Brexit – This uncertainty that creates labyrinths

9th August 2016 / United Kingdom

By Thomas Helm – From the early Vedic philosophers, through to the Socratic dialogues and Borges, there is a paradoxical sense that uncertainty is the only real certainty, and that the millennia of human culture creation aspires to address basic questions for which there are no universal answers. The result is a labyrinth of discourses.

This is no less true for political dilemmas than philosophical ones. Take Brexit, for example, probably the single most important foreign policy change of a generation, if and when it happens. Whole chasms of uncertainty have opened up both in terms of the economy and the identity of the British people.

As an (almost) bilingual British journalist working for the Spanish newspaper, La Vanguardia, I was recently asked to investigate the impact of Brexit on Spanish food and drink exports. Britain is the fifth largest such importer, and wine the most desirable Spanish food product. At the end of the period of investigation, I concluded what I suspected at the beginning, that, so long as uncertainty reigns, no-one has a clue, but that some have less of a clue than others. Nevertheless, I present some of the findings here, for the readers of Truepublica, with the hope that a journey through the maze, accompanied by a healthy dose of scepticism, might help to put some of the finer details of Brexit into perspective.

And so to begin. A simple question leads us into the labyrinth. What effect will Brexit have on Spanish food imports? Probably not the most thrilling question of all time, but then again, the right wing demagogues that promoted Brexit never liked to focus much on the details.

The question, however, raises an important first clue. It is difficult to speak in generalities with regard to Brexit because of the seemingly endless list of specifics. As the British disentangle themselves from EU legislation and trade agreements, they will need to rewrite ten of thousands of laws. This means that “Spanish food imports” is far too broad a term, because there could, for example, be a new agreement in place that is true for wine but not for cheese. So let’s begin by reducing the question and focusing on wine, Spain’s number one export to the UK.

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The English wine writer Simon Reilly was one of the first to investigate the affect of a Brexit vote on the European wine market. His discoveries were not positive. In an article written for the famous wine critic, Jancis Robinson, he affirms: “In the two days of trading since the referendum result, the financial markets have reacted in a way that, among other things, is likely to make EU wine significantly more expensive in the UK.”

His analysis is logical. Shortly after 52% of British voters came out in favour of Brexit, the pound slid to its lowest point against the dollar since 1985. This means less purchasing power, which means more expensive European wines, and not just Spanish ones.

However, in an interview I conducted with Rafael de Rey, the director of the Spanish Observatory of the Wine Market (SOWM), the tone was much more upbeat. SOWM had just published a report optimistically entitled “Brexit is expected to have a limited effect on Spanish wine imports.” He explains that if Britain becomes a third-party state (outside the single market), it is very likely that European wine producers will take advantage of EU subsidies aimed at making European wines more competitive abroad. “These are grants that match up to 50 per cent of what businesses, institutions and associations invest in promoting wines in third party states,” he asserts. “They were introduced many years ago, are very widely used by European businesses, and, if I am to be frank, incredibly fruitful.”

Moreover, Del Rey, in harmony with the report, speculates that a weak pound could actually be a blessing in disguise for European wine imports, since the Euro has also weakened against the dollar in the crisis. That is to say that the competitiveness of European wines vis-à-vis wines from countries such as the USA, Chile and Australia, is not any worse off but if anything relatively improved.

There is another twist in his reasoning. “Brexit will probably have a more negative impact on expensive wines. Given that Spanish wines are by no means the most expensive in the market, we expect, as the report clarifies, that the effect of Brexit will be limited.”

Here begins another question in the line of investigation. To what extent, if at all, will the British public change their tastes to suit their lighter wallets? If all imported wines are set to become more expensive, what happens if they begin drinking more beer or whiskey instead?

According to a survey conducted by Harpers, 54% of British people don’t want to spend more than £6 on a bottle of wine and only 7% are willing to spend more than £10. If we take this survey seriously, wine prices, which have been rising steadily year-on-year, were approaching inaccessibility even before Brexit.

In 2015, the average price of a bottle of wine in the UK was £5.01, according to a report issued by the Wine and Spirits Trade Association. The same report appears to corroborate the findings of the Harpers’ survey, stating that 71% of bottles of wine were sold at £6 or less, with only 4% of sales over £10.

It follows that if prices rise anymore, it is possible that British people, who are unlikely to give up drinking anytime soon, might search for cheaper alternatives. This would have serious consequences for wine producing regions of Spain such as Rioja. The UK is Rioja’s best customer, covering 34% of all exports.

This is educated speculation, but speculation nonetheless. The story however doesn’t stop there. The big question: will the UK remain in the single market? Is a definite fork in the road of potential answers, and one for which Theresa May, who stepped into the political scene like Fortinbras, has no definitive answer, although she has hinted that she believes a capability to enforce immigration control to be more important to the British people (and thus to her government) than remaining inside the single market.

If border controls set a precedent for the exit negotiations, and Britain does find itself outside the single market (freedom of movement is one of the key rules of membership), what will happen to our old friend, the Spanish wine?

Reilly’s initial investigations led him to Jean-Claude Piris, ex-legal advisor to the EU, who advised on the Maastricht, Amsterdam, Nice and Lisbon treaties. Piris suggested that “any arrangements that are agreed between the EU and the UK following Brexit would be worse than the conditions for trade than they have now.”

Piris explained that the agreements that currently exist between the EU and Switzerland and Norway are unacceptable as models with regard to the UK, since the EU considers them unsatisfactory and is actually trying to modify them. The most likely trade model is that which already exists between Canada and the EU, the controversial and many times revised Comprehensive Economic and Trade Agreement (CETA). Such an agreement would eliminate tariffs as well as remove other “beyond border” trade barriers.

It appears to be similar to what is already in place (save the principle of free movement of course) except for one thing: the timing. Piris explains that the devil is in the detail, that the Treaty of Lisbon provides that the EU cannot negotiate trade conditions until the third party state has actually become a third party state. In the case of the UK, this will take a maximum of two years starting from the moment article 50 is invoked.

Piris postulates that the EU will probably allow certain informal consultations during the transition period, but even with this concession, the new arrangements would probably take at least 6 or 7 years to come into force. Negotiations for CETA were started in 2006 but were not formally completed until 2014, and are still awaiting approval from the European Council, the European Parliament and all the EU member states. In April 2016, the Dutch parliament voted in favour of rejecting the application of the treaty, which, according to The Guardian, transfers too much power to big businesses.

Back to the main (one labyrinth seems to lead to another). Meanwhile, as the UK awaited the approval of a new deal, trade tariffs would revert to the WTO standards, which in the case of wine is 32%.

“The longer this negotiation goes on,” concludes Reilly. “The longer wine lovers will suffer inflated prices for EU wine.”

In another article he speculates that British bargain wine importers, distressed by a price hike, might turn to South African wines for comfort, since the South African Rand is very low at the moment, and therefore offers a good deal to purchasers.

The story of Spanish wine stops there for the time being. It could have been anything, cheese, pork, breakfast cereals, and the discourse would have been very similar in some points (e.g. the weak pound affects all imports), but different in others (e.g. WTO trade tariffs vary considerably). One thing seems to be certain though: BREXIT means BREXIT (thank you Mrs May), which also means, (I add this for those who might struggle to decode the prime minister’s explanation) a highly disruptive period during which the UK will be forced to renegotiate on pretty much everything under the sun with almost every other country in the world. Previously, as part of the EU bloc, it negotiated indirectly, but as third party state, it stands alone. Wine is just a tiny example.

 

Thomas Helm is a writer and journalist with special interests in globalisation, human rights, social issues, Latin affairs and inequality. Thomas also writes for Spanish newspaper La Vanguardia.

Visit his website thomasdhelm.wordpress.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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