Why whatever deal the UK strikes with the EU will impact how the rest of the world operates
By Richard Siddle
Try as you might it’s hard not to go into 2019 without one topic dominating the conversation - Brexit. Even if you don’t do any business with the UK and can’t, to be blunt, be bothered with the whole thing, what happens with the European Union’s trading relations with the UK will have a knock-on impact with the rest of the global wine trading world.
How so? Well, for a start the UK remains one of the most important hubs and markets for wine around the world, featuring in the top five, if not top three export markets for most of main Old and New World wine producing countries.
How you can do business there is going to have an impact on the goals, targets and strategies you have for the rest of the world.
Yes, many producers have already voted with their feet and decided the UK is currently too much trouble than it’s worth and are switching time and resources to build up business in new and existing markets.
Direct competition
But if, when and how the UK leaves the EU, will then have a direct bearing on how the EU will then look to trade with the rest of the world. After all the UK is going to be hell bent on securing as many attractive, potentially free, trade deals with as many major countries as it can. Putting itself, by doing so, in direct competition with the EU for their business.
By signing the Withdrawal Agreement in the wake of its 2016 referendum and thereby formally starting negotiations with the EU to leave, the UK also gave up its right to start any trade negotiations with any non-EU country until the deal was ratified. Leaving itself effectively sitting on its hands until the final deal is agreed.
Which, in turn, has given the EU a two years head start to cast the net wide for new trading relations in a post-Brexit world.
The EU, for example, has already opened the door to Australia and New Zealand and started talks with them about the possibility of setting up free trade deals for both. A move that would have an enormous impact on their respective wine industries. The EU is currently the Australian economy’s second largest export market and New Zealand’s third.
It would be a particular boost for Australia which is still celebrating the fact its 100% free trade deal with China finally came into force at the beginning of 2019.
Tariffs to the EU
When it comes to trade deals the EU knows what it is doing. As the UK, as well as President Trump, is slowly but surely starting to work out. Let’s take a look at how it currently trades with the rest of the world in wine.
Currently all wine shipped from outside the EU and sold within its member states is subject to a range of tariffs. Only Chile and South Africa have been able to negotiate free deals and South Africa’s is only a part deal based on set volumes imported, the majority of which goes to the UK.
Otherwise all other countries have to comply with the following tariffs:
* €9.90 per 100 litres bulk still wine < 13% abv (~7p per bottle)
* €12.10 per 100 litres bulk still wine between 13% and 15% abv (~8p per bottle)
* €13.10 per 100 litres still wine <13 % abs (in containers less than 2 litres) (9p per bottle)
* €15.40 per 100 litres of still wine between 13% and 15% (~10 per bottle)
* €32.00 per 100 litres of sparkling wine (22p per bottle)
So clearly any subsequent moves post-Brexit by the EU to open up its borders to more free trade deals could result in major opportunities for wine countries around the rest of the world.
Particularly as the EU will only be too aware of the growing competition it is increasingly going to face from major powers, such as China and Japan, and the strength of rival trading blocs such as the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).
As the US continues to follow President Trump’s protectionist ‘America First’ trade strategy it has left the stage clear for the rest of the world to make hay and strike increasingly important trade deals.
What’s happening with Brexit?
So where are we with Brexit? Good question. The clock is currently still ticking down to the March 29 deadline when the UK will formally leave the EU at 11pm GMT. But there are still many hurdles to get over before we get there.
First of all the UK government has to agree the deal struck between the British Prime Minister, Theresa May and the EU. The initial vote on the deal was pulled at the last minute as it was clear it would be heavily defeated. It is now due to go back in front of the House of Commons on January 15.
If the deal is thrown out then all bets are off and the UK, by the Prime Minister’s own admission, will be in “unchartered territory”.There are already fears this could all end in such a political impasse that the UK crashes out of the EU with no deal and goes straight onto WTO trading terms. The worst case scenario.
It’s why we are seeing increasingly febrile debates in the House of Commons and moves by MPs to take matters into their own hands, with a series of votes this week, to ensure it will be Parliament and not the UK government that ultimately decides whether there is a no deal or not.
Which, in turn, could put a number of other scenarios into play over the coming weeks, from completely removing the Withdrawal Agreement, to holding a general election, or having a so called People’s Vote that would effectively throw the issue back to the UK electorate to decide what sort of Brexit the UK wants - or if it still wants a Brexit at all.
If the Withdrawal Agreement is approved then essentially nothing will effectively change for at least 21 months as we enter a transitional period in which the final trade relationships would be negotiated. At the moment all scenarios are possible.
Whatever ultimately happens, one thing is clear, the global wine map is set to change once again and new winners and losers will emerge.