Brexit: What would trading under “WTO terms” mean for the Welsh economy?

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Last week the Prime Minister wrote to the President of the European Council, Donald Tusk, to notify him of the United Kingdom’s intention to leave the European Union. This act triggered Article 50, the section of the Treaty on European Union that governs how a Member State would leave the EU.

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Brexit, agriculture and rural life in Wales: Assembly Committee publishes report

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Following the result of the EU referendum, the Assembly’s Climate Change, Environment and Rural Affairs Committee launched an inquiry into the Future of Agricultural and Rural Development Policies in Wales.

The Committee gathered a wealth of evidence over the six months of the inquiry hearing from, amongst others, farming unions, academics, environmentalists, foresters, LEADER representatives, the tourism industry and the Cabinet Secretary for Environment and Rural Affairs. This included a stakeholder workshop, oral evidence sessions, written evidence and an on-line dialogue.

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Leaving the EU: key issues for agriculture, rural development and the environment

01 November 2016

Article by Katy Orford and Elfyn Henderson, National Assembly for Wales Research Service

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Photograph of upland farms

Mark Reckless AM, Chair of the Assembly’s Climate Change, Environment and Rural Affairs Committee, will make a statement in Plenary on 9 November on the future of agricultural, environmental and rural policies in Wales. The Committee is currently holding an inquiry into the future of agricultural and rural development policies.

What is the current situation?

The Common Agricultural Policy (CAP) is the EU’s main mechanism for providing direct support to farmers, protecting the countryside and supporting the development of rural communities.

The CAP is split into two ‘Pillars’; direct payments to farmers (Pillar 1) which provides income support to farmers and market management measures, and the Rural Development Programme (RDP) (Pillar 2). The RDP in Wales provides support for rural communities and rural businesses, and includes Glastir agri-environment schemes, which aim to conserve and enhance the environment in rural areas. Agriculture is devolved so the Welsh Government is directly responsible for implementing CAP in Wales.

Under the current round of CAP (2014-2020) Wales was due to receive €260 million per year in direct payments to farmers and €655 million for its 2014-2020 Rural Development Programme over the programme period.

Welsh agriculture is heavily dependent on the support it currently receives through CAP. The UK Government has recently committed to honouring current levels of direct payments to farmers until 2020, and RDP contracts signed before the UK leaves the EU.

A key question will be whether the current levels of funding for agricultural support are maintained in the long term, given that the UK Treasury has for some years expressed a preference for reducing direct income support to farmers.

What could a future policy framework look like?

The extent to which there would be a UK agricultural and environmental policy or four separate policies within the UK is an issue that will need to be considered.

Many experts suggest there is likely to be greater divergence policy in the UK following withdrawal to take account of the differing nature of farming across the UK. The farming unions in Wales are currently consulting their members on options for future farming policies. A number of farming and environmental stakeholders have already outlined an initial preference for a UK wide framework within which the devolved administrations would have freedom to create their own policies.

Lesley Griffiths, the Cabinet Secretary for Environment and Affairs, told the Assembly on 5 October that she has:

… made it very clear to my ministerial counterparts that agriculture has been devolved to this place for 17 years and we expect full repatriation of the legislation, policies and powers to this place when the time comes.

A key consideration underpinning any future policy framework will be how the policy is funded. For example, if devolved administrations are to create their own policies to a greater or lesser extent, should the associated funding be incorporated into the block grant received by the devolved administrations, or be ring-fenced for the specific purpose of supporting agriculture, the environmental and rural development?

What could the impact be on future trade arrangements?

Approximately 60 to 65 per cent of the UK’s agri-food exports (PDF 2.47MB) are exported to the EU and approximately 70 per cent of the UK’s food is imported from the EU. The Cabinet Secretary has said that ‘full and unfettered access to the EU single market is a fundamental priority and a red line’.

The average charge imposed by the EU on agricultural produce not granted preferential access to the European market is 12.2 per cent but this rises for some meat products to up to 67 per cent. However, if a successful free trade agreement is reached with the EU and it covered agricultural products and services then these tariff rates would not apply.

There are potential risks and opportunities for agriculture depending on the nature of any trade deals reached. An NFU study on the impacts of different trade scenarios (PDF 2.47MB) concluded that some sectors such as the poultry sector could have opportunities to increase productivity and incomes under a free-trade agreement with the EU, whilst other sectors, such as the livestock sector, which is particularly important to Wales, are likely to see reductions in income.

Consideration will need to be given as to what happens to Welsh foods protected under the EU protected food names scheme, such as Welsh Lamb, Welsh Beef, Conwy Mussels and Carmarthen Ham. The Farm Scientist Network (PDF 6.16) says that the EU places great importance on protected food names as a means of encouraging high quality value added food that can increase returns to farmers.

The Network also stated that the EU is likely to insist the UK protects protected food names in the UK market as part of any trade deal. In addition it concludes that in any case World Trade Organisation (WTO) rules would require the UK to offer at least minimum protection for the EU’s protected food names, such as Parmesan Cheese and Parma Ham.

What will happen to all the EU legislation?

A significant amount of current environmental legislation is also derived from European Law. Since the 1970s, the EU has agreed over 200 pieces of legislation to protect the environment. This includes policy areas such as waste and recycling, water, planning and development, biodiversity conservation, air and noise legislation, industry and chemical safety and assessment.

The Prime Minister has announced her intention to bring forward the ‘Great Repeal Bill’ which will repeal the European Communities Act 1972  (which established the supremacy of EU law over UK legislation) from when the UK formally leaves the EU. This Bill will also convert the existing body of EU law into UK law and allow amendment or repeal of any legislation subject to any ‘international agreements and treaties with other countries and the EU on matters such as trade’.

EU to open free trade discussions with New Zealand and Australia

19 February 2016

Article by Rachel Prior, National Assembly for Wales Research Service

The European Commission is preparing to negotiate two new Free Trade Agreements (FTAs), with New Zealand and Australia.

EUFlags

Image from Flickr by Xavier Häpe. Licensed under the Creative Commons

European Commission President Jean-Claude Juncker and European Council President Donald Tusk, in separate statements with New Zealand Prime Minister John Key (October 2015) and Australian Prime Minister Malcolm Turnbull (November 2015), have announced agreements to start progressing towards negotiations for two separate FTAs – between the EU and New Zealand, and between the EU and Australia.

The details of global trade negotiations are usually kept private to preserve the bargaining power of the negotiating parties. However, the Commission’s Trade for All strategy sets out plans to increase transparency as much as possible, while also maintaining the Commission’s negotiating ability. This is in response to criticism over the perceived high levels of secrecy during the negotiations with the US over the Transatlantic Trade and Investment Partnership (TTIP). It’s therefore possible, that more information will be made available to the public during the negotiation of the New Zealand and Australia FTAs, than has been the case in the past.

When can we expect the deal to be completed?

The Commission must first request permission from the European Council to begin the negotiations. The earliest it will do this for the New Zealand FTA will be in 2017, with the Australian FTA following soon after.

EU trade negotiations are a lengthy process, with negotiations usually lasting a minimum of two to three years. This is followed by legal scrutiny lasting three to nine months, following which the European Parliament can vote on the proposals. Should the proposals be approved, the effects may still not be felt for some years as the provisions laid out in the agreement are often staged over time to allow smooth adoption of the new procedures.

Why New Zealand and Australia?

The EU already enjoys significant levels of cooperation over international issues with both New Zealand and Australia. However, the two countries are two of only six World Trade Organisation (WTO) members that do not yet have a FTA with the EU. While the EU was the second and third largest source of imported goods for New Zealand and Australia respectively in 2014, the two countries were the 51st and 21st largest source of imported goods into the EU respectively in 2014.

These low exports to the EU by New Zealand and Australia could be due to a recent refocussing of trade partners in the Asia-Pacific area, following a number of new trade agreements. Some commentators suggest that this puts EU exporters and importers at a competitive disadvantage to countries that have existing trade agreements with New Zealand and Australia, such as China, Japan and the US.

The Commission hopes that the FTAs will comprehensively lower trade boundaries between the EU and New Zealand and Australia. Australasia is also a location of great interest to the Commission because of the potential for expansion into the Asia-Pacific market.

Potential issues for agriculture

Concerns have been raised about a potential influx of New Zealand and Australian agricultural products, which could impact on the competitiveness of agricultural business in the EU.

The European Dairy Association has highlighted the “competitive advantage” of the New Zealand dairy sector over that of the EU. Concerns have also been raised regarding a potential increase in cheaper New Zealand lamb products on the shelves of the UK, an issue that has the potential to affect Wales due to its high number of sheep farmers. NFU Cymru is campaigning for the Welsh public to demand more Welsh lamb in shops, as it is concerned by the prevalence of New Zealand lamb competing with local produce. It has expressed concern to the Commission on New Zealand imports.

In response to these concerns, the Commission stated in its Trade for All strategy that it will take into account “EU agricultural sensitivities” in its negotiations.

For the last five to six years, New Zealand has been importing in the region of 160,000 tonnes of sheep and goat meat into the EU annually, of which approximately 35 per cent comes to the UK. The UK Agriculture and Horticulture Development Board (AHDB) says that the UK takes a disproportionately high amount of New Zealand lamb compared to other countries in the EU despite being a significant exporter of lamb to the rest of the EU.

However, AHDB says that New Zealand does not currently fill its present toll-free quota for sheep and goat meat exports to the EU, at 228,254 tonnes, and so removing the cap would have little to no impact upon export levels. The New Zealand Meat Industry Association says that the peaks and troughs of supply from New Zealand are complementary to those of local producers, and that therefore New Zealand fills the gaps where demand outstrips supply for Welsh lamb.

Australian sheep and goat meat exporters currently use 99.6 per cent of their annual quota, and have in the past called for it to be increased from its current level of around eight per cent of the EU market share. AHDB suggests in its World Sheep Meat Market to 2025 report that if restrictions were lifted, of all EU sheep meat suppliers, only Australia would be in a real position to increase shipments.

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Transatlantic Trade and Investment Partnership: are Welsh public services safe on the “altar of free trade”?

5 January 2015

Article by Robin Wilkinson, National Assembly for Wales Research Service

The Transatlantic Trade and Investment Partnership, or “TTIP”, is a proposed trade agreement between the European Union and the USA. If agreed, it will become the biggest free trade pact in the world. Some commentators are fearful of the proposals, which they think could lead to privatisation by stealth of valued public services, and give corporations an unprecedented level of power over elected governments. They are also suspicious of the fact that much of the discussion has taken place behind closed doors – something that EU officials say is necessary to protect the EU’s bargaining power. Are these fears justified?

eu

Image from Flickr by Images Money. Licensed under the Creative Commons.

The main proposals: regulatory convergence

The European Commission is leading on the negotiations with the USA on the behalf of the EU Member States. The Commission’s aim is to use TTIP to create jobs and growth on both sides of the Atlantic, by removing trade barriers. The proposals have three main elements:

  • Market access: removing customs duties on goods and restriction on services, gaining better access to public markets, and making it easier to invest.
  • Improved regulatory coherence and cooperation.
  • Improved cooperation when it comes to setting international standards.
  • The Commission’s negotiating mandate (made available following campaigners’ calls for more transparency in the TTIP discussions) is available here.

Commission estimates state that TTIP could grow the EU economy by up to €119 billion per year. The UK Government has estimated that gains to the UK could be between £4 billion and £10 billion annually.

Central to the proposals is the plan to remove regulatory barriers that prevent companies from easily doing business either side of the Atlantic. The Commission claims that significant savings for businesses can be accrued by achieving convergence between different regulatory regimes that have at heart many of the same aims.

Concerns have been raised that this will result in lowering regulatory standards, for example, in the area of food safety. The EU has historically regulated more strictly than the US in areas such as GM crops and hormone-treated meat, and some stakeholders are worried that TTIP could result in a lowering of EU standards in this area, and subsequent competitive pressures on EU producers.

EU Commission President Juncker, however, has been keen to assuage fears that this could lead to a regulatory “race to the bottom”, stating that he will not “sacrifice Europe’s safety, health, social and data protection standards on the altar of free trade.”

Opportunities for SMEs

The Commission has argued that SMEs stand to gain most from regulatory alignment between the EU and the USA, as they will be able to access new markets without recourse to the legal advice previously needed to negotiate different regulatory regimes. These proposals have been welcomed by the Federation of Small Businesses, who called them “a land of opportunity for small businesses”.

The Commission also aims to use TTIP proposals to open up public procurement between the two markets. Business leaders see significant opportunities for EU businesses in opening up procurement markets, as they believe current law and practice in the USA (including “Buy America(n)” clauses) impedes access for European companies.

The USA is by far the biggest market for Welsh exports, and one that has grown by 1.6 per cent over the last year, so the TTIP debate should certainly be of interest to Welsh businesses.

The main concerns: settling disputes between businesses and states

However, these proposals have drawn considerable criticism from groups including the Greens/European Free Alliance Group in the European Parliament (including Welsh MEP Jill Evans), the union Unite and Friends of the Earth.

Central among their concerns is a controversial method for investors to use to resolve disputes with national governments, outside of the domestic courts. The “Investor-to-State Dispute Settlement (ISDS)” mechanism is intended to provide protection for investors against unfair treatment or discrimination from host governments. Where they feel their interests have been unfairly damaged by national or local laws investors would be able to seek redress through an arbitration panel, whose decision could not usually be challenged in the courts.

Although an ISDS tribunal would not be able to revoke legislation, some fear that the ISDS mechanism would force the hand of governments who are afraid to legislate and open themselves up to challenge under ISDS. Alternatively, governments could find themselves open to million-pound compensation bills for what many would consider legitimately-made policy decisions. For example, tobacco-giant Philip Morris is currently using a similar mechanism to challenge the Australian Government’s decision to introduce plain packaging for cigarette packets, though the verdict in this case is yet to be returned.

Campaigners have claimed that TTIP could act as a “ratchet” mechanism leading to the irreversible encroachment of the free market into public service delivery. They fear that governments would be unable to reverse privatisation decisions of previous governments (for example, by re-nationalising the railways) due to the threat of ISDS action from the private companies currently delivering these services.

The UK Government has tried to allay fears (in its response to a House of Lords inquiry into TTIP) by pointing out that the UK already has 90 bilateral trade agreements in place, the majority of which include an ISDS mechanism, and to date has never lost a case brought under these treaties. It has stated that “TTIP will not change the way the NHS or other public services are run”.

The European Commission has written to MPs following concerns they raised about TTIP and the NHS, stating “if a future UK government, or a public body to which power has been devolved, were to reverse decisions taken under a previous government, for example by discontinuing services provided by a foreign operator, it would be entirely at liberty to do so”. Both the Commission and the UK Government argue that the sovereignty of Member State governments to deliver public services how they see fit is not on the table.

The French and German governments, however, have both expressed strong opposition to ISDS, with the French government saying it will not sign the TTIP agreement if ISDS is included.

Such is the strength of public feeling on the possible risks posed by ISDS that the European Commission launched a consultation looking specifically at investment protection mechanisms in TTIP in summer 2014. The Commission is yet to respond fully to the consultation, which received almost 150,000 responses (over 50,000 from the UK).

Negotiating carve-outs

One way to protect the NHS – or any other area people felt was under threat from TTIP – would be to obtain an exemption, either specifically for the UK or more generally, for this area from the TTIP proposals. For example, France has negotiated a “carve out” that means that the audio-visual sector will be excluded from negotiations. The UK Government has stated that it does not intend to pursue such an exemption in relation to health services, and does not see TTIP as a threat to UK sovereignty in this area.

The devil is in the detail

One point that stakeholders agree upon is that the exact wording of any eventual agreement is critical to the effects it achieves. For example, ISDS clauses, if included in the final draft, will need to be watertight to avoid their exploitation by private companies keen to maximise their profits.

In part, this is hard to assess, as much of the negotiation is taking place behind closed doors. Negotiations are scheduled to continue, possibly until 2016, when the final deal will need to be agreed by the European Council and European Parliament, and subsequently ratified by Member State national parliaments. Whether TTIP paves the way to a “land of opportunity” for the Welsh economy, or opens the floodgates for corporate power to challenge democratic will, the devil will be in the detail.

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