Brexit: The opera continues- Wine Intelligence

As the Brexit deadline approaches, the UK wine industry and its EU supply partners are facing two potentially costly future trading expenses regarding the post-Brexit trading world: regulation and tariffs

Here we are again. Veteran observers of the long-running and increasingly acrimonious squabble between the UK and the EU on the exact nature of the trading relationship after Brexit can be forgiven for a sense of déjà vu. Four years on from the UK’s 52%-48% referendum vote to leave the EU, 7 months on from ‘Brexit Day’ (January 31^st, 2020, when the UK officially left the EU), and just over 100 days from the ending of the transition period during which the UK agreed to abide by EU law, no one yet knows what the future will look like on January 1^st, 2021.

Uncertainty and contingency planning are once again on the agenda, much like they were last autumn, prior to the conclusion of the EU Withdrawal Agreement and accompanying political declaration, when UK importers stockpiled goods in anticipation of a potential freeze on imports following ‘Brexit Day’. The conclusion of the agreements last December was supposed to have set the stage for a negotiating period which would result in a wide-ranging and sensible trade deal. As of this week, there is no sign of a deal, and very little goodwill between the two sides.

The latest source of division is the implied threat by the EU to impose restrictions on the movement of goods between mainland UK and Northern Ireland should a deal not be forthcoming, and the counter-threat from the UK to tear up parts of the Withdrawal Agreement that relate to the regulation of tariffs on goods travelling between the two parts of the UK, which would become necessary to maintain an open border between Northern Ireland and the Republic of Ireland, as set out in the peace agreement reached in 1998 (also known as the Good Friday Agreement) which ended sectarian conflict in Northern Ireland.

For beleaguered wine industry types, the mood is one of resignation. Their needs seem a long way down the negotiation pecking order, and it is unclear whether a sensible plan will be forthcoming.

In a nutshell, the UK wine industry and its EU supply partners are facing two potentially costly future trading costs regarding the post-Brexit trading world: regulation and tariffs.

In regulation, the key issue is whether all wine being imported to the UK from January 1^st, 2021 should be accompanied by a VI-1 form, which requires disclosure of a number of facts about the product, including evidence of content confirmed by laboratory testing. This requirement is in place for the 45% of wine the UK currently imports from outside the EU, and the current government policy is that this should be extended to EU-origin imports after the Brexit transition period ends. The upshot of this will be a doubling of paperwork processing requirements for UK-based importers, and of course new paperwork duties for anyone seeking to export to the UK from any EU country, which the UK Wine & Spirits Trade Association (WSTA) believes will cost the industry around GBP 70 million (EUR 76 million) a year. The WSTA is lobbying politicians energetically for this requirement to be dropped, but it is not yet clear whether it will or won’t appear in the final version of the post-transition UK law, currently making its way through the UK parliament.

The other unknown is what tariffs will finally be imposed on wine imports, though here the news is a bit clearer. The current government policy is to apply the same tariff rate to EU wines as currently applies under the Common External Tariff (what the EU currently applies to wine from third countries). This would be GBP 10 per hectolitre for still wine – 10p per litre – rising to GBP 26 per litre for sparkling wines. At the moment there seems no prospect of a lowered or tariff-free rate – however in trade negotiations, any and all factors may still be on the table, so the possibility remains for wine to get a better deal as part of some last-minute horse-trading.

On a more upbeat note, there is no evidence yet for consumers to be changing their spending patterns or country of origin choices. While UK on-trade wine sales have plummeted during the pandemic, the off-trade sales volumes have held up, and in some cases consumers have been trading up to better quality wine to have at home, on the basis of ‘if you can’t go to Tuscany, at least you can remind yourself of it through a decent wine from the region’.

Author: Richard Halstead