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Brexit negotiations: who holds the trump card?

Nearly a year after the UK voted to leave the EU, Brexit negotiations have finally started in Brussels with British Prime Minister Theresa May now heading a minority government. The huge political uncertainty hanging over the new UK government significantly adds to previous doubt that the negotiations could be completed in the two-year timeframe. The first session of talks on 19 June confirmed the EU27 position on the sequencing of the negotiation whereby the reciprocal rights of expat citizens, the calculation of the UK’s continuing financial obligations and the status of the Irish border need to be agreed on before the actual discussion of Britain’s post-EU trading arrangement can begin. However, the talks on the terms of divorce might prove long and arduous, further delaying the starting of the ‘real’ negotiation and prolonging a period of business uncertainty. The notion that the election setback for Theresa May could somehow result in a softening of the hard Brexit option, a view reinforced by Northern Ireland’s Democratic Unionist Party (DUP, potential government partner) having a different vision for Brexit that favours ease of trade with the EU and the maintenance of the Common Travel Area between the Irish Republic and Northern Ireland, has yet to be vindicated. The recent Queen’s Speech surely contained no indication of a softer approach; on the contrary it included a Customs Bill that, if enacted, would effectively take Britain out of the EU’s customs union. Indeed, from the Brexiteers standpoint, leaving the customs union is mandatory in order for the UK to be able to negotiate free trade deals with other countries. At this point, it is therefore unclear how the resurrection of a ’hard’ border between Northern Ireland and the EU, which would negatively affect the single economy of the island of Ireland, could be avoided.

 The food and beverage industry, both in the UK and the other EU Member States, is very much exposed to potential negative effects of Brexit. The food and drink sector is the EU’s largest manufacturing industry, with trade in food and beverage products between Britain and the EU27 worth some €45 billion, making the UK the largest trading partner of the bloc of 27 EU countries. The future trade relationship for food products between the UK and the EU remains to be defined. It is probably safe to rule out at this point any EEA type of arrangement where nothing really changes apart from the fact that the UK would no longer have a say in the shaping of legislation. The most obvious other alternatives are a bilateral agreement similar to the agreement the EU has with Switzerland, where there are no border controls and no tariffs, or the UK could be considered like any other non-EU/EEA WTO member with reciprocal tariffs being applied to bilateral trade. If tariffs were imposed, the very intricate supply chains that are characteristic of the industry could be seriously affected and the food and drink sector could face supply chain disruptions. Apart from the UK, the EU country potentially most adversely impacted by Brexit is Ireland. Total Irish agri-food exports were worth close to €11 billion in 2014 with the UK taking the lion’s share (€4.5 billion). The British food sector is probably the most exposed though, as it is faced with the additional problem of Brexit’s disruptive impact on the recruitment of both skilled and unskilled labour. Other post-Brexit risks and uncertainties for the industry include the future status of EU food legislation in the UK (will it coexist with or be replaced by new national rules) as well as the possible relocation of businesses as major food companies reconsider locating in the UK or choose to relocate to another EU country or to downgrade their operations in the UK and upgrade them in the EU27.
However incoherent the current strategy of the British government, at the end of the day the onus will be on the UK negotiators to answer the hard questions of their EU counterparts – in plain language, where is the beef?


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