Agricultural food and drink sector - impact of future UK Free Trade Agreement scenarios: research

1. Introduction

1.1 Background

With the Transition Period ending in December 2020, and following the UK's departure from the EU, the Westminster Government has embarked on agreeing trade deals with non-EU countries. UK-EU trading arrangements have also seen their most significant change since the 1970's with the introduction of the Trade and Cooperation Agreement (TCA) in January 2021. Accordingly, Scottish agriculture is now operating in a trading environment that has already altered significantly, with further change ahead.

It is against this backdrop that the Scottish Government commissioned The Andersons Centre (Andersons) and Wageningen University and Research (WUR) to assess the impact of four Free Trade Agreements (FTAs), namely Australia, New Zealand (NZ), Canada, and the Gulf Cooperation Council (GCC). Two of these (Australia and New Zealand) have already been agreed and will be ratified in the coming months. An enhanced FTA between the UK and Canada is anticipated during 2022 whilst negotiations have started on a future FTA with the GCC.

Given these changes, it is an appropriate time to assess the impact of future FTAs on Scottish farming.

1.2 Project Aim and Objectives

The project's aim is to quantify the impact of alternative trade scenarios versus the main baseline of a UK-EU trade deal coupled with Rollover Agreements replicating the provisions of trade deals that the UK had access to when it was an EU Member State. This studies the impact on the Scottish agri-food sector with respect to the four selected UK FTAs. These scenarios are set-out in section 1.3.

To achieve this overall aim, the following objectives were also set:

1. Conduct an evidence review of studies assessing the impact of trade deals on agriculture, including the UK (Scotland), the EU & other key players.

2. Quantify the impact of four selected FTAs on each selected sub-sector with respect to Tariffs, Tariff Rate Quotas (TRQs), Non-Tariff Measures (NTMs), and the overall trade impact.

3. Quantify the impact of the FTAs on economic output and wages and employment in each selected agricultural sub-sector sector in the UK and Scotland for the scenarios selected.

4. Analyse the impact of other economic shocks (Covid-19) under each scenario.

5. Assess the implications for the Scottish agricultural industry at both a sectoral and farm-level, particularly in terms of profitability.

1.3 Scenarios and Scope

The baseline and other scenarios are set out as follows, with further detail in section 2.2;

• Main Baseline - Brexit - UK-EU FTA (and rollover FTAs): to reflect the reality that Brexit has occurred, the Main Baseline assumes that the Trade and Cooperation Agreement (TCA) between the UK and the EU is effective. It assumes that the provisions of trade deals that were applicable to the UK when it was an EU Member State are also in place (via Rollover trade deals). This reflects the situation as at December 2021 when the project commenced.
• Alternative Baseline (No-Brexit Scenario): the base period for this study is 2018-2020, when the UK was either still an EU Member State or had entered into the Transition Period (i.e., was still a de-facto EU Member State). To reflect this, and the Scottish Government's request for top-level insights on how the Scottish agriculture sector might have performed if there was no Brexit, this Alternative Baseline was assessed primarily in terms of impact on Gross Value Added (GVA).
• Brexit with Rest of World (RoW) FTAs and Low Liberalisation (FTAs with Low Liberalisation): this effectively means the Main Baseline plus the impact of each new FTA between the UK and each country/trade bloc specified. For Canada, this is taken to mean an enhanced FTA that goes beyond the rollover trade deal that the UK struck with Canada before the Transition Period ended (i.e., which largely replicated CETA). The Low Liberalisation ('Low Lib') aspect means that, long-term, there are zero-tariffs on trade between the UK and each non-EU FTA partner as well a 25% decrease in Non-Tariff Measure (NTM) costs.
• Brexit, Non-EU FTAs and High Liberalisation (FTAs with High Liberalisation): this scenario is largely the same as the previous one, but NTM costs are reduced by 50% in the long-term.

For each FTA liberalisation scenario, the impacts of the FTAs will be assessed for each selected country/trade bloc (partner) individually as well as at an aggregated level.

The FTA partners selected for examination are;

• Australia: based on the recently agreed FTA
• New Zealand (NZ): again, based on the recently agreed FTA
• Canada: focuses on an enhanced FTA that includes full-tariff reduction (long-term) for UK imports.
• Gulf Cooperation Council (GCC): encompassing Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). Again, assumes full long-term tariff reductions.

As requested by the Scottish Government, this study focuses on the following agricultural sub-sectors;

• Beef
• Sheep
• Dairy
• Wheat
• Barley
• Potatoes: encompassing both seed and ware potatoes.

1.4 Geographic Definitions

Throughout this report, there are numerous geographical terms which are sometimes used interchangeably. It is, therefore, important to define these terms at the outset:

• United Kingdom (UK): includes England, Scotland, Wales, and Northern Ireland (NI).
• Great Britain (GB): consists of England, Scotland, and Wales.
• Ireland: refers to the Republic of Ireland and is part of the EU27.
• Island of Ireland: includes both Northern Ireland and the Republic of Ireland.
• The European Union (EU): consists of 27 EU Member States (excluding UK); often cited as EU27.
• EU28: includes the EU27 and the UK when it was an EU Member State.
• Non-EU: all countries outside of the EU27 and the UK; periodically referred to as Rest of World (RoW) or "third countries".
• Gulf Cooperation Council (GCC): trade bloc which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).
• Mercosur: an economic and political bloc consisting of Argentina, Brazil, Paraguay, and Uruguay.
• Comprehensive and Progressive Trans-Pacific Partnership (CPTPP): a trade agreement among 11 countries namely, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.