Breaking down Brexit: What does it mean for the wine and spirit industry?
As the adage goes, a week is a long time in politics. So given we’re more than a year on from the momentous Brexit vote of 24 June 2016, it’s fair to say the land has shifted during that time, not least in the past few months.
WSTA’S Brexit priorities
> An orderly exit from the EU that would minimise the disruption of historic flows of wine and spirits in and out of the EU. This includes ensuring tariff- and quota-free access to the EU market.
> It promises to do everything it can to maintain the UK’s position as a hub of the international wine trade.
> To exploit fully the new opportunities for trade with third countries. The countries identified as priorities for wine-trade deals are the EU, Australia, Canada, South Africa, the US, Argentina, Chile, and New Zealand, with export markets for gin and English wine including Japan, Singapore China and the US.
> It wants future controls on the movement of people to ensure continued access to a skilled workforce: winemakers, pickers
and the hospitality sector.
> To continue to argue for maximum support from the government in terms of fairer and lower taxation, support for SMEs and growing exports, and less regulatory burden.
> Its ‘white paper’ also called on
the government to give protected status for British gin to protect its global appeal.
Speaking to Miles Beale, chief executive of the Wine and Spirit Trade (WSTA) shortly before the general election, he seemed more optimistic than at any time since we’d discussed the vote the evening before the results came through. But as he pointed out, if anything was likely to scupper a good, rational deal that would benefit of all parties across the UK and Europe, it was politics – meaning ostensibly Europe’s national heads of states’ need to give the UK “a bloody nose” to protect the wider integrity of the EU. And though it might have been politics that set the proverbial cat among the pigeons, it is perhaps not quite in the way that Beale – as well as the polls and indeed the country – expected.
Fast-forward to the aftermath of a chaotic general election and the picture looks even less clear – a weakened Tory leadership, Cabinet in-fighting, and Brexit negotiations already starting.
“Am I more optimistic than when we last spoke? I don’t think I am, no. Am I more pessimistic? Possibly a little bit,” Beale tells db. “My rationale is that the previous May government’s line on Brexit had moderated its stance over time, talking about divorce after the Article 50 period, trying to get a trade agreement as soon as possible and exiting thereafter. They talked about transitional arrangements just before the election in a way that they weren’t a year ago, so that was an improvement.”
TEMPORARY SOFTENING
There has also been a softening in the stance of EU heads in recent weeks, but Beale says this is likely to be temporary.
“I think ‘laughing stock’ is a bit strong, but it’s not far off,” he notes, ruefully. “You are less inclined to want to give a defenceless opponent a bloody nose than you were before, but over time our position will harden and we will have to go in there and fight for what we want – so the argument for a bloody nose will return.”
In the weeks following the election there was “nothing certain” coming out from Whitehall, Beale says, as people worked out the political ramifications, but in strange way, that has made things a bit simpler. “The Tory government will have to take more than its own party with it in order to get anything through the House of Commons – so everyone is more tentative, everyone is less certain, and everyone is more influential,” he says.
Whereas Beale felt the government had ‘clicked into gear’ before the election and was in a preparatory phase – “maybe not performing at the level we’d ideally want, but beggars can’t be choosers”, he notes – the lack of a steer in the two weeks before the initial talks between [UK Brexit minister] David Davis and [the EU’s chief negotiator] Michel Barnier made progress very slow. But given that the negotiations had been unlikely to get going in earnest until October – after Germany’s federal election – Beale doesn’t see this as too much of a problem.
“Michel Barnier and the EU institutions can do their thing, but ultimately that is a precursor, as it is the heads of state who will sit around a big table and thrash it out in the end.”
Meanwhile, businesses are even less happy with the lack of clarity than they were before the election, although as Beale points out: “That will improve, but not quickly.”
But while the government may have changed and its position may be in flux, the WSTA’s position clearly has not. Beale says aim of the WSTA’s ‘white paper’ last autumn (“I would have loved it to have had that official status!”) was deliberately outcome-focused rather than navel-gazing – and he’s happy that, as a result, it still has “currency”.
WIDER SUPPORT
“A lot of things have changed, but what we’re asking for hasn’t,” he states firmly. “The change of government does not make one iota of difference to our point of view. But what’s changed is that Theresa May’s new government cannot be as ideologically-driven as before. I’m not sure we were ever very clear what the government was asking for in negotiations, but now they will have to ensure wider constituencies in the UK and wider support.
“So it’s not going to be about ideology, but about persuading enough people in the House of Commons to agree with their position. If they are sensible, they’ll be talking to a broader constituency, not just across the Conservative Party but also the opposition parties as well, particularly Labour. They’ll need support from outside the Conservative ruling elite.”
CABINET RIFT
Recent headlines about a Cabinet rift gives Beale hope that not only will there be “a bit less talk of ‘no deal is better than a bad deal’”, but also greater consultation.
“We are pushing a sensibly negotiated deal with a transitional period and I suspect the government will stop talking about ‘no deal’ as they need to,” he said. “But the original proposition was that we would be out of the single market and customs union, and, personally, I don’t think that has changed.”
This, he argues is nothing to do with the so-called ‘hard’ or ‘soft’ Brexit, (“I dislike the terminology”) but the simple reality of what is possible in the face of the UK’s clear desire to control immigration.
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“What is up for grabs is the slight ambiguity between the Labour and Tory position of how much access do you have to the single market, and how much we are prepared to pay for it,” he adds.
The hard/soft aspect is therefore about the timescale, rather than what is or isn’t on the table – falling out of the customs union in two years’ time would be “pretty disastrous compared with a divorce, trade settlement and exit of the custom union in five years”, he notes
STANDARD AGREEMENT
This potential to do Free Trade Agreements (FTAs) with third-party countries and potentially improve on the current status quo is one of the “sunny uplands” of the deal, and the WSTA has wasted no time progressing this by working with the World Wine Trade Group (WWTG), an organisation that sees both government and commercial interests sitting around the same table, “which is rare”, says Beale.
He is keen to see a standard agreement on the principles of a FTA on wine that could be tweaked as required for each country the UK needs to do a trade deal with, and this could go a long way towards contingency planning for the worst-case scenario, he argues, paradoxically one of the easiest things to plan for because of the existence of the World Trade Organization’s ‘shadow’ set of tariffs. “But you could get a long way on just what a new third-country FTA would look like, just through that one group,” he explains, adding that Australia, New Zealand and South Africa are already keen.
Having observer status on the World Wine Trade Group might put the UK in a delicate position but one advantage is that everyone knows the score and how to proceed – the UK adopts the current EU position by default, and then sees how far that can be stretched.
“It is likely that there would be some gains for third-country winemaking industries in our new arrangements, and we can see a few of those already,” he adds. “I’m not sure when we will have a draft to look at and talk about, some of this is some way off, but we are prepared for the possibility that we would fall out of the EU in two years’ time – or less, as the clock is running.”
A total timescale of around five to 10 years to get these agreements in place seems realistic, Beale argues, given that the EU divorce and FTA could take anything from 14 months (the quickest FTA, which was agreed between the US and Jordan) to seven years (between the Canada and the EU).
Tariffs, he feels are less problematic than other, more pressing problems. “It is perfectly clear that the industry’s position is that things shouldn’t be any worse in terms of tariffs and quotas for the UK trading on its own than currently exists, and almost certainly should be an improvement, but in many ways, the greater impact and problem is around logistics and the movement of goods. If you suddenly fell out of the EU, how would you get products from A to B? Irrespective of whether it’s more or less expensive, are you going to have to have enough supply?”
It is this that has become the central plank for the WSTA, Beale argues, more than the free movement of people (an issue that is largely being pursued by fellow trade organisations such as the BBPA on behalf of the hospitality industry. The ideal would be for the existing pan-European system, the Excise Movement and Control System (EMCS) to continue unchanged, and Beale notes that there has been dawning recognition by the HMRC that the system works.
“We import more wine than anywhere else in the world, and export more spirits than anywhere else, so whether you are receiving or sending things in Europe, you would be rather keen going with the same system, why would you want to change it? They understand very well is that we have a discreet system for moving goods across the single market and that we’d like to continue to use that, but we recognise we can’t guarantee it,” he says.
“If we can’t keep it as it is, we want to be able to adapt that system, but the further away you get from the existing system, the more you would need a new one, which would take some time to put in place. So we’ve been very clear with HMRC about how long we’d need to put that in place. But I don’t think HMRC as an institution appreciated the complexity of this. And it’s not just us, it’s people who import flowers or fresh produce, they have a different, and in some ways, a more urgent problem.”
The silver lining would be that if there is time to do it, there could be a new improved system that works not only for the UK and EU but also for non-EU producers, giving one integrated system, Beale points out.
“It is a simple thing, asking for no change, but we hope it gives people an idea how hard we’re working behind the scenes to make sure the industry’s interests are being represented in every place possible.”
SPEAKING TO MINISTERS
On the plus side, the industry has a loud voice – and government and departments such as HMRC are increasingly recognising the arguments that are being put forward, Beale says. “We can’t guarantee the politicians will come to the right outcome, but we can make sure that industry is asking all the relevant ministers for the outcome we all want.”
However, he says he has found “more optimism” than expected as the year has developed. “I will admit to feeling very distressed the day after the referendum. We weren’t prepared for Brexit, but no one was. I don’t think that marks us out as not being able to prepare for it, and I was very pleased with how we responded,” he says.
“The WSTA may not have been within the government’s sights as someone they’d need to speak to immediately, but they know about us now for all sorts of things, so it has raised the profile of the WSTA, and will continue to do so.”
