“Brexit is a very complicated issue, and it’s hard to say what it might mean today for U.S. beef producers,” Erin Borror, economist with the U.S. Meat Export Federation (USMEF), told WLJ.
“In the short term it will be small, as far as direct impact for U.S. beef. Yet it could have a significant impact on the people doing the international business. USMEF is trying to be proactive, making sure that U.S. beef can still get into the UK market after Brexit.”
This complicated issue has different levels. Currently, the European Union (EU) has import restrictions—including long-standing sanitary and phytosanitary barriers, high tariffs, and restrictive quotas—meaning that the UK exports more meat to the U.S. than we can send to the UK, due to the absence of similar U.S. import quotas. U.S. exports of beef to the UK are estimated at less than $20 million, or about 1,500 tons, even though the UK imports a lot of red meat from other EU member states.
After Brexit—assuming it happens—the UK will still need to import hundreds of thousands of tons of red meat. The trade situation will potentially be very different.
USMEF sent comments in January 2019 to the Office of the U.S. Trade Representative (USTR) on a UK free trade agreement, noting that there is significant potential to grow U.S. red meat exports to the UK. Opportunities for growth of U.S. beef and pork exports will only be possible through more market access via a U.S.-UK trade agreement.
Trade troubles now
“First, we need tariff relief, and not have to pay prohibitive duties/tariffs on products that we send into the UK. A hard Brexit on March 29, or a transition period where the UK and the EU hammer out their trading arrangement, makes a difference. But either way, it will be a challenging situation for U.S. beef getting into the UK,” Borror said.
Currently, since the U.S. does not have a free trade agreement with Europe, there are only a few ways U.S. beef gets into the UK and they all come back to World Trade Organization (WTO) agreements or quotas. All of them are comparatively small, according to Borror’s explanation, however.
One of the agreements is the grain-fed High-Quality Beef (HQB) quota, which resulted from the WTO hormone case that the U.S. won against the EU
“It is a 45,000-metric-ton quota that the U.S. shares with our competitors—Uruguay, Australia and Argentina—the other big suppliers. EU imports from these cheaper-meat competitors have grown a lot in recent years, so the quota (which operates quarterly) gets fully utilized in the first weeks of every quarter,” Borror explained.
There is also the Hilton quota for 11,500 metric tons and is shared with Canada and comes with a 20 percent tariff. Much of the beef that is exported under the Hilton quota acts as a stopgap on the HQB quota because the end-users in Europe demand more of the product than the quota supplies.
“The 20 percent tariff is already nearly prohibitive, but the out-of-quota rate is more than 50 percent,” Borror explained. “It is 12.8 percent plus three euros per kilogram. Barring some opening of new access unilaterally by the UK (which would have to be open for all suppliers, including EU member states, Brazil, Australia, etc. and the U.S.) we would have incredibly high tariffs on product going into the UK.”
The prospect of Brexit could cause problems with these already problematic WTO quotas. The EU and the UK think that with the UK’s exit, the UK will take a share of these WTO EU quotas.
“The U.S. disagrees with that, so USTR, along with governments from all other major suppliers of commodities to the UK, is raising concerns. No one thinks it is fair, because everyone essentially loses access to both the EU and the UK,” Borror explained.
“For the U.S., regarding the 11,500 tons, the UK and the EU Commission are only proposing to shift 19 tons to the UK, which is not even one load of beef, so that market essentially closes.”
Potential across the pond
“I was over there in November, and even though the UK is a challenging market I do see the potential for U.S. beef,” Borror told WLJ. “We met with importers who would love to add U.S. beef to their list; it would really elevate their product line. But they can’t, because there is too much uncertainty in the tariff cost.”
Brexit also presents its own uncertainties, both in the UK and here at home.
“For the U.S. beef industry as a whole, I don’t foresee much impact. But for the people actually doing the trade business, it’s impossible to plan anything. Meeting with the companies in the UK, I felt terrible for them because there are so many possible scenarios,” says Borror.
“For the U.S., hopefully the more exciting thing is if and when we finally do get into UK-U.S. free trade agreement talks. Hearing UK speakers on the topic, as recently as Feb. 22, many of them are still talking about the special UK-U.S. relationship and how the U.S. is still a top priority for the UK’s own free trade agreement negotiations once it has departed the EU. Hopefully that momentum remains and is real.”
Despite this momentum and the fast-approaching Brexit deadline, Borror said it will be a few years before we can expect “full clarity on that trading relationship.” Even then, there are questions that will remain.
“Fortunately, most of the UK leadership does not want a spike in beef prices, so they are talking about the potential for having to open some new access in the case of a hard Brexit,” said Borror.
“But they also say they will continue to protect the UK beef industry, so we’re not really expecting something new to just pop up.” — Heather Smith Thomas, WLJ correspondent
