Impact of “Brexit” on Rice Remains Unclear

OK, now what?
Brexit-flags
ARLINGTON, VA – Last month, the United Kingdom voted in a nationwide referendum to leave the European Union.  Referred to as “Brexit,” this event has cast a shadow of uncertainty across global markets and left many wondering how it will affect U.S. trade interests.  The impact of Brexit on U.S. rice exports to both the EU and the UK is unclear at this time, and analysts see scenarios that could grow U.S. rice exports, but also less positive outcomes.

On the positive side, the current EU tariff schedule is complicated, favoring less developed countries and former colonies, and leaving the U.S. a minimal tariff rate quota (TRQ) for rice. However, it largely provides protection for rice growers in Italy and Spain.  Once the UK leaves the EU, and since it grows no rice itself, it has no incentive to protect those industries.

“I think this could potentially be a positive opportunity for the U.S. rice industry,” said Keith Glover, president of Producers Rice Mill in Stuttgart, Arkansas, that currently exports rice to customers in the UK.  “It’s worth remembering that the one country in Europe that has consistently imported rice from the U.S. is the UK.  They’ve stuck with us and that’s been appreciated and could be the basis for growing the relationship.”

But political upheaval in the UK as a result of Brexit could take things in a different direction.

Immediately following the vote, Prime Minister David Cameron, who had supported the “Remain” camp, abruptly resigned.  The new Prime Minister, Theresa May, was installed on July 13, and has been making the rounds in Europe to talk about next steps for her country - one of which could be the UK leaving the EU, but remaining a participant in what is known as the EU Customs Union.

If that were to happen the UK would not face tariffs to export most goods into the EU, but it would have to accept the EU’s external tariffs when trading with non-EU countries and would not have any say in setting these external tariffs.

“That could undo any potential gains for us,” said Glover.
 
However, there is precedent for countries to have good trading relationships with the EU but not participate in the Customs Union.  Iceland, Norway, and Switzerland are neither EU members nor participants in the Customs Union, but do enjoy tariff-free access to the EU’s single market through their own free trade agreements.  

How willing EU countries would be to negotiate new free trade deals with the UK after being so forcefully snubbed through the referendum is anybody’s guess.

And recently the UK’s new International Trade Secretary, Liam Fox, remarked while on a trade mission to the U.S. that Prime Minister May is looking at the UK leaving the Customs Union “with an open mind.”

Another shorter term problem however is what the somewhat unexpected Brexit outcome is having on currency.

“Brexit hurt the pound, but it could lead to a further strengthening of the U.S. dollar against other currencies and make our exports that much more expensive,” said Louisiana rice farmer John Owen.  “This would be unfortunate given our reliance on export markets and the large crop of rice this year in the U.S.”

So, what is going to happen next?  Britain and the EU have about two years to sort through various agreements and treaties, and then bilaterally negotiate new rules regulating travel, trade, and other policies.

Complicating matters further, Brexit comes at a time when the Transatlantic Trade and Investment Partnership (T-TIP) negotiations have stalled.

T-TIP is an economic agreement meant to strengthen the bilateral relationship between the U.S. and the EU, encouraging trade and innovation.  The agreement could have far-reaching implications for every sector of the American economy, including agriculture.  With the UK’s departure, the EU’s market for U.S. goods has shrunk, particularly for rice given Britain’s dominance as an importer of U.S.-grown rice.

Brexit may have weakened resolve to get a T-TIP agreement negotiated at a time when expansion of U.S. rice exporters remains blocked by an antiquated tariff regime.

As the U.S. watches events unfold, the only certainty is that the UK will not be a part of T-TIP, and we should expect more uncertainty to come.