UNITED Kingdom prime minister Theresa May’s postponement of the scheduled vote on the Brexit withdrawal bill in the House of Commons last week has cast further uncertainty around the UK’s messy departure from the European Union.

While free trade agreement discussions have started between the Australian government and the EU, and both the UK and Australia have expressed a willingness to pursue an FTA post-Brexit, a disorderly exit poses a range of short-term risks to Australian red meat exports in the interim, a Meat & Livestock Australia report says.

Australian exporters and EU-certified producers should be aware of these risks and closely monitor events over coming months when making business decisions, MLA warns.

Australia has two country specific red meat export quotas currently at risk:

• The High Quality Beef (HQB) Hilton quota of 7150 tonnes, which carries a 20pc in-quota tariff
• Australian sheepmeat quota of 19,186 tonnes with 0% in-quota duty.

Australia is a regular high-user of both quotas. Trading outside these quotas attracts a prohibitively high tariff.

Proposal to split quotas form a messy divorce

The EU and the UK have separately proposed splitting all country specific tariff rate quotas between the EU and UK following the UK’s departure from the customs union. This proposal would see Australia’s HQB Hilton beef quota split 65pc and 35pc between the UK and remaining EU respectively, and the sheepmeat quota split 80pc and 20pc. Further quantitate restrictions between both markets is an erosion of Australia’s access and would have negative implications for Australian exports, MLA says.

In opposition to the split, the red meat industry has been working with the Australian Government to ensure the red meat trade is not collateral damage through this process. In October, the Government submitted its formal objection to the EU and UK through the World Trade Organisation. Despite, in theory, the combined tonnage to the UK and remaining EU-27 remaining unchanged, there is implicit risk in having a fixed split:

• Firstly, analysing trade volumes based on port of entry is not the same as identifying where the end-consumer is. Once product has entered the single EU market, whether via Felixstowe (UK), Rotterdam (NL) or another port, it can move freely within the EU. Survey research of meat importers across the EU found that 10–40pc of non-EU imported beef in the UK was re-exported to other EU member states. While difficult to quantify, Australia risks losing flexibility of access to existing customers through the hard split of tariff-rate quotas.
• Under the existing regime, Australia has been able to move product across the single market based on economic conditions in various countries. For instance, over the last decade as the UK pound has depreciated against the euro post-GFC and again post-Brexit vote, Australian beef exports have shifted towards continental Europe due to a relative increase in purchasing power. The UK and remaining EU-27 are both host to an array of short and long-term economic and political risks. The splitting of tariff-rate quotas will mean Australian exporters cannot capitalise on opportunities or mitigate risk by shifting product between the two regions in future.
• Basing future trading conditions on past relationships is error prone, as the fundamental trade dynamics will also shift concurrently with the separation of tariff-rate quotas. For instance, current trade between the UK and continental Europe will be disrupted without a UK-EU trade deal upon exit. This has the potential to displace roughly 200,000t of Irish beef currently exported to the UK or 40,000t of UK sheepmeat destined for France. This prospect creates challenges that cannot be appropriately managed under the proposal to split TRQs.

Australia is not alone and a wide range of commodities across a range of countries could also be implicated in this messy divorce, MLA says. However common ground can be found with the majority of countries with tariff-rate quotas adamantly opposed to the apportionment process. Negotiations will be ongoing however a resolution is unlikely to be resolved prior to the 29 March deadline.

Should the UK parliament pass the Brexit deal before the deadline, the UK will remain in the customs union temporarily (or permanently if the hard Irish border cannot be resolved) meaning the existing EU trading regime will remain in place for the time being. However, as time passes and the March Brexit deadline draws ever closer, no Brexit deal will spell an uncertain future for the EU, UK and Australia, MLA says.

Source: MLA