Brexit may not have desired outcome for UK fishermen, but US could see upside
The exit of the United Kingdom from the European Union – colloquially known as Brexit – doesn’t pose a major threat to American exporters, and it could provide some upside, according to Rabobank Global Seafood Industry Senior Industry Analyst Gorjan Nikolik.
Speaking at the 2018 Global Seafood Marketing Conference on Wednesday, 24 January, Nikolik laid out the three most probable scenarios facing Great Britain in its move away from the E.U.: a hard Brexit, a soft Brexit, or a soft-ish Brexit with a free trade agreement. Nikolik dismissed a fourth option, “Bremain,’ where the U.K. reverses course and decides not to leave the E.U., as doubtful and not likely to cause major change to existing trade.
A “hard" Brexit, in which the U.K. would break off from the E.U. without any negotiated special agreements, would be “the worst outcome for everyone,” Nikolik said. Trade barriers would be high, the price of imported goods would increase by an estimated 11 percent, the total labor force in the U.K. would decline by 1.3 million people by 2030, and the British pound would lose approximately 30 percent of its value, according to economic modeling cited by Nikolik.
On the other hand, a “soft” Brexit would sustain many of the U.K.’s ties to the E.U., potentially including its continued membership in the continent’s single market. Under this scenario, prices of imported goods would rise by an estimated three percent and the British economy would grow by a predicted 1.6 percent annually, as opposed to 1.3 percent under a hard Brexit and 2.1 percent under the “Bremain” scenario.
E.U. negotiators will push back hard against efforts for a truly soft Brexit, Nikolik said, as it gives too much away while clawing back little in return. Nikolik’s pick for the most probable outcome is a soft Brexit with a free trade agreement. Such an agreement would result in an estimated 700,000 fewer laborers working in the U.K., and hike the cost of imported goods by around six percent, Nikolik said. It would also result in a 1.6 percent expected GDP growth rate, he added.
How this type of Brexit will affect seafood is hard to predict, Nikolik said. While the fishing industry played an outsized role in the Brexit campaign due to the emotional attachment many in Britain feel for an industry deeply tied into the country’s history and identity, it does not register as big or important enough to get too much attention at the negotiating table, Nikolik said.
Nonetheless, important issues for the industry are at stake. Currently, E.U. vessels catch much more seafood in U.K. waters than U.K. vessels catch in E.U. waters – a sore spot for British fishermen. The U.K. fishing industry will lobby hard to seek to free itself from the E.U.’s Common Fisheries Policy, which includes “taking back control” of its waters and managing its own quotas, Nikolik said.
If U.K. fishermen get their wish, it may result in higher catches for them, but it also likely to disrupt the market for their fish. Most of what they catch is mackerel and herring, and the biggest and closest market for that catch is in the E.U. If negotiations go well, the current volume levels may be able to get into the E.U. tax-free post-Brexit, but additional volumes would likely face an import tariff, Nikolik said.
But before even getting that far down the road, the U.K. faces a more pressing issue, as E.U. negotiators have publicly stated they will object in any changes in current allotments of fishing rights. And with a deadline of March 2019 for a hard Brexit, or March through December 2021 for a soft Brexit, the innumerable decisions affecting seafood – not to mention much larger-scale economic issues – will have to be made quickly.
As far as the seafood industry in the United States is concerned, Brexit won’t have any real impact until the U.K. clarifies what type of Brexit it will pursue, and what any subsequent U.K.-U.S. trade agreement will look like.
Interestingly, the U.S. exports more than 10 times as much seafood to the E.U. as it does to the U.K. – about USD 1.1 billion (EUR 885 million) annually versus USD 107 million (EUR 86 million). The U.S. could see an opening for its products in the U.K. market, but that is highly dependent on the results of the bilateral trade agreement that gets hashed out after 2019, Nikolik said. But that agreement could make the U.S. more competitive than it currently is in the whitefish market (currently dominated by Iceland, China, and Norway) and potentially the salmon market, where the U.S. might be able to exploit the U.K.’s taste for wild salmon products.
However, Nikolik isn’t confident the U.S. can increase its trade of salmon in the U.K. because it’s “already so big.” The best opportunity for U.S. companies might actually be in importing Scottish salmon, which might not be as welcome in several of its top markets, such as France, Ireland, and Italy.
After Brexit, the European Union could also become a more attractive destination for U.S. products. But in the whitefish sector, the products desired by the E.U. (mostly cod and haddock) are not products the U.S. is selling (primarily pollock), Nikolik said. Bottom line for the U.S., Nikolik said, is that there will not be a huge disruption in current trade patterns to the E.U. or the U.K.
In closing, Nikolik addressed the larger global political phenomenon of nationalistic movements. If Brexit is successful and is seen by nationalist political movements as a good deal, it could lead to further disruption and fragmentation of markets, with a good likelihood of harming global trade, Nikolik said, citing a new Rabobank report.
But an improving economy in Europe, resulting in lower unemployment, has lifted continental sentiment toward the E.U., making such an outcome more farfetched, Nikolik concluded.