Assessing the impact of alternative fish trade agreements post-Brexit: research

Key Findings

Figure 2 presents the impacts of the scenarios on output, exports and imports without increases in fish quotas. It shows that extending free trade to the rest of the world would have a positive impact on trade – UK output, exports and imports would be higher when compared to the 2015 baseline.

Figure 2. Impact of changes to tariffs and NTMs on UK output, exports and imports, % changes from 2015

The introduction of tariffs and higher NTMs on trade with the EU, however, would have a negative impact on trade – UK output, exports and imports would be lower. With current UK shares of EU quotas, the negative impacts of leaving the EU, even whilst remaining within the European Single Market on the same terms as Norway, are still significant. Total output would be lower by up to 7%, depending on the species. Export values would be lower by between 0.9% and 6.6% for the different species, and imports would be lower by up to 5.6%.

In the absence of larger UK fish quotas, the research findings for Scenario 2 support the Scottish Government's position that if the UK leaves the EU, then being in the European Single Market offers the least bad alternative for continued access to the EU market. Moreover, it would enable the UK the flexibility to negotiate transfers of quotas in its favour as part of the existing international Coastal States arrangements – as Norway and Faroe Islands already do. The UK may also be able to negotiate, over time, larger TAC shares to reflect better the available resource in UK waters – although as with any negotiation this is not a guaranteed outcome. The results of achieving larger TAC shares are shown in Figure 3).

Scenario 1 sets out hypothetical free trade arrangements with the EU and the rest of the world, where tariffs are removed both for imports and exports, and non-tariff barriers are significantly reduced, which has already been noted is very optimistic and highly implausible. The results for this scenario demonstrate that the preferred outcome for Scotland's seafood industries (or at least, the fishing sector therein), is to reduce, and where possible, eliminate tariffs and NTMs. That allows seafood industries to increase their outputs and maintain, or even increase exports. However, with the exception of salmon, mackerel and herring, the expected gains for most species are modest. For these species, the EU remains the biggest market, and the UK already enjoys zero tariffs and very low NTMs on its trade with the EU. It underlines, therefore, that staying in the European Single Market is important for preserving the trade and economic benefits already enjoyed by our seafood industries, including the fishing sector.

These findings also appear to undermine the premise made by the UK Government that there is a world of opportunity that we have not been able to exploit and that by delivering a collection of new trade deals, UK and indeed Scottish businesses will see significant gains. For the seafood industries, we are already maximising our trade opportunities – membership of the EU is not preventing us from accessing major markets such as in the USA and China. Indeed, in some cases it is facilitating access by removing NTMs, as is the case with the USA, where we have mutual recognition arrangements on export health certificates. This arrangement could be lost if we leave the EU, adding further delays and costs to export businesses – in particular the salmon industry, where the USA is one of our major export markets.

Figure 3. Impact of changes to landings (quotas), tariffs and NTMs on UK output, exports and imports, % changes from 2015

Having the opportunity to renegotiate quotas to levels consistent with the zonal attachment principle could over time result in a significant increase in output and exports for quota species. To maximise these opportunities, however, this research highlights the importance of having free access to the EU market. Under the free trade scenario, the aggregate output for the seafood industries would be higher by 11.6% and exports would be higher by 17.2%. The research estimates that this scenario could result in direct and indirect output levels for Scotland's seafood industries that are higher by up to £540 million, with associated additional jobs and GVA across Scotland's seafood supply chain through direct and indirect impacts.

The benefits of increasing UK quotas to levels implied by zonal attachment, however, are lower under the imposition of tariffs and higher NTMs on trade with the EU and the rest of the world, although most of the losses derives from trade with the EU. The EU has already effectively ruled out the possibility of the UK increasing its quotas and retaining tariff free access to the EU Single Market. This is equivalent to Scenario 3 ( MFN tariffs with the EU and high NTMs), where output levels – with zonal attachment shares – would be higher by only 10.1% and exports by only 11.9%. These increases in output and exports are smaller when compared to the free trade scenario. Thus, for any given TAC sharing arrangement, the preferred outcome for the UK seafood industries on leaving the EU would be zero tariffs and the minimum possible NTMs with the EU and the rest of the world.

It should also be recognised that the benefits of increasing Scottish quotas are not shared across all seafood industries. Adjustment of UK quota will not benefit businesses relying on non-quota species, and very specifically the aquaculture industry, which is our largest food exporter. This is important if increasing UK quotas is seen purely in terms of offsetting the costs of tariffs and NTMs. Aquaculture businesses and those focused on non-quota species would have no relief from costs arising from increases in tariffs and NTMs.

Any beneficial impact of increased quotas depends also on capacity to take advantage of these. Capacity would need to build up to take full advantage of any increases in fishing opportunities. A concerted programme of investment may be needed, in particular in onshore processing facilities. Building an internationally competitive onshore seafood supply chain in Scotland could, however, be challenging with EU exit due to the industry's heavy dependence on non- UK EEA labour in the processing industry, which is likely to be reduced if migration from the EU is constrained. Once again, this demonstrates that remaining in the European Single Market and a Customs Union with the EU, with freedom of movement of labour, will be vital to take full advantage of any opportunities which might arise from leaving the CFP.

The research suggests that increases in tariffs and costs linked to NTMs would have negative impacts on farmed salmon output and exports. Outputs would be lower by 2% and exports by 5% in scenario 3. As farmed salmon is currently the UK's largest food export – the vast majority of which is farmed in Scotland – any reduction could have a significant and unfavourable impact on the industry and its future growth. Assuming other factors do not change, this may slow investment and growth in the aquaculture industry, which to date has largely been driven by farmed salmon production, which would also have a potential detrimental impact to Scotland's economy.