Making sense of Brexit in the Food and Beverage sector

13th May 2016

Making sense of Brexit in the Food and Beverage sector

Ahead of June’s referendum on the UK’s membership of the European Union, Eversheds hosted a breakfast to discuss the potential impact a Brexit would have on food and beverage businesses.

Hosted by Eversheds’ Head of Food and Beverage, David Young, the breakfast proved to be an lively and interactive exploration of the key issues, with talks from Ros Kellaway, Partner and Head of Competition, EU and Regulatory at Eversheds, and Ian Wright, Director General of the Food and Drink Federation.

Ros Kicked off the proceedings with an in-depth session on the potential commercial ramifications of a Brexit vote. She began by exploring the UK’s current rights and obligations as an EU Member State.  For example, UK businesses are able to trade goods freely across the EU without tariffs and employ staff from across the EU but, in return, the UK must, for example, contribute to the EU budget and abide by EU law.  The UK also has a number of ‘opt-outs’ including from joining the Euro.

Debate progressed to the UK Government’s objectives from its negotiation discussions with the EU, and what was achieved in the proposed settlement package. This included assurances that the UK would not have to pay for Eurozone bail outs, specific targets to reduce EU regulation in key sectors, and formal recognition that the UK is not committed to further political integration into the EU. The settlement will only be implemented if we vote to stay in the EU.

Ros proceeded by outlining the consequences of a vote to leave and the various legal and political mechanisms by which the UK might enact this following the referendum result. For example, the UK could notify the European Council immediately of its intention to leave the EU and invoke its right under Article 50 of the Treaty on European Union, which would trigger a two-year period to negotiate an exit agreement. During that time, the UK would continue to be a full member of the EU and would continue to be required to abide by EU treaties and laws. Furthermore, it would continue to take part in all EU decision-making except in relation to the withdrawal agreement. There are five potential post-Brexit UK/EU relationship models using countries such as Norway, Switzerland and South Korea as case studies for comparison. Ultimately, Ros concluded that it would be difficult to predict with any certainty what a UK/EU relationship post-Brexit would look like, but that whatever the scenario, it was likely that the process from referendum to leave would take a number of years to put in place – a “slow process” and not a “hard stop”, which would create uncertainty for businesses.

Ros concluded by highlighting some of the issues that would be relevant for the food and beverage sector.  If a free trade agreement is not reached between the UK and EU, their relationship would be governed by the rules of the World Trade Organisation. Goods traded between the two areas would be subject to the UK’s and EU’s ‘most favoured nation’ tariffs as well as border controls.  It is not clear, at this stage, whether the UK Government would match the current farming subsidies provided to UK farmers under the EU’s Common Agricultural Policy or whether the UK would continue to follow EU product standards.  The abolition of the free movement of workers could have significant consequences for UK food and drink manufacturers who source a proportion of their workforce from the EU.

Next to the stage was Ian Wright, Director General of the Food and Drink Federation. Ian examined the importance of being an EU Member State as a member of the food and beverage industry, highlighting economic, free trade, free movement and product quality, provenance and labelling arguments. He discussed the question mark over the status of foreign workers within the manufacturing sector if the UK were to leave the EU, and how their potential removal would impact the sector. There was further discussion on what would occur if the UK left the EU with regard to free trade agreements, with Ian positing that the UK may “fall to the back of the queue” in negotiations. Businesses are already taking decisions not to invest in the UK as they cannot be certain whether such investment will be worth it following the Brexit referendum – what Ian labelled “the confidence question”.

The breakfast concluded with a lively discussion of the various ways in which life in the food and beverage industry might immediately change – for the better or worse - following a Brexit vote.

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