Summary
On 12th June 2020, the UK has announced there will be no extension of the transition period in UK/EU trade relations. At the same time, the UK announced plans for phasing in of border controls on imports from the EU. This phased approach is aimed at providing time for UK businesses to prepare for changes in border arrangements given the setbacks to preparatory activities generated by the Covid-19 pandemic. However, the underlying border controls challenges facing the UK government pre-dated the Covid-19 pandemic and remain substantial. Against this background ACP exporters using triangular supply chains need to intensify preparation for the implementation of new UK/EU border arrangements, while ACP governments will need to ensure their Continuity Agreements with the UK, fully address the need to ensure ‘continuity’ in the smooth functioning of triangular supply chains. The governments of least developed countries will also need to ensure a mechanism is found to make similar arrangements for the smooth functioning of triangular supply chains used by LDC based exporters.
With the UK having formally notified the EU it will not be seeking an extension of the transition period beyond 31st December 2020, plans were announced to phase in border controls on imports from the territory of the EU. Cabinet Secretary Gove highlighted how having taken back control of its borders the UK government had taken ‘the sovereign decision to introduce arrangements in a way that gives businesses impacted by coronavirus time to adjust’ (1).
The announcement followed a letter from the Freight Transport Association (FTA) which set out the challenges the freight industry would face in dealing with UK/EU27 border controls and appealing for ‘time to future-proof our supply chain’(2).
According to the UK governments 12th June announcement, from 1st January 2021 the UK government will introduce ‘full customs checks and tariffs’ on ‘controlled goods such as alcohol and tobacco’, as well as ‘checks on live animals and high-risk plants’ (1). All imports of high-risk plants and plant products ‘will be required to have pre-notification and health documentation from the outset, while physical checks of goods entering from the EU will take place ‘at the point of destination or other approved premises’, for all high-risk plants (3).
The principal ACP alcohol product likely to be affected is rum exported in bulk to EU27 member states where bottling takes place, prior to onward trade into the UK market. The full implications for this trade in the light of the UK becoming a separate customs territory from that of the EU will need to be assessed.
In addition, the introduction of checks on ‘high risk’ plants could impact on the triangular trade in floriculture and even horticulture products which takes place into the UK via the Netherlands and Belgium. This will be critically determined by how the UK defines ‘high-risk plants and how the UK handles the issue of pre-notification, which will be by no means a simple task within the current time frame for the onward shipment of ACP fresh produce traded along triangular supply chains.
The questions arises:
- Will the UK’s approach to controls on ‘high risk’ plants be based on current EU definitions of ‘high risk’ plants (4) or will it apply to all products currently covered by EU phytosanitary requirements?
- Will the UK recognise existing EU plant health documentation?
- Alternatively, will the UK establish its own criteria for ‘high-risk’ plants and phytosanitary certificate requirements and if so when will these UK specific requirements be made publicly available?
- Will special arrangements be set in place for pre-notification along short sailing onward trade supply chains delivering ACP products to the UK via the EU?
These questions need to be seen in a context where the UK has asserted the measures announced on the 12th June ‘will not apply to third countries outside of the EU’ (3), yet these measures could have very real implications for third country exporters serving the UK market along triangular supply chains, unless special arrangements are set in place. This could particularly severely affect East African cut flower exports.
What is clear is that if ACP products currently traded along triangular supply chains into the UK market are required to undergo further inspections and controls upon entry to the UK market then this will increase costs and potentially result in a loss of value on the final sales price of products delivered to UK customers.
Particular challenges are faced in this regard given the current limited infrastructure available for the conduct of these checks and the location of the available infrastructure far away from the principal points of entry for ACP products entering the UK market along triangular supply chains. While the UK government has announced a programme of investment in and border clearance infrastructure (3), consultations on the infrastructure required remain ongoing, suggesting it could still be some considerable time before the necessary investments are made.
To avoid these additional costs special arrangement would need to be set in place for the handling of these products when crossing the EU27/UK border, which would accept the validity of EU conducted controls upon the entry to the EU when these products continue on to the UK.
From 1st April 2021 border controls would be introduced involving health checks on ‘all products of animal origin including, meat, pet food, honey, milk or egg products with pre-notification of imports required by the authorities’ (1). At this point ‘all regulated plants and plant products will also require pre-notification and the relevant health documentation’ (3). These controls would of course take into account any agreements which may have been concluded with the EU.
The introduction of checks on all animal products traded between the EU and UK from 1st April 2021 could impact on any ACP animal products exported to the UK via EU27 member states, with this being a particular concern if the UK definition of animal products included fisheries products. While there is believed to be a trade in ACP originating fisheries products into the UK market via EU27 member states, the extent of this trade is unclear.
Potentially, in the case of fisheries products, this onward trade could be complicated by a failure to conclude an EU/UK fisheries agreement, since access to the EU market for UK fisheries products is likely to be linked to the conclusion of a fisheries access agreement for EU vessels. This could then see reciprocal restrictions placed on UK imports of fisheries products from the territory of the EU.
Finally, in July 2021 ‘all goods will be subjected to customs declarations at the point of importation and relevant tariffs’ (2). According to the Cabinet Office press release full border controls will be applied including in regard to ‘full Safety and Security declarations…while for SPS commodities there will be an increase in physical checks and the taking of samples’, with ‘checks for animals, plants and their products’ taking place ‘at GB Border Control Posts’ (3).
The decision to phase in border controls on imports from the territory of the EU27 was nominally taken in light of the impact of the Covid-19 pandemic on UK business preparations for the introduction of border controls on goods crossing an EU27/UK border. In this context UK officials have suggested the time table for the phasing in of border controls with the EU could be modified, if there were to be a second wave of Covid-19 infections which required the reintroduction of movement restrictions and lock-down measures (1).
The UK’s initiative to phase in border controls however is complicated by its unilateral nature. The reality is the smooth functioning of short sailing cross channel ferry services is impacted by the nature of the controls to be implemented on both sides of the channel. If the smooth functioning of ACP triangular supply chains is to continue unaffected by the creation of a UK/EU customs and SPS border, then this will require similar measures to be taken on both sides of the channel.
Against this background while EC officials have recognised the right of the UK to implement border controls in any manner it sees fit, it has been pointed out ‘the EU has no intention of relaxing checks on UK goods entering’ the EU (1).
In this context cross channel ferry services on which the onward movement of ACP goods exported along triangular supply chains depend, could still be disrupted if the application of EU27 controls on trucks entering from the UK affects the turn-around times of ferries entering EU27 ports from the UK.
The UK governments’ unilateral announcement of a phased introduction of border controls, may thus have far less effect in reducing border disruptions than the UK government imagines.
What is more, it needs to be borne in mind the challenges facing the UK government in implementing any new border controls on the movement of goods into the UK from the EU were already apparent before the Covid-19 pandemic struck. The effects of the pandemic have merely exacerbated these challenges. Four categories of pre-existing challenges can be identified: personnel, infrastructure, IT, and policy.
In terms of personnel, there has been a reduction of available custom agents employed at the Port of Dover from more than 200 before 1993 to ‘under one tenth of that today’. This needs to be seen in the context of a major expansion of freight coming through the port, which now amounts to 10,000 trucks a day. This situation has been ‘exacerbated by the COVID-19 crisis which has delayed recruitment and training’ of customs personnel which had been planned to address the ‘huge shortage of the customs intermediaries who will be needed to complete the checks’ (5).
The announcement by the UK government of plans to provide ‘a new £50million support package’ to ‘boost the capacity of the customs intermediary sector’ and the extension of further support to businesses ‘ahead of the new processes taking effect in July 2021’, while warmly welcomed by the Freight Transport Association and Road Haulage Association (3), are likely to take a considerable period of time before results will be felt on the ground. It therefore remains unclear whether a six-month deferment in the implementation of new border controls will be sufficient.
In terms of infrastructure, John Lucy, manager for international transport & trade procedures at the Freight Transport Association has highlighted how the Port of Dover since 1992 has been redesigned to allow freight to dis-embark and embark as smoothly as possible and is now ‘not set up to facilitate customs checks’. Indeed, the shortage of space in the Port of Dover is such that the expectation is checks will need to be conducted at inspection zones away from the port, or in the warehouses where goods arrive (5). Given consultations on infrastructure requirements remain ongoing and the long lead time for such investments, once again the issue arises as to whether a six month deferment of border control implementation will be sufficient.
In terms of IT, unless special arrangements are set in place, the UK will no longer have access to EU IT based trade facilitation systems from the 1st January 2021, in a context where the UK’s own autonomous IT systems are still facing design and operational capacity issues
However perhaps the most serious challenge relates to policy uncertainty, given the absence of a clear UK policy framework for the design and application of administrative solutions to the border control issues faced.
The UK Freight Transport Association argues that currently there are no details of ‘how checks on food and animals are to be conducted at the UK and EU borders’ (2). This is important since as the Chief Executive of the Road Haulage Association, Richard Burnett has warned, ‘a large firm introducing a new transportation and logistics system would typically devote two years to preparations’ (6).
While the new UK government announcement in some areas provides up to 13 months for the phasing in of new border controls, in the most complex areas related to the trade in short shelf life fresh produce, the time frame for change remains from 7 to 11 months. However, this needs to be seen in a context where the details of controls to be applied and the important ‘on what products’, ‘how’ and precisely ‘where’ issues, have not yet been fully addressed.
The designation of inland control points for the conduct of phytosanitary inspections which are far removed from the initial ports of entry to the UK, is likely to generate significant delays in delivering goods to customers in the UK. This problem is likely to be intensified if traffic congestion in the south-east of England increases as a result of the new UK/EU27 border controls (see companion epamonitoring.net article ‘Opening Salvoes Setting Out UK ‘Redlines’ in UK/EU Negotiations Pose Challenges for ACP Triangular Supply Chains’, 6 February 2020).
Potential traffic congestion in the south east of England resulting from the establishment of new UK/EU border controls, may require ACP exporters of short shelf life fresh fruit, vegetables and cut flowers supplying the UK market via EU27 member states to explore alternative cross channel routes by, for example, utilising the new Tilbury 2 port facilities (7). While the use of these new port facilities would allow any potential road transport bottleneck in the South East of England to be circumvented, since this is an unaccompanied freight ferry port the possibilities of using this route for time sensitive fresh product deliveries to the UK may be limited.
For fresh produce, this issue of EU27/UK freight movements is being further compounded by emerging EU/UK phytosanitary control disputes. The EU and UK are already at loggerheads over the UK’s new controls aimed at containing the spread of Xylella fastidiosa (a plant disease which can affect several species of broadleaf trees as well as a wide range of other commercially grown plants) and Ceratocystis platani ( fungal infection affecting trees).
The EC takes the view ‘there was no new scientific or technical evidence available that would justify’ the new measures announced by the UK, with the new UK measures being seen as ‘not proportionate to the identified risk’. Consequently, the UK has been requested by the EC to ‘immediately postpone the adoption of such measures’ (8). These kinds of disputes which would normally be adjudicated in the European Court of Justice if the dispute continues, are only likely to become more complicated once the UK has completed its departure from the EU customs union and single market.
The situation in terms of the future functioning of ACP triangular supply chains is thus plagued by uncertainties, which are unlikely to be resolved until the final 2 months of 2020, at the earliest. Against this background the evolving situation may require ACP exporters of short shelf life fresh fruit, vegetables and cut flowers to look at re-orientating their supply routes towards directly serving UK markets. This however is likely to prove extremely difficult given the disruption to air freighted cargo services which the Covid-19 pandemic has generated consideration.
| Comment and Analysis From an ACP perspective the introduction of EU27/UK border controls will impact primarily on exporters using triangular supply chains in serving the UK market. These triangular supply chains have been built up over the past 30 years to take advantages of the economies of scale which could be gained from using specialist distribution hubs for serving markets across Europe.For short shelf life fresh produce, the vulnerability of the use of these supply chains in serving UK markets has recently been highlighted by the transportation disruptions arising from the Covid-19 pandemic. For example this has seen some Dutch flower distributors halt all exports to the UK in the face of movement restrictions (see companion epamonitoring.net article, ‘Signs of Recovery in the EU Floriculture Sector but Air Freight Challenges Overhang East African Cut Flower Exports’, 9 June 2020).If the creation of an UK/EU27 border were to see the introduction of phytosanitary inspections of ACP goods entering the UK via EU27 member states, a move which would be required from 1st January 2021 for cut flowers (and potentially other horticultural products depending on how the UK defined ‘high risk’ plants), then this would add costs and result in delivery delays, which could further adversely impact on a trade struggling to recover from the impact of the Covid-19 pandemic (see epamonitoring.net article ‘Opening Salvoes Setting Out UK ‘Redlines’ in UK/EU Negotiations Pose Challenges for ACP Triangular Supply Chains’, 6 February 2020).To avoid this, it would be necessary for the UK to commit to not requiring phytosanitary checks on 3rd country goods already SPS cleared by EU27 authorities as well as committing to no further customs checks on goods imported from countries which enjoy full duty free access to both the UK and EU27 markets. While at one point there had appeared to be movement in the direction of not requiring further checks on entry to the UK when such checks had already been carried out on entry to the EU, this is now an example of the areas where there is a lack of clarity on the UK’s approach, as posturing to gain advantages within the bilateral EU/UK negotiations leads to regular rhetorical shifts in the UK’s position. Beyond the trade in short shelf life products along triangular supply chains which are particularly vulnerable to disruptions, there are a range of other ACP products which make use of triangular supply chains, where clarity is needed on how they will be treated once a new UK/EU border is in place. For example, there would appear to be a significant trade in Caribbean bulk rum exports shipped to ports in the EU27, which are then bottled locally and shipped to markets across Europe, including the UK. The question arises: will the conduct of bottling operations in an EU27 member state, lead this rum to lose its Caribbean status for rules of origin purposes, thereby facing the standard MFN import tariffs which the UK would apply on rum originating in the EU under a no-deal UK departure from the EU customs union? This raises the question: should this issue to be taken up and addressed by Caribbean governments under their Continuity Agreement with the UK, to ensure no disruption of this triangular trade in Caribbean rum? Similar rules of origin issues arise for a variety of ACP fisheries products which are packaged or processed in the EU prior to onward shipment to the UK. None of these issues have arisen before given the free movement of goods within the EU customs union and single market. However, these issues could become highly salient if there is no UK/EU fisheries agreement and no UK/EU trade agreement by the end of 2020. Here again, it would appear necessary for the concerned ACP governments whose companies are involved in such triangular supply chains to clarify with the UK authorities how their exports will be treated from the 1st of January 2021, and what originating status documentation will be required to ensure continued duty free access to the UK for products traded along triangular supply chains. Situation is more complicated for least developed countries where continued duty-free access to the UK market will be extended on a unilateral basis through the application of a UK only EBA equivalent scheme. For these countries there is no formal framework for addressing these issues, with this requiring purely unilateral UK action. However, it would be an understatement to suggest that UK trade officials are currently preoccupied with more urgent trade policy priorities. These rules of origin issues however also apply along triangular supply chains which serve EU27 markets via the UK. The two most prominent supply chains in this regard serving mainland continental EU26 markets are fully traceable sustainably certified palm oil and Fairtrade sugar. Pacific exporters of fully traceable sustainably certified palm oil from Papua New Guinea and the Solomon Island work with a dedicated fully traceable palm oil refinery in Liverpool, in the UK. This refinery serves the whole of the EU market for fully traceable sustainably certified palm oil. In this context the question arises: would refining operations in the UK lead to fully traceable sustainably certified palm oil from PNG and the Solomon Islands losing its originating status and thereby facing full MFN tariffs on imports to the EU27? In this case it would appear necessary for the concerned ACP governments to clarify with the EU authorities how their exports, refined in the UK, will be treated from the 1st of January 2021. A similar situation arises for Fairtrade sugar sourced from Fiji or Belize, refined in the UK, and exported across the EU27 to companies requiring Fairtrade sugar either for direct sale or for use in value added products. The situation regarding sugar is likely to be further complicated by the UK’s establishment of a zero-tariff autonomous quota for the import of 260,000 tonnes of world market priced sugar. Since there is no parallel EU scheme, country of origin documentation for the sugar onward traded into EU27 markets will be required. While this problem shouldn’t prove insurmountable given the nominal traceability along Fairtrade sugar supply chains, such arrangements will need to be set in place well before the end of 2020 if existing UK supply relationships into EU27 markets are not to be disrupted. Alternatively, ACP Fairtrade sugar exporters could re-orientate their sales to EU27 refineries and rely on these partners to support the marketing of their sugar under a Fairtrade label. Here again however such arrangements will need to be set in place well before the end of the year. These are simply some of the most obvious examples of where the creation of a new UK/EU border from 1st January 2021 would create problems for ACP exporters who currently make use of triangular supply chains in serving either UK or EU27 markets. To identify other potential areas of concern a more systematic analysis is required. The political space will then need to be created for finding pragmatic solutions to these various challenges so that ACP exporters serving UK and EU27 markets along triangular supply chains do not become ‘collateral damage’ in a messy process of the UK’s withdrawal from the EU customs union and single market. |
Sources:
(1) Guardian, ‘Full controls on goods entering UK will not apply until July 2021’, 12 June 2020
https://www.theguardian.com/politics/2020/jun/12/brexit-full-border-controls-on-goods-entering-uk-will-not-apply-until-july-2021
(2) Logistics Manager, ‘FTA calls on Gove to give UK time to future proof supply chains in face of Brexit stalemate’, 11 June 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/06/11/FTA-calls-on-Gove-to-give-UK-time-to-%E2%80%9Cfuture-proof%E2%80%9D-supply-chains-in-face-of-Brexit-stalemate
(3) Cabinet Office, ‘Government accelerates border planning for the end of the Transition Period’, 12 June 2020
https://www.gov.uk/government/news/government-accelerates-border-planning-for-the-end-of-the-transition-period?utm_source=3b62f050-486d-4ab7-bb8f-3fa2f5d4ffe7&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate
(4) Commission Implementing regulation (EU) 2018/2019 of 18 December 2018, establishing a provisional list of high risk plants, plant products or other objects, within the meaning of Article 42 of Regulation (EU) 2016/2031 and a list of plants for which phytosanitary certificates are not required for introduction into the Union, within the meaning of Article 73 of that Regulation
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R2019&from=EN
(5) Institute of Export, ‘Dover seeks inland support to handle Brexit surge of declarations’, June 10, 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/06/10/Dover-seeks-inland-support-to-handle-Brexit-surge-of-declarations
(6) Independent, ‘Boris Johnson must clarify new Europe trade deal to avoid delays and possible job losses, business groups warn’, 2 February 2020
https://www.independent.co.uk/news/uk/politics/brexit-boris-johnson-eu-trade-deal-europe-business-a9312336.html
(7) Forth Ports, ‘New port to inject a transformational amount of ferry capacity into the south east of England’, 25 March 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/03/25/New-port-to-inject-a-transformational-amount-of-ferry-capacity-into-the-south-east-of-England
(8) EC, ‘Commission Implementing Decision (EU) 2020/758, of 4 June 2020 on measures to be taken by the United Kingdom concerning Xylella fastidiosa and Ceratocystis platani
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32020D0758&from=EN