Written evidence from Isle of Man Creamery Ltd

Executive Summary

• Isle of Man Creamery Ltd notes the written evidence from Isle of Man Government dated 18th November 2016, with which Isle of Man Creamery is in agreement.
• Isle of Man Creamery was grateful for the opportunity to give oral evidence to the House of Commons Justice Select Committee (“Select Committee”) in relation to the Implications of Brexit for the Crown Dependencies inquiry on 17th January 2017 during their visit to the Isle of Man.
• Isle of Man Creamery, as a farmer-owned co-operative, represents the interests of all dairy farmers on the Isle of Man.
• This written submission does not seek to replicate the Isle of Man Government written evidence, but to put into writing and expand upon Isle of Man Creamery’s understanding of the additional points raised during the meeting with the Select Committee, and in particular how changes in the relationship between the UK and the European Union may affect Isle of Man Creamery and Isle of Man dairy farming in general.  It therefore adds to the Isle of Man Government written submission, and hence should be read in conjunction with it.
• It is important to Isle of Man Creamery that a free trading relationship is maintained between the United Kingdom (“UK”) and the Isle of Man after Brexit, both during and after any transitional arrangements.
• Isle of Man Creamery would like to be able to continue trading with countries in the European Economic Area and third countries outside of the EU on the same basis as the UK, both during and after any transitional arrangements.
• Some third countries have import barriers/tariffs.  The UK needs to be mindful that EU export licences are currently required for some of that trade for which timescales are tight, and post-Brexit the ability to secure those licences may not be possible.  Losing rights to EU export licences could potentially lead to UK and Isle of Man organisations been at a competitive disadvantage globally.  It is therefore suggested that as far as possible the UK negotiates to obtain a share of the relevant EU licences.  It would also be beneficial if the UK could secure additional entitlement, perhaps as part of Free Trade Agreements.
• Isle of Man Creamery thanks the Isle of Man Government for the engagement to date, and the Justice Committee for their visit to the Isle of Man on 17th January 2017, which was very useful.  The engagement that the Isle of Man Government has had from their UK counterparts is also noted.

Overview of Isle of Man Creamery’s trading relationship with the UK, EU and third countries

• As far as possible, Isle of Man Creamery would like to maintain similar access to markets as is currently available, and if possible, with reduced barriers for trading with third countries.  Realistically, it is envisaged that Isle of Man Creamery will have similar access to markets as for UK dairy companies, perhaps with minor modifications to take into consideration local conditions.
• It is accepted that Isle of Man Creamery’s position will be dictated by whatever UK Government is able to negotiate for itself, the Isle of Man, and others.
• Isle of Man food regulations currently incorporate EU regulations.
• At the moment, Isle of Man Creamery’s access to markets is governed by Protocol 3, Regulation 706/73[1], and the Customs & Excise Agreement that the Isle of Man has with the UK.
• Under Regulation 706/73, amongst other things, for the purposes of those rules, the UK and the Isle of Man (and the Channel Islands) are deemed to “be treated as a Single Member State”.
• The consequences of the current trading arrangements are that:
• Isle of Man Creamery can trade freely with the UK
• Isle of Man Creamery can trade with third countries outside of the EU on the same basis as UK organisations
• Isle of Man Creamery has access to EU export licences on the same basis as UK organisations, through the UK Rural Payments Agency
• Unlike the UK, the Isle of Man dairy sector does not receive rebates and subsidies from the EU
• Isle of Man Creamery see it as imperative that the current arrangements for trading freely between the UK and Isle of Man are continued, either within existing agreements or with new agreements.
• With regard to future trading arrangements, Isle of Man Creamery would like to be able to trade with EU member states and other third countries on the same basis as UK organisations.
• In addition to future trading arrangements, Isle of Man Creamery would like to ensure that any transitional arrangements will also reflect the Isle of Man position to the extent that Isle of Man Creamery can trade on the same basis as UK organisations throughout the transitional period.
• Isle of Man Creamery would also request that the Isle of Man position for both transitional and future trading arrangements is communicated effectively throughout all relevant UK Government departments.
• Some third countries erect import barriers/tariffs for certain goods, including dairy products, not all of which are understood by Isle of Man Creamery.  However, Isle of Man Creamery does have recent experience of exporting to a United States (“US”) cheese distributor on an Ex Works basis.  The US customer has so far decided to which cheese it allocates US import licences, and which cheese to import without a licence at a higher tariff.  However, the US customer requires Isle of Man Creamery to obtain US import licences going forward.   Isle of Man Creamery’s understanding of US import licences is detailed below.
• Although Isle of Man Creamery would prefer to operate without subsidies to dairy farmers, this may be harmful unless all other competing jurisdictions introduced similar rules.
• Under current EU regulations, the Isle of Man is treated as part of the EU for trading in agricultural goods, but because the Isle of Man does not pay into the EU budget, unlike the UK, Isle of Man farmers/producer organisations do not receive any EU subsidies.  The Isle of Man needs the ability to retain the freedom/ability to regulate and support local production to maintain the delicate economic balance of the small but important island dairy industry.
• The ability to be able to regulate at a UK and/or Isle of Man level against ‘dumping’ of food and drink products would be extremely useful.

Isle of Man Creamery’s understanding of US dairy import licences

• Cheese and other dairy products can be imported into the US either with or without US import licence.
• Tariffs for importing into the US without US import licence are higher than importing with a US import licence.
• There are three types of US import licence – (1) Historic, (2) Non-historic / Lottery, (3) Preferred / Designated Importer.
• In practice going forward, to obtain a Preferred / Designated Importer Licence, a US subsidiary of a non-US manufacturing company is needed.
• In practice, for an EU based company to currently obtain a US Preferred / Designated Importer Licence, an EU Export Licence is required. 
• Applications for EU Export Licences and for US Import Licences need to be made annually.
• The UK Department of Environment, Food and Rural Affairs will be able to advise upon the process.
• Isle of Man Creamery can currently obtain EU export licences through the UK Rural Payments Agency as a consequence of Regulation 706/73.

UK position with regard to trading with third countries

• Isle of Man Creamery’s interest in the UK position with regard to trading with third countries is that it is likely that a ‘good deal’ for the UK will also enable a ‘good deal’ for the Isle of Man.
• Many of the issues likely to be faced by Isle of Man Creamery as a result of Brexit are also likely to be faced by the UK dairy sector.
• The UK Department of Environment, Food and Rural Affairs will have a good understanding of dairy export licencing.
• Current timeframes for export licence applications may make it difficult for UK organisations to continue trading with third countries at reduced tariffs after Brexit, possibly until Free Trade Agreements have been negotiated.
• It may be possible for the UK to negotiate a share of some of the EU export licences, perhaps if necessary on a transitional basis.
• EU licences available for cheese are categorised into different types of cheese.  Not all types of cheese are as important as each other from a UK export perspective.  For example, the UK would be likely to benefit more from having ‘Cheddar’ licences than ‘Edam/Gouda’ licences.
• The UK should also consider export arrangements for dairy products other than cheese.

Consultation to date

• Isle of Man Creamery’s contact with the UK is through the Isle of Man Government.
• Isle of Man Creamery believe engagement on Brexit between the Ministry of Justice and Isle of Man Government, and the subsequent consultation with Isle of Man Creamery as evidenced by the invite to meet with the Select Committee on 17th January 2017, has so far been effective.

27 January 2017

[1] Regulation (EEC) No 706/73 of the Council of 12 March 1973 concerning the Community arrangements applicable to the Channel Islands and the Isle of Man for trade in agricultural products