Summary
The Conservative Party’s election victory which has delivered a 80 seat majority means Parliamentary approval of the Withdrawal Agreement can now go ahead and the UK can leave the EU on 31st January 2020. The UK will however remain part of the EU customs union and single market until at least 1st January 2021. The size of the majority means the influence of the ERG hard Brexit group of Conservative MPs will be reduced. This will give Prime Minister Johnson more space to extend UK membership of the EU customs union and single market if the conclusion of a comprehensive free trade area agreement by 1st January 2021 proves unrealistic. In this context the major issue facing ACP exporters in the first half of 2020 will be the impact of the scheduled UK-Only MFN tariff review on the value of rolled over ACP tariff references, with bananas, preserved tuna, fresh beans and certain value added cocoa products looking vulnerable to a loss of value of rolled over preferences (current ACP direct exports to the UK valued at €936 million). This need to be seen in a context where the UK government has already made the decision to set UK-only MFN tariffs for all other fruit, vegetables and cut flowers at zero (current ACP direct exports to the UK valued at €449 million). The trade effects for these products could be even greater given the volume of exports to the UK which takes place along triangular supply chains focussed on the landing of cargoes in the Netherlands and Belgium prior to onward shipment. The commercial impact of this process of preference erosion will however needs to be assessed on a product by product basis in light of the functioning of individual ACP supply chains and current patterns of UK imports and the tariffs actually levied on this current trade.
Following the 12th December 2019 UK general election a Conservative government has been returned to office with a Parliamentary majority of 80 seats (1). This means Prime Minister will now be able to secure passage of the revised EU27/UK Withdrawal Agreement through Parliament. This would then see the UK formally leave the EU on 31st January 2020, with a transitional period then entering into effect. During this transition period the UK would remain part of the EU customs union and single market until at least 1st January 2021. The possibility of this transition period being extended for a further two years exists, in order to allow the negotiation for a comprehensive new EU27/UK trade arrangement to be completed.
While based on Conservative Party commitments made during the general election campaign, the new government appears firmly committed to leaving the EU customs union and single market on 1st January 2021, the size of Prime Minister Johnson’s majority means he will be less vulnerable to pressure from the ‘hard Brexiteers’ in the European Research Group (ERG) to leave the customs union and single market on 1st January 2021 regardless of whether an alternative trade framework is in place. EC officials take the view that Prime Minister Johnson in negotiation mode is more flexible than Conservative Party leader Johnson in campaign mode (2)
This needs to be seen in a context where the EC is highly sceptical about the prospects of the complex EU/UK trade negotiations being completed in 11 months (2), with EU internal approval processes meaning the actual text of the agreement would need to be agreed by June 2020, leaving only five months for actual negotiations of what the UK government hopes will be a comprehensive FTA.
While there remains the possibility that a ‘No-Deal’ Brexit could still occur from 1st January 2021, if FTA negotiations have not been completed and the UK government refuses to extend the transition period for a further two years (with the request needing to be made by July 2020), at the present time this is seen as a less likely outcome than previously.
However this is a problem for the future (although a not too distant future), with a more immediate concern facing ACP exporters being the future of the UK’s MFN tariff regime.
Given most ACP countries have secured the ‘rolling over’ of their existing terms and conditions of access to the UK market, the most immediate area of concern arising from the election result is the UK’s future autonomous MFN tariff schedule to be applied once the UK is no longer part of the EU customs union and single market.
Already in October 2019 the UK announced a revised temporary ‘No-Deal Brexit’ UK only MFN tariff schedule which set future UK-only MFN duties at zero for almost all UK imports of fruit and vegetable products and all cut flower and other floriculture imports regardless of the country of origin (3).
Excluding the products where the UK has rolled over existing EU applied MFN tariffs, this means non-ACP competitors will enjoy duty free access to the UK market in products where in 2018 the value of direct ACP exports to the UK of vegetables were valued at €136.6 million, direct exports to the UK of fruit were valued at €709.5 million and direct exports to the UK of cut flowers and other floriculture products were valued at €90.2 million. This gives a value of ACP exports potentially adversely affected by the UK’s already announced post-Brexit MFN tariff schedule in these three major product areas of over €936 million (4).
The situation is complicated since these figures do not take into account the export trade into the UK market which takes place via initial ports of landing in EU member states. This is most pronounced in the cut flowers sector, where, with the exception of South Africa, almost 90% of ACP cut flower exports to the EU take place via the Netherlands, with the value of ACP cut flower exports to the Netherlands over 6 times higher than the value of direct ACP exports to the UK. The Netherlands currently accounts for around 70% of all cut flowers sold commercially in the UK, with there being a substantial onward trade in cut flowers from the Netherlands to the UK (see companion epamonitoring.net article, ‘No-Deal’ Brexit Challenges in Cut Flower Sector Highlight Problems for ACP Triangular Supply Chains’, 1 March 2019).
A further complicating consideration is that in some of these products the EU has already eliminated MFN duties or grants duty free access under newly concluded trade agreements, while in other products the EU not only applies import tariffs but also supplementary levies which the UK no longer intends to apply.
It should be noted the overall figures for fruit exports are inflated by the inclusion of South Africa which is a dominant global supplier in sectors like citrus fruit and whose current exports to the EU faces a range of seasonal tariffs and TRQ restricted access to the EU (including the UK) market.
Excluding South Africa the total value of ACP direct exports to the UK of vegetables, fruits and cut flowers affected by the UK’s currently proposed post Brexit MFN schedule falls to €126 million, €113.5 million and €78.2 million respectively.
This temporary ‘UK only’ MFN schedule however retains in place existing MFN tariffs for a range of products of export importance to ACP countries, including amongst others: bananas, preserved tuna, beans, sugar, beef and certain value added cocoa products (see table for larger list). Together in 2018 the value of ACP exports to the UK of these 6 main product categories amounted to €449 million.
However prior to the calling of the general election the Conservative government had set in train a process for initiating a review of the temporary MFN tariff schedule to be initiated at the beginning of 2020. This will involve a public consultation during the first few months of 2020 followed by a completion of the review process by mid-2020, with the aim being to provide trade partners with certainty over the MFN tariff treatment to be accorded imports should the UK leave the EU customs union single market at the currently scheduled date of 1st January 2021.
Summary of Proposed UK Only MFN Tariffs for the Main ACP Exports Where High EU MFN Tariffs Apply
| Product | Proposed UK MFN Tariff | TRQ |
| Bananas | €114/tonne | N/A |
| Rice | €145/tonne | Various TRQs at zero duty |
| Fresh and Chilled Beef | 6.8% + from €746 to €1,160/tonne | Various TRQs at zero duty |
| Frozen Beef | 6.8% + from €746 to €1,605/tonne | Various TRQs at zero duty |
| Cocoa paste | 9.6% | N/A |
| Cocoa butter | 7.7% | N/A |
| Crude palm oil | 3.8% | N/A |
| Frozen Shrimps (03061792) | 12% | Limited TRQ at zero duty |
| Prepared Tuna (160414) | 24% | TRQ access at zero duty |
| Fresh bean (07082000) | 10.4% +16/tonne | N/A |
| Rum | 0.6 EUR/% vol/hl + 3.2 EUR/hl | N/A |
| Raw beet sugar for refining | €339 to €419/tonne | 260,000 tonnes at zero duty |
| Textiles and Clothing | 2.5%, 7%, 8%, 8.9% 12% | |
Source: gov.uk, ‘Guidance: MFN and tariff quota rates of customs duty on imports if the UK leaves the EU with no deal’, 13 March 2019
https://www.gov.uk/government/publications/temporary-rates-of-customs-duty-on-imports-after-eu-exit/mfn-and-tariff-quota-rates-of-customs-duty-on-imports-if-the-uk-leaves-the-eu-with-no-deal
This forthcoming review could potentially carry further serious implications for ACP agro-food exporters if the process of moving over to zero MFN tariffs were to be extended to products where the UK has no direct production interests or the UK faces a structural supply deficit. The ACP export product categories potentially most seriously affected under the pending review include bananas and preserved tuna and potentially sugar.
| Comment and Analysis There can be little doubt the UK’s movement away from the EU’s established MFN tariff schedule will impact adversely on the competitive position of ACP exporters, by undermining the value of the ‘rolled’ over tariff preferences (i.e. via an extensive process of preference erosion). The only question is to what extent individual ACP exporters will be adversely affected.It is clear that for bananas and preserved tuna any removal of the existing temporary ‘development friendly’ ‘rolled over’ MFN tariffs would be likely to drive all but the most efficient ACP exporters out of the UK market. This would similarly be the case if the UK removed MFN duties on raw cane sugar imports (even if this occurred within defined quantitative ceilings). For cut flowers the removal of the 8.5% tariff advantage which existing ACP cut flower exporters currently enjoy over MFN suppliers could also impact on their competitive position over time, with this being strongly influenced by future patterns of investment flows and security of supply concerns, linked to fears of trade disruptions arising from the application of increasingly strict EU phytosanitary import controls. The impact on fruit and vegetable exports to the UK however needs to be the subject of a detailed product by product analysis based on: · the current levels of EU tariff protection; · the role of EU supplementary levies for individual products; · the current patterns of imports from ACP competitors; and · the particular trade regimes under which they currently export. Issues related to the market positioning of individual ACP exporters will also need to be taken into account for a specific product example in this regard see the companion epamonitoring.net article ‘Tremendous Short Term Scope for African Avocado Exports Identified Although Long Term Market Saturation in the EU Likely’, 31 October 2019). In other areas moving away from already announced ‘UK-only’ MFN import tariffs could close off opportunities for the structural development of ACP exports, for example in the value added cocoa products sector (for cocoa butter and not fatted cocoa paste). Here the application to imports from EU27 member states of MFN tariffs of 7.7% and 9.6% (in the absence of a comprehensive EU27/UK FTA being in place by 1st January 2021) could create new opportunities for direct exports of these value added cocoa products from Ghana and Cote d’Ivoire to the UK market. Indeed given the dominant role of the Spanish tuna canning industry within the EU market, the application of a 24% MFN tariff on UK imports from Spanish tuna canners, could create substantial new opportunities for expanded direct exports of canned tuna to the UK market from a range of ACP countries, most notably Ghana. What is clear is that individually and collectively ACP governments and exporters have an interest in making known to the UK government the consequences of any abandonment of the current ‘development friendly’ MFN tariff schedule established in October 2019. The maintenance in place of the October 2019 proposed UK-only MFN tariffs could preserve the value of rolled over ACP tariff preferences on exports to the UK valued at €449 million in 2018. In addition in some of these product areas considerable scope exists for an expansion of direct exports to the UK market if standard UK-only MFN duties are applied to imports from EU27 member states from the 1st January 2021. |
Sources:
(1) Mirror, ‘Who won the general election 2019? Results in full and map of new MPs, 14 December 2019
https://www.mirror.co.uk/news/politics/who-won-general-election-2019-21067495
(2) Guardian, ‘EU distances itself from Johnson’s timetable for post-Brexit trade deal’, 6 December 2019
https://www.theguardian.com/politics/2019/dec/06/eu-distances-itself-boris-johnson-timetable-post-brexit-trade-deal
(3) gov.uk, ‘The Tariff of the United Kingdom’, version 1.0 dated 8th October 2019
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/837199/Tariff_Reference_Document_8th_October.pdf
(4) EC, Market Access Data Base
https://madb.europa.eu/madb/statistical_form.htm