After a No-Deal Brexit, How Would Scottish Salmon and Northern-Irish Sheep Reach the EU?
Chloé Papazian (DCU Brexit Institute)
Today, Tuesday 15 January 2019, the House of Commons will hold a historic vote on the proposed withdrawal agreement between the EU and the UK which, if approved by both the UK and the EU Parliaments, should enter into force on 30 March 2019, after the UK has exited from the EU.
On 10 December 2018, the UK Prime Minister decided at the last minute to delay the vote of the Commons initially tabled for Tuesday 11 December 2018 in order to gather more support on the proposed deal. Despite this postponement, the proposed withdrawal agreement is likely to be voted down today. The Prime Minister’s European tour on 12 December 2018 and the negotiations since then with the EU-27 to obtain political and legal guarantees for a time limit on the so-called ‘Irish backstop’ solution, as well as the Prime Minister’s offer of a Parliament’s veto over the implementation of the backstop have not sufficed so far to halt or mitigate the expectations of a significant defeat.
As the clock is ominously ticking, the prospect of a hard Brexit, namely a UK exit from the EU without a deal, may well become reality. Despite repeated statements from both the EU and UK sides that a no-deal scenario should be avoided at all costs, the expected negative vote in the House of Commons may exponentially increase such risk. At this point in time, the EU and the UK fear a disorderly and chaotic exit on 29 March 2019. Crashing out of the EU Customs Union and Single Market without a deal, the UK would start trading with the EU under WTO-terms. Hence, customs and regulatory checks on goods would be immediately reinstalled, entailing enormous queues of lorries at the EU-UK borders, shaking up deeply integrated supply chains and “just in time” production processes, as well as threatening the Peace Process in Northern Ireland. A no-deal Brexit would therefore prompt considerable economic, political and social disruptions.
In the absence of a withdrawal agreement and a transition period, the UK would suddenly leave the EU Single Market and abruptly exit from the EU common customs, VAT and excise territory. As a result, EU customs authorities would need to levy on all products crossing the frontier the applicable tariffs, charges and taxes. In addition, UK authorisations, approvals, certificates or notifications would stop being automatically recognised by the EU, thereby necessitating regulatory changes, and by the same token, new regulatory checks at the border. Hence, crossing the border between the UK and the EU would take significantly more time. Controls on goods that were previously nonexistent, as the UK benefited from the EU Common External Tariff and the free circulation of goods within the Single Market, would short-circuit frictionless trade in essential industrial components such as chemicals for treating water supplies, medicines, vital foodstuffs and perishable goods.
The Choice of a Scottish Salmon and a Northern Irish Sheep
The present blog gives an overview of what the journey of a Scottish salmon and a Northern Irish live sheep to the EU would look like should the UK leave the EU without a withdrawal deal. It shows the complexities and additional costs of a no-deal Brexit on trade on goods. Why such a choice among the long list of products that would be subject to new customs duties, taxes and regulatory requirements? In practice, indeed, all products from inter alia living animals and fishes, to agricultural and industrial goods, medicines, fertilisers or motor vehicles would be affected by the newly erected trade barriers in case of a no-deal Brexit. Yet, the choice of a Scottish salmon and a Northern Irish live sheep illustrates not only the economic consequences for the Scottish fisherman or the Northern Irish sheep farmer but also the political and social repercussions of a hard Brexit.
During the 2016 referendum concerning the UK membership in the EU, Scotland voted in favour of the UK staying in the EU by 62% to 38%. Support for Brexit could nonetheless be found in the fishing sector, for instance in the coastal districts of north Aberdeenshire. Among the fishermen and workers employed in this sector, many blame EU membership for permitting and guaranteeing Member States’ access to UK fishing waters and for abiding by fishing quotas under the Common Fisheries Policy (Financial Times, 17 November 2018). Without a withdrawal deal, the UK would not have to comply with the Common Fisheries Policy; UK fishing quotas would disappear, and EU fishermen would not be able to fish in UK waters. Yet, access to fresh fish for the EU market may prove particularly complex and costly following a no-deal Brexit. Today, fish caught in Scotland can be on the plate of French, German or Irish households and restaurants the following day. In a no-deal scenario, this free flow of Scottish salmon across the EU would be altered considerably. This would have severe economic and social consequences on the coastal areas of Scotland, leaving the fishing sector in difficult conditions.
Northern Ireland also voted to remain in the EU by more than a 10% margin (majority of 56% to 44%) during the UK Brexit referendum. The disorderly exiti of the UK from the EU on 29 March would have disastrous economic, social and political repercussions for the region. A hard land border between the North and the South of Ireland would impact negatively on an already fragile economy and threaten the Peace Process enshrined in the 1998 Good Friday Agreement. With levels of poverty that are among the highest of all UK regions, the Northern Irish economy still heavily relies on the public and agricultural sector. While the industrial sector remains very weak in Northern Ireland, farming continues to be vital for the province’s economy, as well as for its rural communities. In 2017, Northern Ireland counted 25,000 farms supporting over 48,000 jobs. In terms of output, in the same year dairy represented the largest sector whereas sheep and cattle occupied the second position, accounting for 25% of gross agricultural output (House of Common Report, Brexit and Agriculture in Northern Ireland, 2018).
Without open and free access to the EU market through the Republic of Ireland, the agricultural economy of Northern Ireland would severely suffer. Indeed, the closure of the land border would seriously affect the essential supply and transport of living animals, meat products and fish, as well as agricultural products from Northern Ireland to the rest of the EU. In the case of a hard Brexit, these would be treated as imports from a non-EU country, a so-called ‘third country’, to the EU. The customs authorities of the EU would levy customs duties (also called ‘tariffs’) as included in the EU Goods Schedules of Concessions and Commitments before the WTO on all exports from the UK, including those originating from Northern Ireland. Moreover, the exportation and placing on the EU market of living animals, food and agricultural products would necessitate compliance with new regulatory requirements regarding the goods themselves, as well as the transportation of such goods. A hard Brexit and the corresponding hard border will deepen the economic difficulties of the region, worsen unemployment and question the fundamental peace process within the island of Ireland.
From Northern Ireland and Scotland to the EU: New Customs and Regulatory Checks
Let us look more closely at which customs controls and regulatory checks would apply in a no-deal scenario to the salmon and the live sheep exported from Scotland and Northern Ireland respectively to the European Union.
- Customs duties and related customs checks: Without an EU-UK deal, WTO law will govern the relationships between the EU and the UK. For goods originating in the UK and entering the EU customs territory, the EU would levy the relevant Common External Tariff which it applies in compliance with the so-called ‘Most-Favoured Nation’ (MFN) principle to all its non-preferential WTO Members. Under WTO law, each WTO Member must comply with its bound tariffs and quotas included in their Schedules of Concessions and Commitments for goods which they have negotiated with the other WTO Members. The EU Goods Schedules of Concessions and Commitments is annexed to the Marrakesh Protocol to the GATT 1994 and is available here. The bound tariff corresponds to the maximum tariff level the WTO Member concerned can apply for each good. It must be distinguished from the applied tariff, namely the tariff effectively levied by that same WTO Member on goods coming from its non-preferential trade partners. Such applied tariff must not exceed the bound tariff. Pursuant to the MFN clause, each WTO Member must accord the same treatment (bound and applied tariffs) to the other 163 WTO Members, unless the former has concluded with one or several WTO Members a preferential trade agreement (PTA) under Article XXIV GATT 1994. Hence, for each WTO Member with whom the EU has not concluded a PTA, the EU levies the same applied tariff (so-called MFN applied tariff) which varies according to the good entering the EU customs territory. In a hard Brexit scenario, the UK would become such a non-preferential trading partner for the EU. Trade in goods would take place in accordance with the MFN clause: for each good coming from the UK, the EU would levy the MFN applied tariff.
Coming back to the examples of the Scottish salmon and the Northern Irish live sheep, the MFN applied tariff of the EU for the Atlantic Salmon (both for the entire fresh, chilled or frozen salmon and for the fresh, chilled or frozen salmon fillets) amounts to 2% of the value of the good (also called a 2% ad valorem duty), whereas the MFN applied tariff of the EU for the live sheep equals to 0%. The EU, nevertheless, applies a specific non-ad valorem duty for live sheep originating in its non-preferential trade partners of 80.5€ per 100kg/net. As a result, when entering the EU customs territory, the Scottish entire salmon or cut in fillets would be subject to a 2% ad valorem duty while the EU would levy a 80.5€ duty for every 100kg of Northern Irish live sheep.
Goods, should it be the Scottish salmon, the Northern Irish live sheep or any other good, brought into the EU customs territory from the UK would therefore be subject to customs supervision and would undergo customs controls in compliance with the Union Customs Code (Regulation 952/2013/EU). At the EU-UK borders, customs formalities would apply: declarations would need to be lodged and the EU customs authorities may request guarantee for potential or existing customs debts (See EU Preparedness Notice on Customs and Indirect Taxation).
- Indirect taxation (valued-added tax and excise duties): When crashing out of the EU on 29 March 2019 without a deal, the UK would exit the EU value-added tax (VAT) territory and the EU excise territory. Goods originating in the UK and entering the VAT EU territory will be subject to VAT at importation. In principle, the VAT would be paid to the EU customs authorities at the time of importation. The rate applicable would equal the one applied to the same good within the Member State concerned. Indeed, in the absence of a harmonised VAT system at the EU level, each Member State has its own rates of VAT (See VAT Rates Applied in the Member States of the EU, July 2018). As a result, for goods coming from the UK, the VAT requested would depend on the point of entry of the goods and hence, on the importing Member State. VAT on foodstuffs varies among the 27 Member States. The VAT rate for the Scottish salmon and the Northern Irish live sheep therefore differ according to the point of importation in the EU.
Similarly, excise duties would apply to goods moving between the EU and the UK (Directive 2008/118/EC). Goods subject to such duties entering the EU from the UK would need to be released from customs formalities before they can circulate freely within the EU excise territory. The Scottish salmon and the Northern Irish sheep would nonetheless not be concerned by excise duties. These indirect taxes, which are imposed on goods which damage consumer health or pollute the environment such as mineral oils, manufactured tobacco, alcohol and alcoholic beverages, may however apply to other imports originating in the UK.
- Regulatory requirements concerning the entry of live animals into the EU: In the event of a hard Brexit, the entry of live animals, including live sheep, into the EU would be prohibited for public and animal health reasons as of 30 March 2019. To avoid such prohibition, the UK must be listed by the European Commission as an authorised third-country according to amongst other things its legislation in relation to animal health and welfare, the health situation of livestock and of other domestic animals and wildlife in the UK, the UK environmental situation, as well as specific guarantees to inform the Commission in case of inter alia the occurrence of a disease or changes in the national health rules (Directive 2004/68/EC). As a previous Member State to the EU Single Market, the UK may not face great difficulties to be included in such a list of authorised third countries. Yet, it may take time before the European Commission lists the UK as an authorised third country. Certainly, such authorisation would not be in place as of 30 March 2019. Furthermore, the Commission reserves the right to amend the list and remove the UK from such list should, for instance, its legislation on animal health and welfare or its environmental situation importantly diverge following a deregulation process in the UK. Hence, the Northern Irish sheep would be able to enter the EU only after the inclusion of the UK in the European Commission’s list of third countries authorised to import into and transit through the EU live ungulate animals.
This list would, however, not constitute the only obstacle to the entry of live animals into the EU. Certain regulatory border checks, including veterinary checks would become mandatory at the first point of importation into the EU territory. First, live animals would be entitled to enter the EU only through border inspection posts which are approved for the species and categories of animals concerned. Second, a duly completed health certificate would need to accompany each consignment of live animals. Third, the relevant border inspection posts would undergo for every consignment coming from the UK documentary, identity and physical checks. At the end of these checks, the national border authorities of the Member State concerned would need to issue a so-called Common Veterinary Entry Document attesting that the border controls were performed in accordance with the applicable animal and public health rules (See EU Preparedness Notice on Movement of Live Animals). The sheep imported to the EU from Northern Ireland would therefore undergo a long list of mandatory regulatory checks at the border. This analysis thereby underscores the presence of major hurdles and costs as of 30 March 2019 to the exportation of live animals from the UK to the EU.
- Regulatory requirements concerning the entry of fishery products into the EU and their placing on the EU market: Following a no-deal exit, UK fishing vessels would be treated as third-country flagged fishing vessels by the EU. Fishery products caught by UK fishing vessels would be able to enter the EU only if the flag State, namely the UK, has sent first a notification to the European Commission (Regulation 1005/2008/EC). Upon the receipt of such notification, the fishery products may enter the EU if they are accompanied by a catch certificate. Such certificate validated by the UK competent authority would attest that the catches concerned have been conducted in compliance with applicable laws, regulations and international conservation and management measures. Additional documents may be requested at the EU-UK borders in the event of an indirect import after transhipment, transit or processing of the fishery products in another third country. Hence, exportation to the EU of a Scottish salmon caught in the Atlantic Ocean by a UK fishing vessel would only occur after notification by the UK to the Commission of such export. Furthermore, a catch certificate would need to accompany the salmon through its journey to the EU market.
In addition, having entered the EU territory, the Scottish salmon would need to conform to specific market requirements, including consumer information requirements and marketing standards (Regulation 1379/2013/EU). Note that general requirements encompassed in EU food law would also apply to such salmon (See EU Preparedness Notice on Fisheries and Aquacultureand EU Preparedness Notice on EU Food Law).
Having previously benefited from the free circulation of goods within the EU Single Market, as a perishable good the Scottish salmon would therefore face significant difficulties to reach EU consumers on time.
This blog uses the journey of Scottish salmon and Northern Irish sheep to the EU market as an example to illustrate the types of customs controls and regulatory checks, and thereby considerable delays and additional costs, that a hard Brexit would entail. All products would be affected. Waste and hazardous chemicals, for instance, would need to be accompanied with an import licence to be presented at the first point of entry in the EU. UK manufacturers of motor vehicles would no longer be able to place them on the EU market accompanied by a mandatory certificate of conformity issued by the UK approval authority. Those manufacturers would need to appoint a representative established in the EU-27 to request a certificate of conformity issued by one of the EU competent authorities. For some industrial products such as medical devices, transportable pressure equipment or marine equipment and cosmetic products, the UK manufacturers would need to designate an authorised representative, or a responsible person established in the EU-27. Indeed, as of 30 March 2019, authorised representatives or responsible persons established in the UK would not be recognised anymore as authorised representatives or responsible persons for the purposes of the applicable Union product legislation. Moreover, for centrally-authorised medicinal products, the marketing authorisation holder established in the UK would have to nominate an authorised importer within the EU.
Hence, the costs and consequences of a hard Brexit would be heavily felt and fought over for years in the UK. Trade in goods between the UK and the EU would face significant disruptions in both directions. Considerable delays caused by customs and regulatory checks would have a critical impact on vital foodstuffs, medicines and perishable goods imported to the UK, as well as on industrial components involved in deeply EU-integrated supply chains and ‘just in time’ production processes. These delays and additional costs would have significant repercussions for the economies of the UK and the EU. The social impact of a no-deal Brexit would be even worse as it would severely affect SMEs, farmers and fishermen, particularly those established in the UK. Indeed, natural and legal persons would need to swiftly familiarise themselves with customs procedures and regulatory requirements regarding import and export of goods between the EU and the UK. Multinational companies established in the UK or the EU that often have trade relationships with non-EU countries may rapidly adapt as they already have at their disposal the necessary knowledge, skills and resources to comply with those procedures and requirements. By contrast, SMEs, farmers and fishermen, who are often exclusively engaged in intra-EU trade would undoubtedly face significant difficulties and obstacles. Having benefited from the free circulation of goods within the EU Single Market and Customs Union, and by the same token, from the absence of customs and regulatory controls between Member States, many would have to conform to these customs procedures and regulatory requirements for the first time. The costs of a no-deal Brexit will thus hit hardest those smaller economic actors in whose name Brexit was advocated in the first place.
The events at Westminster last week, notably the victory for opposition parties and Tory rebels on a motion designed to limit the government’s tax-raising powers in the event of a no-deal Brexit, proved the existence of a majority of MPs who are pledged to avoid a no-deal Brexit. Yet, even as the UK Parliament may take back control of the Brexit negotiations after the expected rejection of the proposed withdrawal deal, the risk of a no-deal scenario would remain. In a time-constrained calendar, the divided House of Commons would have to rapidly agree on an alternative path.
Chloé Papazian is a Research Fellow at the Brexit Research and Policy Institute at the Dublin City University. She is finishing her Ph.D. at the Faculty of Law of the European University Institute, Florence, Italy. Her thesis focuses on WTO subsidy law and EU State aid law. She holds a LL.M in European legal studies from the College of Europe. Her research interests relate to WTO law and EU law, as well as international energy and environmental law.