Summary
UK development NGOs have described as ‘unreasonable’ the UK government’s expectation that developing countries sign onto ‘Continuity Agreements’, without being able to assess their value. UK Secretary of State Fox has indicated he sees no harm in eliminating tariff where the UK has no production interest. However eliminating tariffs in areas where the UK has no production interest would potentially impact adversely on over €1 billion of exports from African and Caribbean countries to the UK of agri-food products where preferential duty free access is enjoyed against a background of high EU MFN tariffs. This would be likely to cause harm to the export interest of these African and Caribbean exporters who are currently being encouraged to sign on to ‘UK-only’ ‘Continuity Agreements’. Such agreements while ensuring continuity of current tariff preferences would provide no assurances on the continuity of the value of existing tariff preferences. This is particularly the case if the impacts of a ‘no deal’ Brexit on ACP triangular trade flows to the UK via EU27 member states are taken into account. This strongly suggests a need for the UK government to review its current approach to the signing of ‘Continuity Agreements’ by granting unilaterally an extension of current terms and conditions of access to the UK market for developing countries, so that future trade agreements can be based on a full assessment of the benefits of bilateral trade deals with the UK, in light of the changed policy and commercial context emerging in the post-Brexit period.
Representatives of Traidcraft Exchange, Fairtrade Foundation, CAFOD and Christian Aid have written to the UK Secretary of State for International Trade Liam Fox expressing concerns over the UK governments ‘Continuity Agreement’ approach. Specifically the letter argued ‘it was unreasonable for the UK to expect trading partners to sign and ratify ‘continuity agreements’ at short notice and without full information as to their value’ (1).
This issue of the value of simply rolling over existing tariff treatment has recently been thrown into sharp relief by statements from both the UK Secretary of State for Environment, Food & Rural Affairs, Michael Gove and the UK Secretary of State for International Trade, Liam Fox.
Addressing the National Farmers Union on 19th February Michael Gove made it clear ‘the U.K. government will apply tariffs to food imports to protect British farmers in the event that it leaves the European Union on March 29 without a deal in place’. He told the NFU reports the government ‘would operate a zero tariff regime in order to secure frictionless trade in a no-deal scenario were “not accurate” (1).’
This is an important issue for UK farmers, for as NFU president Minette Batters told the BBC “if you obliterate the tariff wall… we would be massively undermined by food produced to standards that would be illegal to produce to in this country’, adding ‘it would decimate British agriculture – it is quite honestly as simple as that’ (2)
The comments of Secretary of State Gove, reflected earlier comments from Liam Fox, before the House of Commons International Trade Committee. On 6 February 2019 Liam Fox acknowledged his department had floated a proposal to abolish all tariffs if the UK crashes out of the EU so as to reduce likely soaring food price inflation. However he acknowledged this would not only harm UK producers but also ‘erode preferences for developing countries, because they would lose the ability to take the advantage that is conferred by lower tariffs’. He stated his opposition to such a course of action (3).
However the messaging of Secretary of State Fox was somewhat confusing. In later discussions with the International Trade Committee he highlighted how there were a range of tariff lines where the UK has no production interest. He then went on to cite the example of citrus fruit, arguing in this instance, ‘if we are able to get a wider supply at lower prices for British consumers why wouldn’t we do that’; adding he couldn’t see ‘where a reduction of tariffs would be harmful’ (4).
This mixed messaging was also apparent in Secretary of State Gove’s remarks to the NFU where assurances were also nuanced. He appeared to state unequivocally ‘it will not be the case that we will have zero rate tariffs on products’, indicating ‘there will be protections for sensitive sections of agriculture and food production’. However he went on to acknowledge that ‘zero tariffs were a possibility in some areas’, even refusing to provide assurances to UK farmers over the tariffs to be applied in the cereals sector under a no-deal Brexit (3).
Reports in the Guardian suggest this is part of a broader approach in which the UK government has been ‘grouping foods into bands with ratcheting tariff levels’, with ‘foods such as oranges and bananas, which are not grown in the UK’ potentially being ‘zero-rated’, while “sensitive” products, such as beef and cheese, would be managed through reduced duty or zero duty tariff rate quotas (6).
Against this background it should be noted the adoption of an approach whereby the inherited MFN tariffs the UK government has pledged to apply would be eliminated in areas where the UK has no production interest would be a source of concern for both ACP exporters of products where the EU maintains high MFN tariffs in the interest of producers in some EU27 member states (e.g. bananas, rice, citrus fruit) as well as ACP exporters of products where the UK has a structural deficit (sugar and beef).
An announcement on the UK governments’ future tariff policy under a ‘no-deal’ Brexit scenario is expected at the end of February (3), although given ongoing UK efforts to conclude ‘Continuity Agreements’ this could be pushed back into March 2019, since any significant reduction of the currently applied MFN tariffs would greatly reduce the value of preferential access to the UK market under ‘rolled-over’ ‘UK-only’ trade agreements.
Against this background the concerned NGOs called on the UK government to make provision for a plan ‘B’ for those developing country governments which ‘find themselves unwilling or unable to sign continuity agreements’. In making this call for a plan ‘B’ reference was made to UK commitments dating back to June 2017 to minimising ‘disruption for developing countries’ by avoiding the imposition of ‘costly tariffs’ (1).
The NGO letter expressed particular concern for ‘a number of lower-middle income trading partners (Ghana, Côte d’Ivoire, Cameroon and the special case of Kenya) for whom the proposed UK preference scheme represents a deterioration of their market access on key products’. This, it was felt, was not a ‘viable alternative’ (1). It was suggested the currently proposed alternative preference regime for these countries would put at risk trade on which banana, cocoa, horticulture and floriculture producers depend (1).
Finally the letter also sought to argue the UK’s current ‘Continuity Agreement’ approach falls short of its aspiration for a leadership role on international trade and development issues (1).
| Comment and Analysis A review of export flows from the main ACP exporters of sugar, beef, fresh vegetables, cut flowers and canned tuna shows the value of goods exported directly to the UK in 2017 was in excess of €641 million. In a wide range of the products falling under these product categories the removal of MFN duties by the UK and a switch over to lower priced global suppliers would seriously undermine the value any rolled over preferential access to the UK market under ‘Continuity Agreements’ (7). If ACP banana exports to the UK are factored in the value of trade potentially affected by the removal of MFN tariffs where the UK has no production interest would increase by € 267 million, taking the total to €908 million. Factoring in the citrus fruit referred to by Liam Fox at the 6th February House of Commons International Trade Committee meeting, would take the total value of ACP exports affected by the removal of MFN tariffs in the most obvious areas to over €1 billion (€ 1,072 million). However to this needs to be added the triangular trade flows to the UK which take place through the Netherlands, which are more difficult to quantify. These trade flows are believed to be substantial given the importance of the Netherlands in the ACP export trade of floriculture and horticulture products and its central role as a distribution hub for the whole EU single market (for a sector specific review of issues faced by triangular trade flows in the floriculture sector see companion epamonitoring.net article ‘No-Deal’ Brexit Challenges in Cut Flower Sector Highlight Problems for ACP Triangular Supply Chains’, 1 March 2019). To put this in perspective in 2017 the Netherlands imported over €479 Million in cut flowers (62% of extra-EU imports of cut flowers) and €91 million of vegetables from ACP countries (7). This places in context the NGO observation that developing countries are being invited to conclude ‘Continuity Agreements’ ‘without full information as to their value’ and why it was suggested the UK government was ‘relying on looming tariff imposition to compel countries to sign up to premature and possibly unsatisfactory agreements’ (1). With specific reference to Ghana, Côte d’Ivoire, Cameroon and Kenya the currently proposed alternative trade regime needs to be contrasted with the pre-existing obligations the UK has taken on while a member of the EU, and which, under Article 129 of the agreed EU/UK Withdrawal Agreement, the UK government committed to extending for a transitional period until 1st January 2021. While the House of Commons has so far refused to ratify the EU/UK Withdrawal Agreement and hence make Article 129 legally binding, respecting its inherited obligations to developing countries with which the UK concluded trade agreements while part of the EU, currently remains the policy of the UK government (5). In addition it should be noted the removal by the UK government of MFN tariffs on products where UK farmers have no production interest or where a structural production deficit exist in the UK would impact particularly severely on the value of any tariff preferences which might be granted to Kenyan cut flower and fresh vegetable exports (with exports to the UK in 2017 of nearly €62 million and €93 million respectively, together some 43% of the total value of Kenyan direct exports to the UK in 2017) (7). However for Kenya this is just the tip of the iceberg of trade which would be affected by the removal of UK MFN duties in these products, given the scale of triangular trade into the UK market via floriculture and horticulture trading ‘hubs’ in the Netherlands. In the cut flower and horticulture sector the sudden removal of the current high EU MFN tariffs by the UK government in the immediate post-Brexit period would also impact Ethiopia and other East Africa and Southern African Least Develop Country based exporters serving the UK market through the trade hubs in the Netherlands (e.g. in Rwanda, Uganda, Tanzania, Malawi and Zambia). The effects on the functioning of ACP triangular supply chains accounts for the emphasis placed in the joint NGO letter on the highly integrated nature of supply chains across the EU. It is certainly the case the absence of clarity over the future EU/UK trade relationship could mask potentially serious consequences for the value of ACP exports built up to serve a single integrated EU market which included the UK. In the case of Ghana unilateral UK MFN tariff reduction in the immediate post-Brexit period in areas where the UK has no production interest would have similar effects on the value of tariff preferences. In the case of Ghana the main export products impact would be canned tuna and bananas, with such a move undermining the value of the tariff preferences granted under any ‘rolled-over’ Ghana-UK ‘Continuity Agreement’. Placing this in context in 2017 the value of Ghanaian exports to the UK of canned tuna and bananas was €69 million and €26 million respectively (7). In the case of Cote d’Ivoire in 2017 exports of canned tuna and banana to the UK were €8 million and €50.5 million respectively, with the value of these exports being similarly affected by any immediate reduction of MFN tariffs by the UK government in the post Brexit. Cameroonian exports of bananas to the UK worth €27 million in 2017 would be similarly affected (7). Against this background it is not surprising UK development NGOs have stressed how currently it is difficult to fully assess the value of the rolled-over tariff preferences in the changed economic context which a ‘no-deal’ Brexit would give rise to. This strongly suggests a need for the UK government to review its current approach to the signing of ‘Continuity Agreements’ by granting unilaterally an extension of current terms and conditions of access to the UK market for developing countries. Future trade agreements with the UK can then be concluded when there is greater clarity on future UK trade policies and a full assessment of the benefits of such agreements can be undertaken. |
Sources
(1) Letter from: Esther Stevenson, CEO Traidcraft Exchange; Alison Doig. Head of Global Policy, Christian Aid; Michael Gidney, Chief Executive Fairtrade Foundation; Neil Thorns, Advocacy Director CAFOD to Secretary of State for Trade Liam Fox, 14 February 2019
(2) BBC, ‘UK will apply food tariffs in case of no deal’, 19 February 2019
https://www.bbc.com/news/uk-47291378
(3) Freshfruitportal.com, ‘UK will apply food tariffs in case of no deal Brexit, says minister’, February 20 , 2019
https://www.freshfruitportal.com/news/2019/02/20/u-k-will-apply-food-tariffs-in-case-of-no-deal-brexit-says-minister/
(4) House of Commons, Dialogue Secretary of State for International Trade, Liam Fox with the House of Commons International Trade Committee, video
https://parliamentlive.tv/Event/Index/f7cd8517-3b7f-492e-a178-ff1ac193862d
(5) Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as agreed at negotiators’ level on 14 November 2018
https://ec.europa.eu/commission/publications/draft-agreement-withdrawal-united-kingdom-great-britain-and-northern-ireland-european-union-and-european-atomic-energy-community-agreed-negotiators-level-14-november-2018_en
(6) Guardian, ‘UK food imports from EU face ‘£9bn tariff bill’ under no-deal Brexit’, 23 February 2019
https://www.theguardian.com/politics/2019/feb/23/uk-food-imports-from-eu-face-9bn-tariff-bill-under-no-deal-brexit
(7) EC, Market Access Data Base
http://madb.europa.eu/madb/statistical_form.htm