Eucolait is extremely concerned about the declaration by the UK that it will not consider an
extension of the transitional period. Progress in the negotiations between the EU and the UK
has been slow and the positions of each side appear inconsolable. With the extension of the
transitional period ruled out, there are only four months left to get from the current impasse
to an agreement to avoid a hard Brexit. This immense task is further complicated by the
ongoing pandemic and its economic fallout.
The baseline position of Eucolait remains unchanged: the future trade relationship between
the EU and the UK should be as close to the present situation as possible, with trade
unfettered tariffs, quotas or by unnecessary non-tariff barriers. Nevertheless, given that the
UK will be out of the single market and the customs union at the end of this year, we
acknowledge trade cannot be as frictionless as today.
Negotiating a comprehensive trade agreement within the available time frame will require
strong political will. In addition, the deal will have to be simple one, as the time factor alone
makes line by line tariff negotiations impossible. The key components of the future trade deal
need to include duty and quota free access to each other’s markets, an alignment or
equivalence regime for food legislation and customs facilitations.
No tariffs or quantitative restrictions
Dairy companies on both sides are operating in an integrated supply chain that must be
maintained. The impacts of a lack of agreement on tariffs are well known by now. Assuming
that the current EU external tariffs were to be applied by both sides (with minor adjustments
on the UK side) from January 2021, the dairy sector would be among those hardest hit, with
estimates suggesting more than 90% of current trade being eliminated. Dairy supplies from
the EU to the UK exceed € 3,5 billion, making it our most important export market by far. More
than half of the exports are cheese, but the volumes of fermented products, butter, infant
formula and liquids are also substantial. On the import side, the EU external tariff would wipe
out virtually all dairy imports from the UK, currently amounting to almost € 2 billion worth of
products. This would also displace EU exports to the UK since a large share of the products
previously exported to the EU27 would then remain on the UK market. Maintaining duty free
access across all dairy product categories is therefore of utmost importance.
This said, the UK is far from self-sufficient in dairy and as such will have to continue importing
large volumes of dairy products, especially cheese, or face product shortages and price
inflation.
Reintroducing import duties on dairy products would create significant additional costs for
both businesses and consumers and would force the EU dairy sector to look for alternative
export markets in a world where demand is heavily affected by covid-19. Downward pressure
on milk prices as a result seems inevitable.
Preferential rules of origin
As far as dairy products are concerned, Eucolait does not see a need for rules of origin that
would significantly differ from the standard EU rules of origin used in most free trade
agreements concluded by the EU. For standard dairy products (chapter 4), the extension of
benefits to third countries can be excluded by the “wholly obtained” rule, while bilateral
cumulation of origin between EU and UK should of course be allowed. For processed products
with dairy components (e.g. specialty nutrition under chapter 19), there should be more
flexibility offered as regards the origin of the dairy components, given that certain specialty
ingredients are not produced in sufficient quantities in Europe. The threshold for nonoriginating dairy ingredients should be set at the lowest at 20% on a weight basis.
Level playing field
This has become the thorniest part in the discussions and pragmatic solutions are urgently
required to break the deadlock. The EU negotiating directives suggest that access to the
sizeable EU market should be conditional on maintaining a level playing field through robust
commitments in areas such as environmental protection, labour standards, competition, or
food safety. While both parties should deliver on the principles laid down in the political
declaration, the UK’s choice to leave the EU to regain its freedom to regulate also needs to be
respected. In our opinion, the level playing field commitments should focus on reaching
broadly equivalent outcomes, rather than tying the UK to the EU acquis. It is worth noting that
the EU has granted very comprehensive access to its market, including free access for dairy,
to other trading partners such as Canada or Japan, without such comprehensive level playing
field provisions. The UK’s track record while part of the EU does not give reason to believe
that a lowering of standards in the relevant areas will take place. Still, the partnership
agreement could contain a safeguard clause on market access to prevent any race to the
bottom on the initiative of either side.
Customs facilitation
For trade to flow relatively freely and to resemble in any respect the situation of today,
enhanced customs facilitation will need to be a key part of the new partnership. We accept
that completely frictionless border arrangements will be impossible and that there will need
to be certain customs procedures and border checks. The partnership should make full use of
all possible facilitations within the framework of the EU customs code, considering the
longstanding membership of the UK to the EU and the trustworthiness of its administration
and operators.
In this context, we welcome the phasing in period of 6 months announced by the UK
government as far as customs procedures and controls are concerned.
Sanitary and veterinary solutions
In addition to keeping customs channels open, Eucolait wishes to see continued alignment
and co-operation in the field of food safety and veterinary rules. This would prevent
cumbersome divergence in rules and standards in the years to come. It is worth reflecting that
the starting position with the UK is quite different to that of a regular third country trading
partner. Currently there is already perfect alignment. Food safety rules need not remain
identical in the future but they have to remain sufficiently close to allow for reasonably
frictionless trade.
The EU should strive for arrangements without veterinary controls to avoid serious delays at
border control posts. The Brexit preparedness exercises showed that neither the UK, nor EU
Member States would have had the capacity to deal with the current EU – UK trade flows in
animal products. When food safety systems are closely aligned, it is possible not to have
veterinary checks at the border. The most comprehensive evidence of this is the veterinary
co-operation between the EU and Switzerland, which allows for the movement of dairy
products without veterinary controls.
Aside from avoiding or minimising the disruption caused by border checks, a regulatory
committee should be set up to ensure continuous coherence between the EU and UK on food
safety matters.
Conclusion
Maintaining a close partnership, economic and otherwise, is clearly in the interest of both
parties. Pragmatic solutions will be required to address those areas where UK wishes to
diverge from EU rules and policies. It is evident that a third country cannot be granted the
same benefits as a Member State and that Brexit will inevitably have negative economic
repercussions, but matters should not be made worse with additional, unnecessary hurdles.
The focus needs to be on maintaining a strong relationship in the interest of EU and UK citizens
and businesses. The dairy trade will be able to cope with some friction due to customs controls
but otherwise trading conditions within the EU-UK dairy supply chain must remain unchanged.
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