5th Report: Brexit and trade: implications for Wales

Trade is a reserved policy competence and it is the role of UK Government to lead on negotiations over future trade agreements. Depending on how deep their provisions, new trade agreements may have direct implications for devolved policy areas. The devolved administrations therefore should be routinely consulted in the development of UK-wide trade strategies.

We welcome the positive relationship between DIT and Welsh Government and note that discussions are still ongoing about formalising joint working with a memorandum of understanding.

We expect DIT to finalise governance arrangements by agreeing on a concordat by January 2021 and recommend that other UK government departments consider using this as a model for strengthening their relationships with the devolved administrations.

We welcome the establishment of the Ministerial Forum for Trade in 2020 as a mechanism for cooperation between UK Government and the devolved administrations. It is important that key Welsh interests are fully considered in trade talks. (Paragraph 24) Future trade relations with the EU

While we note that the UK Government has launched an extensive information campaign to warn businesses of the need to prepare for new trading arrangements with the EU, we remain concerned that many Welsh businesses have either waited to see whether a deal was reached before beginning to make their preparations, or are unaware of the fact that even with a deal such preparations are essential.

We therefore urge Ministers to continue to work with business groups and other stakeholders, including the devolved administrations, to ensure as many businesses and organisations are as prepared as possible. Such efforts should make full use of Welsh media outlets and be available bilingually.

The EU is the main international export market for Welsh goods and agricultural produce, with a higher proportion of goods from Wales exported to and imported from the EU compared to the rest of UK. Securing a trade deal with the EU is therefore of particular importance for the Welsh economy. A zero tariffs, zero quotas arrangement is of much greater benefit to the Welsh economy than trading on purely WTO terms. It would remove the immediate threat of damaging tariffs and could lay a strong foundation for businesses in Wales to have a close post-Brexit trade relationship with the EU. More than four years after the referendum, during which time businesses have faced considerable uncertainty and many have delayed 40 Brexit and trade: implications for Wales long term planning and investment decisions, we hope that a deal will create a stronger investment climate in Wales and unlock important, and much needed, growth decisions.

In contrast, a ‘No deal’ scenario would result in tariffs when exporting Welsh goods to the EU. This could have a more negative effect on key sectors of the Welsh economy compared to the rest of the UK. We are deeply concerned about the impact of a no-deal scenario on industries in Wales that are heavily reliant on exports to the EU such as manufacturing, agriculture and services. We do not accept that a no- deal would be a ‘good outcome’ for Wales and that a so-called ‘Australian style deal’ is almost as good as the deal the UK is trying to strike with the EU.

However, even if there is a deal, there will be important differences in the future trading arrangements between the UK and EU as the UK will no longer be in the Single Market or Customs Union. These differences include new customs processes and procedures and will require businesses to adapt swiftly.

Should there be a deal then we urge the UK Government to continue working with the EU and business groups in 2021 to explore how non-tariff barriers and additional burdens and costs can be minimised for Welsh producers. For example, we are concerned about the implications of new processes and checks for just in time supply chains. In the event that a deal cannot be struck then we call on the UK Government to write to us with evidence of preparations and proposals to mitigate any specific risks to the Welsh economy as a result of trading with the EU on WTO terms. (Paragraph 44) Customs arrangements and ports of entry post-transition phase

We welcome the phased approach of the Border Operating Model, however we are concerned about the readiness of Welsh ports, and availability of infrastructure and capacity at or near ports, to deal with new customs processes from January 2021. We are particularly concerned about the potential for delays at the Port of Holyhead. Any delays at ports could have a significant impact on the flow of goods. We are particularly worried that the required infrastructure to conduct border checks is not yet up and running, given the very limited time remaining before the end of the transition period.

The readiness of Welsh and UK ports for trade with the EU after the transition phase is a major undertaking. The UK Government needs to provide reassurances that digital and physical infrastructure will be up and running in time and that sufficient physical capacity at or near ports will be available before July 2021.

We welcome the level of engagement between Welsh ports, HMRC and the Border Protocol Delivery Group. However, whether a deal is secured with the EU or not, we must accept that there will be friction at the borders. Congestion and delays at Welsh ports could have significant costs for the port operators and businesses and major implications for logistics chains.

The UK Government must redouble its efforts to work with business and port operators to provide confidence that the necessary systems and infrastructure will be in place, fully tested and functioning well in advance of July 2021. The UK Government should Brexit and trade: implications for Wales 41 also maintain an ongoing dialogue with the EU, post January 2021, to monitor the impact of new processes and, where possible, work to ensure as frictionless trade as possible.

Holyhead is one of the most important ports in the UK and plays a key role in the Welsh and wider UK economy. While we acknowledge Stena Line’s comments that they are doing all they can to prepare for new trading processes and checks after the end of the transition period, we remain concerned at the potential implications for Holyhead and the wider region of a combination of new, and untested, IT systems and new, and potentially extensive, checks and processes.

The decision to locate checks and customs processes away from port and at an inland facility was described to us as a ‘positive tick’, however there is a risk that this just results in significant congestion occurring only a few miles away from Port. The potential impact of any congestion at the inland facility for both Holyhead Port and the island of Anglesey more generally depends, of course, on where the facility is located.

We are deeply concerned that, so close to the end of the transition period, and with not much time left until the staggered controls take effect in July 2021, the decisions on the location of the inland facility for Holyhead Port and the equivalent facilities in South-west Wales has yet to be taken. Even with expedited planning permission, this leaves little time to build, and properly equip, sites which will need to be ready for potentially thousands of checks and processes per day. There is a significant risk that neither North nor South-west Wales will have appropriate inland facilities ready for July 2021, raising important questions about the level of contingency planning that is in place for such an eventuality.

There is an unacceptable level of risk that inland facilities will not be ready in either North or South-west Wales for the full introduction of border checks and processes in July 2021. It has been clear since the beginning of the UK-EU trade talks, that regardless of a deal being reached or not, there would be new processes and requirements at the border, and it has also long been apparent that Holyhead, Fishguard and Pembroke lack the capacity to accommodate such checks on-site. If there is to be any chance of a North Wales and South-west Wales facility being operational before July 2021, then decisions on site locations must be confirmed before the end of December. As a precaution, the UK Government must publish its contingency plans for how checks will be conducted on goods arriving at Holyhead and Fishguard/Pembroke in the event that the inland facilities are not operational for July. The UK Government should also be clear whether its contingency plans include checks at port and detail the measures it would take to minimise the disruption such a step would entail.

We welcome the improvement in the UK Government’s communications ahead of the end of the transition period and specifically the ‘Time is Running Out’ campaign. Preparedness for new processes is essential and it is imperative that as many businesses as possible are alerted to the changes which they will be required to make as a result of our new trading arrangements with the EU. (Paragraph 85) 42 Brexit and trade: implications for Wales

We urge the UK Government to continue to invest significantly in this campaign in the run-up to 1 January and to continue to do so during 2021. This campaign should fully involve all relevant stakeholders in Wales to maximise its reach within Wales.

Once the transition period ends, considerable responsibility will fall on hauliers and individual drivers to be as prepared as possible for the additional checks and processes that will be at place at the border with the EU. We therefore share the disappointment of the sector at the delay in producing the guidance, including the hauliers handbook, that will be required for freight operators.

We call on the UK government to publish the outstanding guidance required for the logistics industry as a matter of urgency. In light of these delays, the UK Government should also explore what additional measures will be needed to effectively, and at such late notice, communicate this guidance to the sector and what additional financial support the sector may require. (Paragraph 90) Trade with non-EU countries

As part of its trade negotiation strategy, we call on the UK Government to publish a Wales-specific impact assessment of any trade agreements, including the recently signed agreement with Japan.

We welcome the progress of trade talks with non-EU countries and the UK Government’s intention to join the CPTPP partnership in 2021. Trade liberalisation will pose challenges, as well as opportunities, for Welsh producers and it is vital that the UK Government recognises the potential risks, as well as rewards, that could face producers as a result of trade negotiations. For example, while we are pleased that trade talks with Australia and New Zealand are progressing, it is clear that FTAs with both countries could have significant implications for the Welsh agricultural sector.

We call on the UK Government to work with the Welsh Government and businesses in Wales to explore how best to promote Welsh produce globally. We also recommend engagement with the Welsh Government in discussions about the impact of trade negotiations on the Welsh economy. The UK Government must recognise the importance of agricultural exports in trade deals with non-EU countries such as the US, New Zealand and Australia.

We welcome the signing of the UK-Japan Comprehensive Economic Partnership Agreement, the UK’s first free trade agreement as an independent trading nation. For decades Japanese firms have played a significant role in the Welsh economy and Japan is an important trading partner for the whole UK. We welcome the level of consultation between the UK and Welsh Governments during the progress of the negotiations.

We urge the UK Government to maintain, and build upon, this approach as it negotiates further FTAs. (Paragraph 114) Brexit and trade: implications for Wales 43

The official recognition of 15 Welsh products through protected geographical indicators in the UK-Japan FTA reinforces the importance of the agreement to Wales and will encourage further growth in Welsh agricultural exports to Japan.

We note the progress of trade negotiations with the USA. However, it is unclear what the change in administration will mean for the continued progress of these negotiations.

We call on the UK Government to write to us with updated progress on the negotiations in early 2021, following the new administration taking office. We also urge the UK Government to discuss lifting the ban on lamb during trade talks.

We welcome the establishment of the Trade and Agriculture Commission (TAC) and it being placed on a statutory footing to enable parliamentary scrutiny of trade deals. We also note the importance of having representation from Wales on the board.

TAC should continue to work with Welsh agricultural interests to explore workable proposals for strengthening UK food standards while facilitating growth in UK’s international agricultural trade.

The UK will no longer be subject to EU law following the end of the transition period. We welcome the fact that all current EU food production standards have been rolled into UK law and the strong assurances from UK ministers that these high standards will not be diluted.

It is essential that UK regulatory standards are not compromised in any future trade deals. Any move to unpick UK food production standards in order to secure free trade agreements with large agricultural exporters would be a betrayal of Welsh farming interests. (Paragraph 138) 44 Brexit and trade: implications for Wales