Eucolait, the European association of dairy trade, is concerned that the current EU-UK impasse on a potential future trade deal is leading to more uncertainty. Therefore, it is urging politicians to avoid a cliff-edge scenario. This situation is exacerbated by the UK’s recent declaration that it will not consider an extension of the transitional period that ends on December 31. Eucolait highlights how progress in the negotiations between the EU and the UK has been slow and the positions of each side appear “inconsolable.”

With the extension of the transitional period ruled out, there are only four months left to get from the current “deadlock” to an agreement to avoid a hard Brexit. This immense task is further complicated by the ongoing COVID-19 pandemic and its economic fallout.

Within the short available time frame, pragmatism should prevail to break the deadlock, urges Eucolait Legal & Policy Adviser Alice ODonovan. This is especially crucial given that the UK will be out of the single market and the customs unio at the end of this year. 

“We hope that there will be a strong push by both sides to overcome the discrepancies in position and that a deal can be reached. Given the short time frame, there will have to be great will on both sides however,” ODonovan tells FoodIngredientsFirst. 

The key components of the future trade deal need to include duty and quota-free market access, an alignment or equivalence regime for food legislation and customs facilitation.

Failure to reach an agreement would have tremendous consequences for dairy businesses on both sides, which currently operate in an integrated supply chain. 

Tariffs at an MFN level would wipe out most of trade in both directions, according to Eucolait. The UK is the EU’s largest export market for dairy products by far, with supplies exceeding €3.5 billion (US$3.9 billion) in 2019. Cheese exports alone amounted to 500,000 metric tons last year. This is double the amount the EU used to export to Russia, putting the effects of the embargo into perspective. 

“In the event that we come to the end of the year without an agreement, dairy trade will be heavily affected both from the UK into the EU and from the EU going to the UK,” adds O’Donovan. “High tariffs will make trade essentially unviable. Moreover, the potential for non-tariff measures and divergent SPS (sanitary and phytosanitary measures) practices in the future will also make trade more challenging,” she says.  

Reintroducing import duties on dairy products would create significant additional costs for both businesses and consumers. It would also force the EU dairy sector to look for alternative export markets in a world wher demand is heavily affected by COVID-19. Downward pressure on milk prices, as a result, would seem inevitable.

Eucolait acknowledges the extremely difficult task ahead but calls on negotiators on both sides to find creative solutions to the main hurdles, such as the level playing field provisions. Another trade shock of this magnitude at the end of the year must be avoided.

“COVID-19 has impacted the negotiations between the EU and the UK and has also created a lot of uncertainty and economic consequences that will certainly be felt in the short-medium term,” O’Donovan continues. 

“While an extension of the transitional period would increase the likelihood of an agreement being concluded, the UK has confirmed that they will not be seeking any extension,” she says. 

The UK recently "formally /confirm/ied" to the EU that it will not extend the Brexit transition period. However,  UK Prime Minister Boris Johnson has also since said that both sides will speed up Brexit trade talks with plans for focused weekly negotiations.