After the transition period – what happens next?

Tuesday, 21 July 2020

With the UK Government making it clear that it will not seek an extension to the transition period, the UK is set for a new relationship with the EU from 1 January 2021.
Whether that relationship will entail a Free Trade Agreement, or whether no trade deal will be in place by then is not yet clear. However, the end of the transition period signals significant change for our trading relationship with our major trading partner.

What will change?

In either case, trade friction is inevitable. These trade frictions arise due to the UK no longer being a part of the single market, and comprise additional paperwork, physical checks and potential delays at ports and airports as the new systems bed in.

In addition, at the end of the transition period, international agreements concluded by the EU will no longer apply to the UK. UK exporters need to be aware of the EU’s rules of origin as UK ingredients may no longer be considered of EU origin.

If no trade deal is agreed, the UK will face the EU’s common external tariff (CET) for exporting agricultural goods to the EU. This tariff is designed to protect EU agriculture, and as such represents a significant barrier for exporters, exerting downward pressure on domestic prices. Its impact will vary by sector but is of particular importance to the lamb sector, where a high percentage of UK production is exported to the EU in the form of carcases and half carcases. High tariffs for lamb mean significant price falls for UK producers unless new markets can be found.

Goods imported to the UK will face a UK Global Tariff (UKGT) recently announced by government. This tariff regime offers greater protection to domestic agricultural production, in the form of higher tariffs, than the tariff regime announced last year in the event of no deal. However, the government may still announce TRQ’s or alternative measures to avoid food price increases in the event of no deal. This, coupled with the effect of upcoming trade deals, means UK producers would be wise not to rely on the UKGT to maintain domestic prices and production for an extended period.

The Northern Ireland (NI) Protocol

The NI protocol allows the UK to leave the EU without the need for hard borders on the island of Ireland. Northern Ireland will remain part of the UK’s customs territory, while following EU rules and applying EU VAT on goods. This means there will be some checks on goods moving between Great Britain and Northern Ireland. For those intended to be moved, or at risk of being moved on into the EU, VAT and other duties (including tariffs in the event of no trade deal) will be payable. These duties may be claimed back if the goods are not moved on.

Free movement of goods between Northern Ireland and Great Britain will remain.

What should I do to prepare?

Whilst it may appear to some producers that nothing much will change for them from 1 January, especially if they are not importing or exporting goods, the size and scale of the changes, and their potential effect on UK agriculture should not be underestimated.

The EU has been our major trading partner for over 40 years, and any change to that close relationship will inevitable mean huge changes to the pattern of trade for UK agriculture.

While individual farmers and growers may feel slightly in limbo, as their future is determined by trade negotiations with major trading partners, there is still a huge amount that they can do within their own businesses to prepare for 1 January 2021 and the future outside the EU.

AHDB analysis shows that whatever the outcome of the trade negotiations between the UK and the EU, top performing farms in every sector, including the hardest-hit grazing livestock sector, will remain profitable. The vast majority of factors that determine top performance are under the farmer’s direct control. It is essential that farmers and growers are aware of those factors and clear about their own business performance in order to ensure they are fit for the future. I would urge all farmers to read ‘The Characteristics of Top Performers’ on the AHDB website to ensure their businesses are in the best possible shape to meet the challenges ahead.

In addition, there is a range of detailed information, including links to relevant government guidance on our Brexit pages