LWF 2017: Big Brexit debate

Brexit was the big topic of the day as the London Wine Fair kicked off yesterday, with a panel of economic, legal and industry experts assessing the implications of the impending divorce from Europe.

LWF Brexit debate panel

Exiting the single market is expected to result in the UK’s GDP reducing by around 1-3% per year, economist Dr Swarti Dhingra from the LSE told the delegates, but the overall figure is likely to be far higher when more intangible factors are taken into account. Dhingra stressed that this figure only took into account the effect of trade itself, and not the far more more difficult to project effect on foreign investment – but the overall reduction could rise to around 2-8% of GDP per year, once this had been factored in.

“It is very difficult to predict how foreign investment will change with trade agreements,” Dhingra told the delegates “This is a major, major economic decision and I can’t emphasise that enough… Compared to the path which the UK economy is currently going on, you will see a reduction [in GDP].”

She argued that the biggest issue was not so much the tariffs that would come into effect – as these were typically low – but other barriers to trade.

“The big issue is when you have a modern supply chain and [global] trade, the big problem is always going to be non-tariff barriers, such as regulation diverging from those of other barriers. That will be the biggest reduction in GDP.”

Taking from an industry point of view, Miles Beale, chief executive of the WSTA, argued that the UK remained at the centre of the world wine market, but the industry was in the middle of a “triple whammy” from the effect on the exchange rate, excise duty and the uncertainty swirling around the free movement of goods, once the UK exits the single-market in two years’ time.

“The UK does matter very much to the UK wine market – and we need to remember that, but also think carefully how we got there,” Beale said.

He pointed out that 14% of exported wine (including bulk wine) ends up on the UK market, equivalent to 1 in every 7 bottles, and the UK was still the second biggest importer by value and volume, and by capital, “far ahead of the pack.”

But he also pointed to the 10-15% depreciation of Sterling against most other major wine-producing currencies – which he argues is likely to be a permanent depreciation – and the impact of high excise duty on the sector, which could combine with the “worst case scenario” of World trade tariffs alongside the “more important” issue of non-tariff barriers about which there is still a lot of uncertainty.

“We worry about the free movement of goods. It is extremely hard to see when we have to have a hard customs border that goods flow smoothly between the EU and UK. There are all sorts of unknown questions, but that is the single most worrying aspect for when you’re doing work in the industry,” he said.

Also on the panel was English Bordeaux producer Gavin Quinney of Château Bauduc, who agreed that administration and disruption to the current efficient system of importing to the UK was uppermost in many producers’ minds, with some starting to think of contingency planning “if it all goes pear-shaped”.

“Producers in Europe with a significant presence in the UK must be looking at other markets. We’re finding enthusiasm among other markets for taking up the slack,” he told delegates. “The UK is very price sensitive and there are markets, such as the US, Switzerland, Belgium and Asia, that are willing to pay more.”

Guy Harvey of City Law Firm Shepherd and Wedderburn pointed out that from a legal point of view, “the nightmare is that in two years’ time when we do exit Europe, we still won’t know where we are. It is quite clear that there is a mass of information to be gathered, negotiations to be struck and legislation to be changed.”

Areas he raised that were of particular concern for the drinks industry included the way to deal with trademarking and PDOs, which would become clearer during negotiations; uncertainty over UK employment laws, much of which had originated in Europe but had been “gold-plated” and enhanced by successive UK governments, and which was unlikely to be rolled back; and ensuring that there are not likely to be any conflicts of jurisdiction in international contracts to ensure that any disputes would be solved in a way that both parties are happy with. There was, he warned, the risk of “considerable chaos” post 2019.

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