The stakes have been raised in Brexit negotiations around the UK’s stance on the current major question – in or out of the Customs Union?
The Customs Union underpins one of the "four Freedoms" – movement of goods and services – and for many businesses, assurance of continued participation in the Customs Union is essential.
The latest (6 February) UK position will give business no such comfort, and for the Food & Drink sector, serious issues will need to be addressed.
The UK Government maintains it is seeking a frictionless trade deal but wants this outwith the Customs Union, though as yet we have no clarification on what this means.
A Customs Union isn’t the same as a single market – the Single Market is one in which there are no tariff barriers, there is free movement of the goods in question, and as few non-tariff barriers (for example, inconsistent food standards) as possible.
So what are the prospects for the food & drink sector on which Scotland has placed so much emphasis and which has delivered real growth to our GDP?
Michel Barnier, for the EU, has made clear that the current UK stance will cause barriers to trade to be erected.
The UK in turn seeks "a deep and special partnership". Where might all this lead?
- The movement of perishable food depends on rapid, seamless transport to or from Europe and through its ports. Delays are likely which may shorten shelf life of produce, going against the objective of lengthened shelf life to reduce handling, food waste and cost. Will fresh seafood from Scotland still be on Mediterranean tables within 48 hours of landing?
- Transport (and labour) costs will rise. Food in transit for longer needs more staff and ties up transport. Logistics planning will need to be revisited.
- Any short term benefit to exporters from sterling's devaluation may be offset by inflationary pressures elsewhere in the supply chain – depending also on whether the organisation concerned is an importer or an exporter – and increased consumer price inflation will be unwelcome.
- Higher working capital requirements may cause industry liquidity issues.
The food industry does not sit in isolation; many manufacturers will face similar issues - their lorries may be stacked in the same queues at Dover, but machined goods do not perish.
Scotland’s food and drink sector has grown considerably in the past 10 years, based upon provenance, freshness and speed from field to fork.
Any threat to this Scottish success story will leave producers clamouring for clarity, and so far we have seen little from the UK Government on how it plans to secure a frictionless trade deal, though the EU’s chief trade negotiator Michel Barnier made his position clear earlier this week.
He said: "The only thing I can say, without a customs union and outside the single market, barriers to trade in goods and services are unavoidable.
“The time has come to make a choice.”
George Frier is a partner and head of the Food & Drink group.