[Mr Philip Hollobone in the Chair]
I beg to move,
That this House has considered a proposed tariff schedule for agricultural products in the event that the UK leaves the EU without a deal.
Diolch yn fawr iawn, Mr Hollobone. It is a pleasure to serve under your chairmanship once again.
On 13 March this year, the British Government published their temporary tariff regime for a no-deal Brexit. At the time, the announcement gained little political attention as it was the policy of the period to avoid no deal at all costs. One of the greatest failures of the current Prime Minister is her use of the phrase,
“No deal is better than a bad deal”.
She fell into a bear trap set by the extremists in her own party. When the British Government switched strategy in summer 2018 to warn explicitly about the dangers of no deal as a means of gaining parliamentary support for her deal, it was too late. The infamous phrase had legitimised the totally reckless policy of a no-deal Brexit.
With the Prime Minister’s demise, the leadership election for the Conservative party has been dominated by the question of who can puff out their chest the most on Brexit. The debate has occurred in a parallel universe, far divorced from political realities. However, one conclusion we can safely assume is that it seems inevitable that no deal will become a viable option for the next Prime Minister, so all aspects of British Government policy in relation to a kamikaze Brexit deserve greater scrutiny.
A key aspect of a no-deal situation is that, on 1 November, if the likely next Prime Minister sticks to his Halloween promise, the British Government will have to introduce an independent tariff schedule for goods entering the newly formed UK customs area. A major consequence of leaving the EU with no deal is that the territories of the British state will no longer inhabit the safe harbour of the EU customs union.
I could have concentrated on a whole range of goods that will be impacted, but I want specifically to debate agricultural products for two reasons. First, Carmarthenshire is a proud agricultural county, and therefore leaving the EU customs union will have a disproportionate impact on the communities I serve. Secondly, tariffs on agricultural products are traditionally far higher than on other goods. That is especially true of the European Union, the destination for the vast majority of Welsh produce.
As part of the EU customs union, Welsh farmers are protected by those high tariffs, which has enabled our food producers to develop high-quality goods with unhindered access to the most lucrative and largest market in the world. The agricultural industry faces not only the loss of unfettered free access to its main export market in Europe; the new tariff schedule and its accompanying quotas offer precious little protection for the domestic market from being flooded by lower standard food products from around the world. That double hit would be too much for many farmers in my constituency and beyond. I cannot emphasise the dangers to the industry enough.
Both farming unions in Wales agree. John Mercer, Director of NFU Cymru, said:
“It is absolutely clear that a no deal scenario will be catastrophic for Welsh and indeed British agriculture. A scenario where Welsh farmers have to operate under the ‘no deal’ default of WTO tariffs will have devastating effects and will severely threaten the livelihoods and business of Welsh farmers.”
I am delighted to report that Mr Dafydd Jarrett from NFU Cymru is watching our proceedings.
Glyn Roberts of the Farmers’ Union of Wales said:
“It says it all that the prospect of a hard Brexit means a rich and highly developed state is stockpiling food and hoping to use an exemption to WTO rules on the Irish border which would more normally be applied in cases of war or famine. Yet this situation is not compulsory; this is a crisis which in fact we can easily avoid by acting in the best interests of our four nations; by withdrawing Article 50 and telling people honestly why Brexit must take place over a safe and realistic timetable.”
In July 2018, the British Government lodged proposed schedules with the World Trade Organisation setting out the most favoured nation tariffs that would apply to imports to the UK after Brexit. Subsequently, in March 2019, the British Government set out proposed temporary tariffs to apply in the event of a no-deal scenario, which would see zero tariffs applied to 87% of imports measured by value for up to a year in a temporary regime, while consultation and review on a permanent tariff regime takes place.
I am pleased that the British Government have exercised at least a degree of sensitivity in their treatment of the sheep sector, recognising the need to maintain tariff protection for lamb in the event of no deal by maintaining the full WTO tariff of 48% on lamb imports. However, what they give with one hand, they take away with the other. Tariff rate quotas will allow lower or zero tariffs to be applied up to a certain level of imports on some products. We know, for example, that New Zealand will continue to enjoy significant tariff-free access to the UK market for 110,000 tonnes of lamb annually. One of our principal competitors in the lamb sector will therefore enjoy more generous tariff-free access to our market.
I was involved in some of that work and the development of that schedule as a Minister. The existing New Zealand tariff rate quota would be split in half, giving it less access to the UK market than previously. Is the hon. Gentleman aware that, in any event, in recent years New Zealand has used only about 70% to 75% of its current rate quota because it cannot compete with lamb produced in the north-west and south-west of this country even before it reaches that ceiling?
I recognise the former Minister’s expertise in the matter. We will have to wait and see what farmers have to say about that. I invite him to attend the Royal Welsh show next week and make that point. I am sure he would receive a welcome response to his comments.
The new Brexit date of 31 October will coincide with very high numbers of finished lambs coming on to the UK market.
Will my hon. Friend take this opportunity to invite Ministers not just to the Royal Welsh show next week but to Balla Mart, which will be held on 31 October, when perhaps 800,000 small-body lambs will come to market at a time of considerable pressure on prices?
I welcome my right hon. Friend’s intervention, because it takes me to my next point. If we are locked out of European markets, there is no way in which domestic consumption could pick up the slack. Additionally, the final quarter of the year sees the sale of light lambs from Wales, which are traditionally destined for export. There is no way in which they could be redirected into domestic consumption. Economists previously assumed that the loss of the EU market would depress UK farm-gate prices by 30%.
I am grateful to the hon. Gentleman for being so generous. The added threat of tariffs, as he suggests, is that British supermarkets will think they have farmers over a barrel because of the loss, in effect, of our export markets. Does he agree that Ministers ought to take action now and increase the powers of the Groceries Code Adjudicator to ensure that supermarkets cannot exploit the situation?
I am grateful for that valid intervention. Those are the remedial measures that the British Government should be looking at urgently to protect our domestic farm producers. We are all aware of the imbalance there has been in the supply chain over many years, with, as he said, producers under the barrel of the supermarkets. The situation may well be exacerbated by what comes in the following months.
To return to my point, economists believe that farm-gate prices will fall by 30%. With an additional 800,000 lambs on the domestic market at the end of October, farm-gate prices will come under additional pressure. I therefore call on the British Government to commit, on top of the measure mentioned by the hon. Member for Westmorland and Lonsdale (Tim Farron), to additional funds for Wales to be able to implement contingency plans should the worst happen and we find there is unsellable surplus on the domestic market. There would be a disproportionate impact on Welsh agriculture.
In other sectors, the British Government have elected partially or completely to dismantle tariff walls on most products. Tariff rates of 45% for beef, 0% for eggs and 22% for poultry meat will apply for imports into the UK from the EU and the rest of the world, while our exports of those products to the EU will face tariffs of 84%, 19%, and 48% respectively. In the dairy sector, only certain products—such as cheddar with a 7% tariff and butter with a 15% tariff—will be afforded some degree of protection, with the EU applying tariffs of 57% and 48% respectively on those products.
I am grateful to my hon. Friend for his time. Does he agree with Dairy UK’s analysis that the toxic combination of WTO tariffs on exports aggravated by zero tariffs on imports will cause a massive shock to raw milk prices? That will affect big dairy sector employers such as farmer-owned South Caernarfon Creameries.
That was another valid intervention. The hit will not be just to core producers, but along the supply chain to some of the producer and production capacity as well.
Commodities such as skimmed milk powder, yogurt, whey, cream and liquid milk will not be protected by any tariffs. If farmers in Northern Ireland cannot send their liquid milk into the Irish Republic for processing and export, there will also be the problem of a major oversupply of liquid milk on the domestic market.
In my constituency we have Lakeland Dairies, which has two factories in Northern Ireland and two factories in the Republic of Ireland. Michael Hanley is the chief executive officer of that firm. He says that whether or not there is a Brexit deal, life will go on. In other words, the movement of milk across the border, either way, in liquid or powder form, will still take place. We need to be aware of what some businesses are saying. That comes straight from a firm in my constituency.
I appreciate the hon. Gentleman’s expertise; he is a farmer himself, I believe. However, if there is a no-deal Brexit, the European Union will have to protect its customs and market territory under all circumstances; otherwise, it would undermine the essence of the customs union and the single market.
Owing to our inability to discriminate between countries under WTO rules, the tariffs that we apply to the EU27 in the case of no deal will be the same as those we apply to countries with which we do not have a trade deal. At the moment, that is basically the rest of the world, apart from the Faroe Islands and a few other territories. That would mean that South American beef, which is currently subject to the EU’s common external tariff of 84%, would, in the event of a no-deal Brexit, be able to enter the UK subject to a 45% tariff and out-compete our domestic producers.
Many classes of imported product will be produced to standards that are currently illegal in the UK, and that will undermine our high domestic standards. As an unintended consequence, it will also hinder our ability to trade with our biggest market, which prides itself on high standards. The fact that the UK could be on the cusp of leaving behind a trade policy based on almost half a century of EU membership and swapping it for a trade policy based on WTO tariffs and protection for a handful of products is, to say the least, deeply concerning.
All that, and I have not even begun to countenance the north of Ireland. The UK temporary import tariffs are set to apply to products exported from Ireland to the British mainland but not to goods crossing from Ireland into Northern Ireland. Although protecting the integrity of the Good Friday agreement must be a priority, that fantasy solution has been branded useless by the unions, as it flies in the face of WTO and EU rules.
On another point often used by the British state to defend its tariff schedules, although I recognise the importance of ensuring that food prices do not rise in the immediate aftermath of no deal, the second-order effects of a no-deal Brexit on the economy could well lead to the cost of living sky-rocketing, rendering that argument null and void. Surely, ruling out no deal in the first place is the best way of achieving food price stability and food supply. If the next Prime Minister insists on keeping the myth of no deal alive, I would urge him to prioritise revisiting the proposed tariff schedules, with a view to ensuring that protections are maintained rather than eroded or removed completely.
From a wider strategic perspective, what proponents of no deal do not admit is that the strategy is essentially a negotiating tactic. I do not think that even the mad caps of the Tory European Research Group want to base the British state’s trading relationship with the EU on the North Korean, Venezuelan, Cuban, Belarusian and Kazakhstani model. They believe that threatening no deal will secure favourable terms from the European Union. That has not been the case to date and is highly unlikely to change in the autumn, owing to the simple fact that the European Union holds all the cards in the negotiations.
I do not think our inability to secure such terms is down to insufficient effort by previous UK negotiators. The strategy is the international trade equivalent, as one expert put it, of placing a gun to our own head and telling our opponent that we will pull the trigger unless they concede. In that case, they are likely to say, “Go ahead.” The reality is that, far from being intransigent, I am amazed by the patience of our European friends as Westminster goes through a full-scale political nervous breakdown.
The strategy, however, has developed. Some in the Conservative party now believe that the crisis of a no-deal situation, which will face the British state on 1 November, is the best way to secure favourable terms in future negotiations, as opposed to doing things in a managed, grown-up way. It is a game of risk, in other words. Those advocating no deal are prepared to throw all their chips in the air in the hope that they fall on the right roulette numbers. Personally, when dealing with people’s jobs and living standards, I prefer a more strategic and nuanced approach.
Before the Minister starts blaming my side of the argument for keeping no deal alive by not voting for the Brexit deal, it is the case that the Brexit model and narrative in front of us today has shifted drastically towards a harder, more extreme Brexit. At the start of the process, directly after the EU referendum, a soft Brexit was perceived as staying within the framework of the EU single market and customs union, while a hard Brexit was widely perceived as Canada-plus. At the time, Plaid Cymru would have been content with the former. Indeed, we have voted for those options when they have been before the House. By now, the discourse of a soft Brexit looks more like Canada-plus, while a hard Brexit is widely accepted as being no deal. There is no way on earth that we could accept either of those options with a clear conscience.
The reality of the situation is clear: on day one of a no-deal Brexit the British state will have to negotiate a series of mini deals or face dire economic consequences. No deal is therefore a complete oxymoron. The European Union has said clearly that its priority before any meaningful negotiations would be settlement of the £39-billion divorce bill, citizens’ rights and the British border in Ireland. Considering the British Government will have to concede on those three issues no matter what they do, I am at a complete loss as to why anyone who supports Brexit voted against the withdrawal agreement.
Over the last year, the British Government have clearly outlined the dangers of a no-deal Brexit. On top of an economic recession equivalent to the great financial crash of 2008, highlights include troops on the street to deal with civil unrest; food shortages and higher prices as import supplies are disturbed, especially for fruit and vegetables; customs checks costing UK businesses £13 billion a year; no legal protections when buying products and services from EU countries, while UK courts no longer offer redress for consumers; flights from UK airports not receiving equal treatment when traveling to and landing at airports of countries who are members of the common aviation area; the Eurostar being disrupted until new arrangements are negotiated with each country along its routes; and fishing boats losing access to EU fishing waters, and being unable to land their catch at EU ports—and that is just what the British Government have chosen to share with us over the last few months.
Pascal Lamy, who should know a thing or two about such things as director general of the World Trade Organisation between 2005 and 2013, equates leaving the European Union single market and customs union and trading on WTO terms to leaving the first division and facing a double relegation to the third division. Aware of the potential backlash to such a reality, no-deal proponents now argue that the British state could seamlessly enact article XXIV of the general agreement on tariffs and trade to keep the current tariff schedule. That argument was shot down last week by the WTO’s current director general, who said:
“Article XXIV of the GATT is simply the provision of global trade law under which free trade agreements and customs unions are concluded… If there is no agreement, then Article XXIV would not apply, and the standard WTO terms would.”
In other words, as we now famously know, paragraph 5(c) of article XXIV of GATT states that it applies only if there is a deal—the direct opposite of what the no-deal apostles are arguing for.
For that reason, I have little doubt that, were the British Government to adopt no deal as its official policy, they would lose a vote of no confidence in this House. I for one am certainly committed to voting to bring down the British Government in order to defend the economic interests of my constituents. Diolch yn fawr iawn.
Thank you, Mr Hollobone; I will be very brief. I congratulate the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) and thank him for allowing me to make a short point that is very important to me. I had a meeting with arable farmers in Shimpling in my constituency two Fridays ago. They are extremely worried about the prospect of no deal. Under the current proposal, we are suggesting nil tariffs on imported wheat and barley into the United Kingdom, while exports will be subject to an out-of-quota tariff of almost €100 per tonne, making their being unmarketable a serious prospect.
Obviously, there is no time to go into the potential impact of that. I am sure that the Minister, like me, does not want no deal, but were no deal to happen we must revisit the tariff schedule from the point of view of protecting arable farming. Otherwise, it could face a serious impact. In my view, we should respond with a reciprocal tariff to ensure that the breadbasket of England, just like our farmers in Wales, is on a level playing field with the rest of the world.
I congratulate the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) on securing this debate on the proposed tariff schedule for agricultural products in the event of the UK leaving the EU without a deal.
I reiterate the position of the UK Government: leaving the EU with a deal remains our top priority. I hear the hon. Gentleman’s justification for not voting for the deal, but the deal that I voted for three times already this year represented a compromise between people such as him, who seem to think that being in the single market and customs union is the only way to deliver Brexit—in my view, it would be Brexit in name only and would not give us the freedom to negotiate free trade deals around the world—and others, who seem to want some sort of pure Brexit. I believe the compromise deal was a good deal. Had we voted for it, we would have left on 29 March and would now be in negotiations on the trade arrangements with the rest of the European Union.
I gently remind the hon. Gentleman that 52.5% of the people of Wales voted to leave the European Union. They will be frustrated that some parties in Wales have not voted to deliver on that. He said it was a narrow margin, but the majority for the 1997 devolution referendum was 50.3%, and he seemed very happy to stick with that.
That is something that has been raised on several occasions. Is the Minister aware that there was a further referendum on devolution in Wales in 2011, which saw the Welsh people over- whelmingly support granting further powers to the Welsh Government?
I understand that a win is a win, which is why the results of the initial referendum and the referendum on Britain’s continued membership of the European Union should be respected and delivered on by all parties in Parliament.
As a responsible Government, we have spent more than two years carrying out extensive preparations for all scenarios, including no deal. Nowhere has the preparation been more assiduous and detailed than in my own Department. As we heard, the Government announced on 13 March a temporary tariff regime that will apply for up to 12 months should the UK leave the EU without a deal. In developing the policy, we have sought to balance the five principles set by the Taxation (Cross-border Trade) Act 2018. The five principles include taking into consideration the interests of consumers, producers, external trade, productivity and competition.
We analysed a range of evidence, including information on average trade volumes, tariff data and Government modelling on tariffs in a no-deal scenario, supplemented with business stakeholder engagement. Under this policy, the majority of UK imports—87%—would be tariff free. However, tariffs will be in place for the remaining 13% of overall trade, to avoid significant adjustment costs for certain agricultural products, where tariffs help to provide support for UK producers against unfair trading practices such as dumping, and to maintain our trade commitments to developing countries.
We have not had tariffs on cereals to any extent for a number of years. Indeed, I believe the protections that we are introducing through tariffs on imported poultry meat will help protect the cereal industry, because the major customers of our cereal producers will be producers of poultry and other meat products, which we are protecting.
I declare an interest in this issue as the chair of the all-party parliamentary group on eggs, pigs and poultry, which has asked me to pose the following question. Does the Minister agree that it is absolutely essential that eggs and egg products are included in the tariff scheme, given that it is the most effective way to ensure that all UK egg producers can continue to make improvements and further welfare standards without the threat of being undermined by low-quality imports from third-world countries?
I hope I can to some extent reassure the hon. Gentleman on the issue of shell eggs, which is the major egg market. Supermarkets have made it clear that they would not seek to buy lower quality products, and that they will continue to sell only Lion mark products. I have heard representations on liquid and powdered egg, which might be a problem, and we will continue to listen to the industry.
The no-deal tariff policy has been carefully designed to mitigate price spikes should we apply the full EU most favoured nation rates to our trade with the EU, which will result in large tariffs and potentially price increases for both consumers and producers. I will give a few examples. Should we retain EU MFN tariffs, it will result in tariffs on pasta of over 20%, and 12% tariffs on basic foods such as potatoes, cabbage and lettuce.
The policy has been designed with the objective of minimising disruption in the agricultural sectors, and it aims to strike the right balance between exposing sectors to an unreasonable level of disruption and liberalising tariffs to maintain current supply chains and avoid an increase in consumer prices. A mixture of tariffs and duty-free quotas will therefore be used for beef, sheep meat, poultry, pig meat, butter and some cheeses. The aim is for their impact on production and consumption patterns to be broadly neutral. A point was made on lamb imports from New Zealand, which will be maintained at roughly the same levels. Lamb production is of course seasonal, and New Zealand production has always filled a gap in the UK market.
The export tariffs for UK farmers, including Cumbrian hill farmers, into the single market worry me the most. Would the Minister consider the potential for increasing the powers of the Groceries Code Adjudicator, so that it can prevent supermarkets from taking advantage of the loss of export markets by paying our farmers a pittance after 31 October, should we have no deal?
Well, I will now turn to the sheep meat market, which is my single biggest concern about a no-deal Brexit. Supermarkets will operate only within the market. There is an idea that supermarkets will drive prices down. Should we have an oversupply of lamb—we could well have, as lambs come on to the market in the autumn, around the time that we could leave the EU without a deal—it will put tremendous pressure on the market. We have already seen that lamb consumption is pretty inelastic in the UK, with a 4% year-on-year reduction. We will also have the big store markets, particularly in hill areas in places such as Wales and Scotland. Hill farms that cannot keep their sheep over the winter will bring lambs to market, which could be affected by the impact of a no-deal Brexit.
As I said, the largest economic risk to the sheep sector is limiting or halting the export of lamb to the EU. The sector is unique among UK agriculture in relying heavily on exports to balance supply—indeed, we are net importers of most products. UK lamb exports will face both tariff and non-tariff barriers in the event of a no-deal Brexit from the EU. UK exports were worth £365 million in 2018, with 97% destined for the EU. To export to the EU, the UK must be recognised as a third country. Even then, the imposition of EU MFN tariffs—around 50% in ad valorem terms—would reduce the competitiveness of UK lamb on EU markets and consequentially reduce our exports. Should the UK be listed as an approved third country, it will need to meet the EU’s additional requirements for third-country products of animal origin, including movement through a border inspection post, pre-notification of delivery, checks on marketing standards and export health certificates.
My boss, the Secretary of State, has said that he will support vulnerable sectors, should the price of sheep meat fall considerably. In the event that an aid scheme is deemed necessary, it is likely that we would use retained EU powers; hence the scheme would be exempt from state aid rules. As I said, UK lamb exports were worth £365 million in 2018, with most going to the EU.
That is not the policy of the British Government. As I say, we are looking at emergency measures, and various figures have been bandied about. The president of the National Farmers Union suggested that the cost of supporting the sheep industry—probably a system involving a headage payment based on the ewes that farmers had already declared—would cost around £150 million. We understand its scale, and I am sure the Treasury will be able to consider that. As I say, we do not want a no-deal situation; we need to get a deal over the line. Whoever the Prime Minister is next week, the best way to minimise the impact on farmers—particularly sheep farmers—is to get us a better deal that is acceptable to Parliament. Every single hon. and right hon. Member of the House will need to examine their conscience and consider how they have voted this year in a way that did not deliver on Brexit.
It is important that we deliver on Brexit. Confidence is waning in our democratic systems, and the Brexit party did very well in the European elections. We have only ourselves in the House to blame for not delivering on Brexit, and sheep farmers will pay the greatest price. We will still get our salaries as MPs, but they will pay the price of our failing to secure an agreement.
In conclusion, I re-emphasise that leaving the EU with a deal remains the Government’s top priority, but the tariff policy has sought a balance between the impacts on consumers and producers in the event of no deal. We expect the impact on UK consumers as a whole to be broadly price neutral should these changes be transmitted to retail prices, and we will provide support for our most sensitive sectors.
Motion lapsed (Standing Order No. 10(6)).