The wine world received welcome news at the end of December when the UK and EU struck a trade deal, avoiding a reversion to World Trade Organisation terms when the UK’s transition period ended on 1 January 2021. Although the UK’s departure from the EU will change how trade is conducted between the two sides, we believe that this deal, called the Trade and Cooperation Agreement (TCA), brings clarity and minimises new obstacles and costs. Here, we answer a few questions on the specific impacts on the fine wine industry.
Will there be tariffs on wine traded between the UK and EU?
The TCA allows for free trade in goods between the UK and EU, meaning wine produced in the EU or UK can be imported and exported between the two sides tariff free. Additionally, there will be mutual recognition of industry standards and regulations and labelling practices, which will help maintain current practices for importing and exporting.
Will there be any non-tariff obstacles to trade?
The reality is that the UK is no longer part of the customs union or single market, meaning some non-tariff hurdles will appear in the form of additional documentation and checks. However, the TCA removes the requirement for costly VI-1 certificates for wines produced in either the EU or UK.
VI-1 certificates have long been necessary for all non-EU wines imported into the bloc. Following Brexit, the UK government had planned to also add this requirement for all wine brought into the country starting on 1 July 2021. This had generated concern in the industry as the VI-1 certification requires a lab analysis, including alcohol and acidity levels among other qualities, of each wine being imported. This would have resulted in significant additional costs for producers, importers, wine merchants and, inevitably, consumers. The Wine and Spirits Trade Association estimated that it could have cost the UK industry up to £70 million in the first year alone.
Fortunately, under the terms of the TCA, wines produced in EU or UK and exported to the other will only require a simplified self-certification form. This form covers information such as producer name, wine growing region, geographic indicator and basic properties of the wine. Importantly, the wine will not have to undergo a lab analysis for this certification.
What about wines from outside the EU and UK?
Wines originating elsewhere in the world that pass through the UK do require the EU’s VI-1 forms if they are shipped to the EU or Northern Ireland. The fact that the UK remains a major global hub of the wine trade with global investments and stock often held in the UK means that this will add obstacles in some instances.
There are also some question marks regarding supply chains and how wines produced in the EU but stored in the UK would be treated if they were exported back to the EU. While we don’t anticipate these issues significantly impacting market pricing in the near term, it could have longer-term effects on how business is conducted such as changes in warehousing locations.
What is the outlook for the value of pound sterling, and how will it impact fine wine markets?
Because the deal bring clarity and preserves tariff-free trade in goods, the outlook for the value of the British pound is more stable than had we seen a no-deal Brexit. Due to the UK’s prominence in the global fine wine trade, a stable pound helps keep market pricing consistent and supports demand at market events such as the upcoming Burgundy and Bordeaux en primeur campaigns.
However, it is important to remember that even with the deal, the relationship between the EU and UK has changed significantly, and it remains to be seen how full terms of the TCA will play out. Therefore, foreign exchange rates, specifically the GBP/EUR rate, could see higher volatility and different patterns that it did when the UK was part of the EU.
Could the situation change in the future?
With the avoidance of a no-deal Brexit, we don’t expect any significant fine wine pricing volatility as we transition to the new trading relationship. Continued tariff-free trade and the UK’s removal of the physical VI-1 forms were important in maintain this market stability.
However, the full impact on the wine industry as well as wider trade between the EU and UK will only become clear with time. A review period for the terms of the TCA is scheduled every five years, meaning it will likely evolve. We are hopeful that reviews as well as the development of electronic certification can lead to further simplifications in wine imports and exports. The TCA contains a clause that the two sides work together to further facilitate trade in wine, meaning any obstacles that do arise could get smoothed out in the future.