No Deal: Agriculture Tariffs

Jim Shannon Excerpts

Tuesday 16th July 2019 Westminster Hall

[Jonathan Edwards]

That was another valid intervention. The hit will not be just to core producers, but along the supply chain to some of the producer and production capacity as well.

Commodities such as skimmed milk powder, yogurt, whey, cream and liquid milk will not be protected by any tariffs. If farmers in Northern Ireland cannot send their liquid milk into the Irish Republic for processing and export, there will also be the problem of a major oversupply of liquid milk on the domestic market.

[Jim Shannon (Strangford) (DUP)]

In my constituency we have Lakeland Dairies, which has two factories in Northern Ireland and two factories in the Republic of Ireland. Michael Hanley is the chief executive officer of that firm. He says that whether or not there is a Brexit deal, life will go on. In other words, the movement of milk across the border, either way, in liquid or powder form, will still take place. We need to be aware of what some businesses are saying. That comes straight from a firm in my constituency.

[Jonathan Edwards]

I appreciate the hon. Gentleman’s expertise; he is a farmer himself, I believe. However, if there is a no-deal Brexit, the European Union will have to protect its customs and market territory under all circumstances; otherwise, it would undermine the essence of the customs union and the single market.

Owing to our inability to discriminate between countries under WTO rules, the tariffs that we apply to the EU27 in the case of no deal will be the same as those we apply to countries with which we do not have a trade deal. At the moment, that is basically the rest of the world, apart from the Faroe Islands and a few other territories. That would mean that South American beef, which is currently subject to the EU’s common external tariff of 84%, would, in the event of a no-deal Brexit, be able to enter the UK subject to a 45% tariff and out-compete our domestic producers.

Many classes of imported product will be produced to standards that are currently illegal in the UK, and that will undermine our high domestic standards. As an unintended consequence, it will also hinder our ability to trade with our biggest market, which prides itself on high standards. The fact that the UK could be on the cusp of leaving behind a trade policy based on almost half a century of EU membership and swapping it for a trade policy based on WTO tariffs and protection for a handful of products is, to say the least, deeply concerning.

All that, and I have not even begun to countenance the north of Ireland. The UK temporary import tariffs are set to apply to products exported from Ireland to the British mainland but not to goods crossing from Ireland into Northern Ireland. Although protecting the integrity of the Good Friday agreement must be a priority, that fantasy solution has been branded useless by the unions, as it flies in the face of WTO and EU rules.

On another point often used by the British state to defend its tariff schedules, although I recognise the importance of ensuring that food prices do not rise in the immediate aftermath of no deal, the second-order effects of a no-deal Brexit on the economy could well lead to the cost of living sky-rocketing, rendering that argument null and void. Surely, ruling out no deal in the first place is the best way of achieving food price stability and food supply. If the next Prime Minister insists on keeping the myth of no deal alive, I would urge him to prioritise revisiting the proposed tariff schedules, with a view to ensuring that protections are maintained rather than eroded or removed completely.

From a wider strategic perspective, what proponents of no deal do not admit is that the strategy is essentially a negotiating tactic. I do not think that even the mad caps of the Tory European Research Group want to base the British state’s trading relationship with the EU on the North Korean, Venezuelan, Cuban, Belarusian and Kazakhstani model. They believe that threatening no deal will secure favourable terms from the European Union. That has not been the case to date and is highly unlikely to change in the autumn, owing to the simple fact that the European Union holds all the cards in the negotiations.

I do not think our inability to secure such terms is down to insufficient effort by previous UK negotiators. The strategy is the international trade equivalent, as one expert put it, of placing a gun to our own head and telling our opponent that we will pull the trigger unless they concede. In that case, they are likely to say, “Go ahead.” The reality is that, far from being intransigent, I am amazed by the patience of our European friends as Westminster goes through a full-scale political nervous breakdown.

The strategy, however, has developed. Some in the Conservative party now believe that the crisis of a no-deal situation, which will face the British state on 1 November, is the best way to secure favourable terms in future negotiations, as opposed to doing things in a managed, grown-up way. It is a game of risk, in other words. Those advocating no deal are prepared to throw all their chips in the air in the hope that they fall on the right roulette numbers. Personally, when dealing with people’s jobs and living standards, I prefer a more strategic and nuanced approach.

Before the Minister starts blaming my side of the argument for keeping no deal alive by not voting for the Brexit deal, it is the case that the Brexit model and narrative in front of us today has shifted drastically towards a harder, more extreme Brexit. At the start of the process, directly after the EU referendum, a soft Brexit was perceived as staying within the framework of the EU single market and customs union, while a hard Brexit was widely perceived as Canada-plus. At the time, Plaid Cymru would have been content with the former. Indeed, we have voted for those options when they have been before the House. By now, the discourse of a soft Brexit looks more like Canada-plus, while a hard Brexit is widely accepted as being no deal. There is no way on earth that we could accept either of those options with a clear conscience.

The reality of the situation is clear: on day one of a no-deal Brexit the British state will have to negotiate a series of mini deals or face dire economic consequences. No deal is therefore a complete oxymoron. The European Union has said clearly that its priority before any meaningful negotiations would be settlement of the £39-billion divorce bill, citizens’ rights and the British border in Ireland. Considering the British Government will have to concede on those three issues no matter what they do, I am at a complete loss as to why anyone who supports Brexit voted against the withdrawal agreement.

Over the last year, the British Government have clearly outlined the dangers of a no-deal Brexit. On top of an economic recession equivalent to the great financial crash of 2008, highlights include troops on the street to deal with civil unrest; food shortages and higher prices as import supplies are disturbed, especially for fruit and vegetables; customs checks costing UK businesses £13 billion a year; no legal protections when buying products and services from EU countries, while UK courts no longer offer redress for consumers; flights from UK airports not receiving equal treatment when traveling to and landing at airports of countries who are members of the common aviation area; the Eurostar being disrupted until new arrangements are negotiated with each country along its routes; and fishing boats losing access to EU fishing waters, and being unable to land their catch at EU ports—and that is just what the British Government have chosen to share with us over the last few months.

Pascal Lamy, who should know a thing or two about such things as director general of the World Trade Organisation between 2005 and 2013, equates leaving the European Union single market and customs union and trading on WTO terms to leaving the first division and facing a double relegation to the third division. Aware of the potential backlash to such a reality, no-deal proponents now argue that the British state could seamlessly enact article XXIV of the general agreement on tariffs and trade to keep the current tariff schedule. That argument was shot down last week by the WTO’s current director general, who said:

“Article XXIV of the GATT is simply the provision of global trade law under which free trade agreements and customs unions are concluded… If there is no agreement, then Article XXIV would not apply, and the standard WTO terms would.”

In other words, as we now famously know, paragraph 5(c) of article XXIV of GATT states that it applies only if there is a deal—the direct opposite of what the no-deal apostles are arguing for.

For that reason, I have little doubt that, were the British Government to adopt no deal as its official policy, they would lose a vote of no confidence in this House. I for one am certainly committed to voting to bring down the British Government in order to defend the economic interests of my constituents. Diolch yn fawr iawn.

--- Later in debate ---

[Mr Goodwill]

I understand that a win is a win, which is why the results of the initial referendum and the referendum on Britain’s continued membership of the European Union should be respected and delivered on by all parties in Parliament.

As a responsible Government, we have spent more than two years carrying out extensive preparations for all scenarios, including no deal. Nowhere has the preparation been more assiduous and detailed than in my own Department. As we heard, the Government announced on 13 March a temporary tariff regime that will apply for up to 12 months should the UK leave the EU without a deal. In developing the policy, we have sought to balance the five principles set by the Taxation (Cross-border Trade) Act 2018. The five principles include taking into consideration the interests of consumers, producers, external trade, productivity and competition.

We analysed a range of evidence, including information on average trade volumes, tariff data and Government modelling on tariffs in a no-deal scenario, supplemented with business stakeholder engagement. Under this policy, the majority of UK imports—87%—would be tariff free. However, tariffs will be in place for the remaining 13% of overall trade, to avoid significant adjustment costs for certain agricultural products, where tariffs help to provide support for UK producers against unfair trading practices such as dumping, and to maintain our trade commitments to developing countries.

We have not had tariffs on cereals to any extent for a number of years. Indeed, I believe the protections that we are introducing through tariffs on imported poultry meat will help protect the cereal industry, because the major customers of our cereal producers will be producers of poultry and other meat products, which we are protecting.

[Jim Shannon]

I declare an interest in this issue as the chair of the all-party parliamentary group on eggs, pigs and poultry, which has asked me to pose the following question. Does the Minister agree that it is absolutely essential that eggs and egg products are included in the tariff scheme, given that it is the most effective way to ensure that all UK egg producers can continue to make improvements and further welfare standards without the threat of being undermined by low-quality imports from third-world countries?

[Mr Goodwill]

I hope I can to some extent reassure the hon. Gentleman on the issue of shell eggs, which is the major egg market. Supermarkets have made it clear that they would not seek to buy lower quality products, and that they will continue to sell only Lion mark products. I have heard representations on liquid and powdered egg, which might be a problem, and we will continue to listen to the industry.

The no-deal tariff policy has been carefully designed to mitigate price spikes should we apply the full EU most favoured nation rates to our trade with the EU, which will result in large tariffs and potentially price increases for both consumers and producers. I will give a few examples. Should we retain EU MFN tariffs, it will result in tariffs on pasta of over 20%, and 12% tariffs on basic foods such as potatoes, cabbage and lettuce.

The policy has been designed with the objective of minimising disruption in the agricultural sectors, and it aims to strike the right balance between exposing sectors to an unreasonable level of disruption and liberalising tariffs to maintain current supply chains and avoid an increase in consumer prices. A mixture of tariffs and duty-free quotas will therefore be used for beef, sheep meat, poultry, pig meat, butter and some cheeses. The aim is for their impact on production and consumption patterns to be broadly neutral. A point was made on lamb imports from New Zealand, which will be maintained at roughly the same levels. Lamb production is of course seasonal, and New Zealand production has always filled a gap in the UK market.