Fiji and Papua New Guinea Sign onto Continuity Agreements with the UK

There has always been essentially two main issues faced in Fiji’s future trade relations with the UK, namely:

· the future basis for Fiji’s exports to the UK market, once the UK has ceased to be a member of the EU; and

· the future value of any preferential access extended by the UK to Fiji in the light of the UK’s post Brexit MFN tariff schedule.

While each of these issues are dealt with in the Continuity Agreement and the 13^th March schedule of UK MFN tariffs to be applied in the event  of a no-deal Brexit, these issues are in fact only partially addressed

In the short term a ‘no-deal’ Brexit which saw the UK impose standard MFN tariffs on imports from the EU27 while ‘rolling-over’ existing duty free quota free access for Fijian sugar exports to the UK sugar market can be seen as an ‘ideal’ outcome for the Fijian sugar sector. It will create considerable short term commercial opportunities (see companion epamonitoring.net article, ‘EPA Benefits for Fiji Becoming Marginal as Brexit Threatens Further Disruptions’, 7 January 2019).

The application of the MFN sugar tariffs set out would effectively make commercially non-viable the current EU27 sugar exports to the UK. In 2017/18 season this saw some 550,000 tonnes of EU27 refined sugar placed on the UK market (see companion epamonitoring.net articles ‘First Post Production Quota Year Shows Dramatic Changes on the EU Sugar Market’, 18 February 2019 and ‘The UK’s Proposed New  MFN Tariff Regime: Protects ACP Interests in the Short Term But…..’, 14 March 2019).  This would create substantial new market opportunities on the UK market.

In this context the newly signed Continuity Agreement provides a welcomed relief to the Fijian Sugar Sector as it undergoes restructuring.

However in the medium to long term it remains unclear what MFN tariffs the UK will apply to sugar products following the ‘full consultation and review on a permanent approach to tariffs’ to be adopted.  Fiji has no guarantees as to the MFN tariffs for sugar which the UK will apply a year beyond the date of the UK’s withdrawal from the EU.

This issue needs to be seen in a context where Tate & Lyle Sugars has been running a sustained lobbying campaign to secure greater access to duty free world market priced sugar for its refining operations in the UK with serious questions being posed about the continued commercial viability of Tate & Lyle Sugars refining operations in the absence of access to the such world market priced sugar.

While even in the absence of access to world market sugar sourced on a duty free basis, the removal of a large proportion of the EU27s current 550,000 tonnes of sugar from the UK market would be likely to raise sugar prices on the UK market to such an extent it would be likely it would return Tate & Lyle Sugars operations to profitability.

Nevertheless, it is unclear what position Tate & Lyle Sugars would adopt if a new trade agreement were to be concluded with the EU which restored the current terms and conditions of the EU27/UK sugar trade (see companion epamonitoring.net article, ‘What are the implications for ACP sugar producers of Tate & Lyle Sugars expectations on UK sugar sector policy post-Brexit?’, 10 April 2017).

Another important factor in regard to the future value of the rolled over DFQF access granted Fiji under the UK-Pacific Continuity Agreement will be the nature of the trade agreement concluded with the SADC EPA region. This region includes South Africa, with under the EU-SADC EPA a 150,000 tonnes TRQ for duty free access for South African sugar being granted.  The question arises: how will the UK deal with the apportionment of the existing South African TRQ if at all? Since the granting of the TRQ for South African sugar, export volumes to the EU have risen dramatically, coming to account for 19% of extra-EU sugar imports in 2017/18 (13% so far in the 2018/19 season), with the UK being a particular target market (4).

As part of the UK-SADC Continuity Agreement negotiations the South African government may insist on the establishment of a new ‘UK only’ sugar quota, commensurate with South Africa’s current exports to the UK; with this being subject to review in the light of future UK MFN tariff policy on sugar imports.

Under a no-deal Brexit scenario these South African sugar exports would partially compete with Fijian exporters on the UK market, as would other SADC sugar exporters if a SADC-UK Continuity Agreement were to be concluded.

Mauritian sugar exports under the UK-ESA Continuity Agreement would also provide a certain level of competition for Fijian sugar exports, although these would be concentrated in the refined sugar market component and hence would not directly compete with Fiji as a supplier to Tate & Lyle Sugars.  These Mauritian exports would however claim some of the market space opened up by the application of high MFN duties on imports from the EU27

Beyond the sugar sector while the concluded Continuity Agreement has rolled over existing tariff treatment extended under EU agreements, this is only one dimension of the market access issues faced.

The UK Continuity Agreement leaves unchanged the existing EU rules of origin requirements for the granting of duty free-quota free access.  Under the existing EU-Fiji EPA restrictive rules of origin are applied to fisheries products. These rules of origin link market access to ownership and crewing requirements for vessels involved in fisheries capture operations. These specific rules of origin requirement are designed to assist in securing fisheries access for the EU’s long distance fishing fleets.

Against this background the simple rolling over of EU rules of origin does not take into account the changed realities of the relationship under a trade agreement solely involving the UK. The most important aspect with regard to fisheries rules of origin issues is the absence of any UK long distance fishing fleet. Under this changed reality arising from a no-deal Brexit, the UK has no need to apply such restrictive rules of origin to fisheries products imports.

In this context any UK-Pacific Continuity Agreement could easily revise these fisheries product rules of origin requirements so as to allow all fish caught in Fiji’s exclusive economic zone and any fish products processed in Fiji to be exported duty free under the bilateral UK-only trade agreement.

This would be wholly consistent with long standing requests for modifications to fisheries sector rules of origin which Fiji has supported as a member of the ACP Group. Such a modification to fisheries product rules of origin could then provide a major boost to the fisheries sector. This needs to be seen in the context of the very limited Fijian fisheries exports to the EU and UK markets at the present time.

Rules of origin improvement beyond the fisheries sector would also appear to be needed given these Pacific countries lie in the ‘furthest reaches of the Commonwealth’. For example, such changes could extend to an exclusion of the costs of imported packaging and preservative materials from the calculation of the value of non-originating materials used in the production of value added agricultural products which Fiji and Papua New Guinea might wish to export to the UK. This could then open up new opportunities for the export of high value low volume agricultural based products (for example premium range skin care products).

Turning to PNG, where more permissive rules of origin have provided a major boost to investment, trade and job creation in the fisheries sector in the past decade, the major unaddressed issue under the Continuity Agreement concluded with the UK relates to the onward trade in fully traceable sustainably certified palm oil which is currently refined at a dedicated facility in Liverpool for distribution to specialist food product manufacturers across the EU.

Against this background some kind of triangular agreement needs to be concluded with the EU and UK authorities to allow ‘toll refining’ of palm oil in the UK, so that the refined palm oil products then exported onward to EU27 markets retain their PNG status and thence do not face any new tariff or non-tariff obstacles as a result of a no-deal Brexit.

In this context there would appear to be a need to attach an “Annex of Concerns” to the newly conclude UK-Pacific Continuity Agreement, setting out both areas where the rolled over provisions of the existing EU EPA can and should be improved to enhance current trade and where additional agreements are needed to preserve current triangular trade flows. The actual application of tariff preferences for UK exports to the PGN and Fijian markets set out in the agreement should then be linked to the issues raised in the “Annex of Concerns” being comprehensively addressed.

This would appear to be essential to ensuring that the newly concluded ‘Continuity Agreement’, preserves and enhances current trade flows, in ways which bring benefits to all parties concerned.

Such a move would be wholly consistent with the UK’s development policy commitments which nominally lies behind its approach to using trade as a tool for sustainable economic development.