also problematic. So, the environmental superiority of plant-based diets is now in question.
The UK’s Environmental Land Management Scheme, which replaces the EU subsidy regime (CAP), is due to be rolled out by 2024. Under the new system, farmers will be rewarded for sustainable practices. The EU system favoured large farms and landowners with the result that, as Prince Charles wrote in the Guardian recently, 110,000 small farms have been lost in the UK of the 319,000 farms that existed in 1990.
Britain now has the resources and the will to address these critical issues as an independent nation. During 48 years of EU membership, British farmers lost ground to their European competitors: therefore, Brexit should be considered an opportunity. Now we can expand food production, create a living playing field for British fishermen, and improveanimal welfare standards. The brouhaha around trade deals has nothing to do with environmentalism or protecting hill farmers. But rather everything to do with devoutly wishing that Brexit will fail.
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People who eat Danish and Dutch cage-reared bacon must be Remainers. Here in Norfolk and neighbouring Suffolk, sows and their piglets trot perkily in open fields, enjoying the June sunshine. They are oblivious of their fate, of course; but the deal is to give them a good time before they pay their rent.
[i] Daily Telegraph, 24 May 2021.
[ii] I’ve given up being a vegetarian – to save the planet, Daily Telegraph 25 May 2021. Available at: https://www.telegraph.co.uk/health-fitness/nutrition/diet/gave-vegetarian-started-eating-meat-save-planet/
[iii] Country Life, 19 May 2021.
Notably this article studiously avoids any mention of the gravity model of trade: the empirical fact that trade always diminishes with distance.
Because of the gravity effect – and trade developments post-colonialism, including the regionalist trend – ex-Commonwealth nations are realigning towards their own regional markets. Brexit isn’t going to change that.
Nearly all Commonwealth nations are now members of their own regional blocs (or, in Canada’s case, NAFTA, which isn’t a bloc in the same sense). This is in their own best interests because their trade will always be greater with those nearer markets. And – saving a few fringe elements – the government’s of these countries generally understand this.
Whilst the world’s other regional blocs are not yet as fully developed or economically integrated as the EU, that is the direction of travel. For example, the African Union has in recent years signed off on the creation of a single market of 55 nations. ASEAN is now also working towards much deeper economic integration – and in a region that is much more culturally, historically and economically diverse than the EU. (80% of nations are now members of such a bloc.)
Then we have the myth of EU protectionism. Yes, there are some protections – and these have generally served European consumers and producers well. But on the global spectrum the EU very much on the lesser protectionist end. (The world’s ~50 poorest nations, for example, can export anything, except weapons, into the single market with no tarriffs or quotas under the ‘Everything But Arms’ scheme.)
And then, almost inevitably, there’s then the usual delusions about CANZUK, and the obfuscation that, yes, historically we have similar forms of government, but no, our current standards on farming and food are not similar (unlike those of EU member states). CANZUK is not going to happen.
In summary, this article is a rehashing of Brexit tropes that have little connection of current economic and geopolitical reality or trends.
“People who eat Danish and Dutch cage-reared bacon must be Remainers”. Possibly as it’s quite obvious that people who are disingenuous and ignore inconvenient facts are Leavers. UK farmers are used to competing with EU imports, as EU farmers have similar costs and standards. Fair competition. But who wants to have to compete with imports produced on huge farms at lower cost and to a lower standard? And if our farmers export to the other side of the world they will have to compete with cheap local meat produced on those very same farms. So it’s a double whammy.
The Government’s own figures suggest that a trade deal with Australia would facilitate exports that would add 0.01% to GDP (about £500 million) over the next 15 years. As for the Japan deal, it’s reckoned that it’s 3 to 5 times more beneficial to Japan than the UK. The Government has estimated that the EU-Japan trade deal would boost the UK’s economy by somewhere between £2.1 billion and £3 billion. However, the UK post-Brexit partnership is only expected to bring in £1.5 billion. Mexico? The deal with them is worse than the new EU-Mexico deal so our exporters get to compete with EU exporters in that market.
And none of this, not any trade deals or partnerships, NONE OF THEM, will come close to compensating for the loss of our brilliant trade deal with the EU when we were inside the Single Market and Customs Union. Only a Leaver would ignore inconvenient reality and pretend otherwise.
This article pushes the argument that Brexit is and will be very beneficial for Britain.
It is a joke and ignores the facts, which Johnson’s band of incompetents never truthfully reveal.
In response to the comments above, the so called “brilliant” trade deals with the EU were reducing year on year and had been for many years. By the time we thankfully left, we were importing more than 4 times from the EU than we exported. This chasm would have continued to grow and expand to the detriment of the British Economy and its people. We have now left, hopefully for good, although remainers still seem to act like Trump supporters, by not accepting the result of a democratic election.
@PAUL As usual with remainers your arguments are internally contradictory. The EBA is a GATT arrangement for which the EU and you are attempting to take the credit. Using your own ‘gravity model’ explains why the EBA is largely worthless as the relevant countries are logistically too far away to take advantage. They can only really sell things like bananas and rice, which begs the question how do the plainly uneconomic french rice growers and canary banana growers stay in business if EBA is so good? In addition we all now know , in spades, that the EU’s ‘phytosanitary et al’ protections and obstructions are far more effective than any tariffs or quotas. If the EU had been a proper ‘common market’ like ASEAN , instead of a FrancoGerman political hegemony, none of the Brexit trouble would’ve blown up in the first place. All the people I know in tech and software open their subsidiaries in the English speaking world first and the EU last. That’s because there is no single market in europe. It’s a series of fragmented language based markets like it always has been. None of them , bar Germany, are large enough to merit the effort, and just you try selling the germans anything if there’s a native alternative , I’ve watched people die on that hill. To cap it all I am a european and wanted to remain, but it’s a political scam and now we’re out we need to focus on our future in the world
In principle FTAs must be good. If we cannot agree an FTA with one of our best allies, what hope elsewhere.
The prize after Aus. will be to enter the Trans Pacific Partnership: a combination of mature economies (Japan), resources and emerging markets; all without political aspirations and heavy regulation.
Brexit has happened. The Remainers need to accept that fact and stop clinging to every ounce of negativity. It doesn’t do them or anyone else any good. By all means believe what you want to believe but the time for political posturing on the subject ended in 2016.
“the environmental superiority of plant-based diets is now in question.” – That was somewhat dramatic. – Yes, palm oil is a plant, however, many people that choose plant-based diets increasingly choosing to avoid the oil because they argue that the extraction of palm oil exploits animals and the environment.