Summary
Recent Irish data highlight the impact of new border controls on trade flows with the UK, with ACP ‘re-exports’ from the UK to Ireland likely to be seriously affected. This is not only a result of general cross-border trade complications generated by the Brexit process, but also due to two specific challenges arising for ‘re-exported’ products: notably the rules of origin/MFN tariff complications for re-exported fresh produce and simple processed products (e.g., from raw to refined sugar) and the additional phytosanitary import documentation requirements, namely the need for ‘phytosanitary re-export certificates’. The delays this can generate pose particular problems of value losses for short shelf-life products. While currently these problems are only faced along ACP-to-UK-to-EU supply chains, from October 2021 onwards, similar problems will be faced along ACP-to-EU-to-UK supply chains, with this potentially posing some serious challenges to current triangular supply chain operations.
Data published by the Irish Central Statistical Office in August 2021 suggests post-Brexit trade frictions have ‘significantly altered’ freight traffic between Ireland and Britain, with the differential application of border controls having very real implications for trade flows.
According to the Irish Central Statistical Office, in the first six months of 2021 ‘imports from Great Britain (GB) fell by more than €2.5bn, or 32%, to stand at €5.3bn’, while Irish exports to GB (i.e., excluding Northern Ireland) ‘rose by 20% to €6.7bn (£5.7bn)…compared with the same period in 2020’. In the last month of the period covered, June, ‘exports from Great Britain to Ireland decreased by 16%…compared with the same month in 2020, with food, live animals and manufactured goods hit hardest’ (1).
According to analysis in The Guardian newspaper, ‘British exporters have been hit harder by Brexit because they faced border checks from 1 January on shipments to the EU’. In contrast, Irish and EU exporters to Britain have benefited from the phased approach to the introduction of border controls on goods entering from the EU adopted by the UK government. This has meant that while ‘all food and plant exports to the EU have been subject to sanitary and phytosanitary checks since January’, goods crossing from the EU (including Ireland) will not be ‘subject to the complete panoply of red tape until January 2022.’ (2)
Despite the dramatic 32% decline in GB exports to the Republic of Ireland over the first six months of 2021, this was an improvement over the situation in January 2021. According to earlier figures from the Irish Central Statistical Office, in January 2021 GB exports to the Republic of Ireland fell by 65% from €1.4 billion to €497 billion. The most dramatic declines were in GB export of food and live animals, which fell 75% (down from €187 million to €62 million). This was attributed to ‘new customs, export and health certification requirements for goods going from Britain to Ireland’ (3).
| The Particular Effects on Agri-food Products and the Complexities Generated for Future EU/UK Trade Relations
In the first quarter of 2021, the UK Food and Drink Federation had estimated the GB to Republic of Ireland food and drink export trade was down over 70% compared to the corresponding period in both 2019 and 2020. In contrast, it has been reported cargo flows to Northern Ireland had rebounded to above pre-Covid pandemic levels (4). With haulage industry sources have highlighted how, in the face of transport bottlenecks, truck drivers always find their own solutions, this strongly suggests some level of trade diversion away from shipping direct from the UK to the Republic of Ireland to shipping via Northern Ireland is underway. This needs to be seen in light of the ‘openness’ of GB-to-Northern Ireland trade and the absence of border controls on the island of Ireland. |
While the earlier more dramatic fall can be seen as ‘teething problems’ related to the implementation of the EU/UK Trade and Cooperation Agreement (TCA), the more recent data suggests the scale of the structural trade challenges which the TCA has generated compared to the situation prevailing while the UK was an integral part of the EU customs union and single market.
This needs to be seen in the context of the disproportionate importance of markets in the Republic of Ireland for UK exports to, and imports from, the EU27. In 2019 despite the Republic of Ireland accounting for only 1.1% of the total population of the EU27 (5), it accounted for 13.6% of UK goods exports and 10% of UK goods imports (6).
This reflects the structural nature of the UK-Republic of Ireland trade relationship, with markets in the Republic of Ireland simply being seen as an extension of the GB market, served by supply chains which are firmly orientated to sourcing from and through the UK.
It is within these structural supply chains that the ACP ‘re-export’ trade from GB to the Republic of Ireland is firmly embedded.
The impact of the application of full standard EU third country border controls is vividly illustrated by the very different trends in trade between the Republic of Ireland and Northern Ireland.
Data from the Irish CSO, ‘showed the value of goods imported from Northern Ireland to the Irish Republic rose by 77% to almost €1.8bn in the first six months of 2021, compared with the same period in 2020’, while ‘exports from the Irish Republic to Northern Ireland rose by 40% to almost €1.6bn over the same period.’ The Guardian argued this reflected ‘increased cross-border trade since Brexit as the region effectively remained in the EU’s single market for goods’ (2).
The impact of the full implementation of standard EU border controls on imports from GB to the Republic of Ireland raises the question as to whether similar trade reduction effects will be felt along the structural EU-to-UK supply chains in which significant volumes of ACP fruit, vegetables and cut flower exports are embedded?
| Comment and Analysis
Evidence suggests within this GB -to-Republic of Ireland trade, ‘re-exports’ are particularly severely affected, with ‘re-exports’ of fresh and chilled produce being most severely affected. This is the result of two factors which are not faced by GB producers shipping to the Republic of Ireland · Rules of origin/MFN tariff complications for re-exports of fresh and chilled produce · Additional phytosanitary import requirements not faced by UK originating goods. Unless ACP ‘re-exports’ are shipped entirely under customs supervision, then the duty-free access, nominally available under EU trade agreements and unilateral trade arrangements in favour of LDC, is lost. If we take the top 10 ACP horticulture and floriculture exports to the EU28, which were valued at over €3 billion in 2019, we find 64.7% of these products now face MFN tariffs in excess of 10% if onward traded across an EU/UK border outside of customs supervision, while 19.8% now face MFN tariffs of between 5% and 10%. What is clear, is that for almost 65% of these top exports the onward trade across an EU/UK border could be made commercially non-viable if shipped outside of customs supervision while competing suppliers were able to ship directly to the final EU or UK market. Similar considerations apply to other products amongst the top 100 fruit and vegetable exports from the ACP Group to the EU28, where a further 31 vegetable product categories and 10 fruit product categories face tariffs in excess of 10%, while a further 4 vegetable products and 15 fruit product categories face MFN tariffs of between 5% and 10%. Complications also arise for ACP exports undergoing simple processing activities (simple refining or re-packaging/re-bottling) and for products where processing activities fail to stay within non-originating content requirements. The most obvious example is in the sugar sector where, simple refining of ACP raw cane sugar for on onward trade across an UK/EU border is no longer possible without losing duty free access. Similarly, the use of ACP sugar in high sugar content products, such as white chocolate (which has an average sugar content of 60%), becomes highly problematical in goods to be traded across an UK/EU border. In 2019 while the UK/EU trade in refined and other processed sugar was valued at €38 million the trade in white cholate was valued at over €103 million and consumed approximately 20,000 tonnes of sugar. These rules of origin complications, mean more and more EU/UK food and drink manufacturers are likely to sidestep this rules of origin UK/EU trade complication by moving away from the use of sugar produced from imported raw cane sugar. This is as much a consequence of trade administration considerations as the underlying rules of origin/MFN rules. As a simple consideration of the white chocolate trade reveals, the scale of the reduction in demand for ACP sugar in the food and drink sector could take on dramatic dimensions, which would compound wider trends in EU/UK sugar consumption (see companion epamonitoring.net article ‘Disaggregating EU Short Term EU27 Sugar Sector Trends’, 23 August 2021). For fresh and chilled products these rules of origin/MFN tariff complications are compounded by additional phytosanitary import complications faced by ‘re-exports’ of ACP products which are not faced by UK ‘originating’ goods. There are two dimensions to these complications. First the need for the issuing of phytosanitary re-export certificates, for virtually all fresh and chilled produce. This can take days to obtain, with this posing serious challenges for short shelf-life products. Secondly, there is the divergence of EU and UK phytosanitary certification import requirements. In 10 new product categories the UK has removed the need for phytosanitary certificates for imports to the UK. In this context there is no basis for the issuing of the phytosanitary re-export certificates new required for entry to the UK in these product areas, where the EU still requires phytosanitary certificates (with these phytosanitary re-export certificates needing to be accompanied by the original phytosanitary certificate issues in the country of production). If no initial phytosanitary certificates accompanied the cargo upon entry to the UK, this effectively blocks ‘re-exports’ from the UK to the EU. It is estimated this has an impact on some €67 million of ‘re-exported’ fresh and chilled products to the EU27, with nearly 21% of these exports previously being destined for markets in the Republic of Ireland (including ‘re-export of ACP products). The Value of the Main UK Exports to the EU27 in Products Where UK & EU Phytosanitary Requirements Diverge (2020)
Source: EC Market Access Data Base, https://trade.ec.europa.eu/access-to-markets/en/statistics |
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Source:
(1) Irish CSO, ‘Goods Exports and Imports’, June 2021
https://www.cso.ie/en/releasesandpublications/er/gei/goodsexportsandimportsjune2021/
(2) The Guardian, ‘Exports from Ireland to Great Britain soar in post Brexit trade imbalance’, 17 August 2021
https://www.theguardian.com/politics/2021/aug/17/exports-from-ireland-to-great-britain-soar-in-post-brexit-trade-imbalance
(3) The Guardian, ‘Brexit blamed for British exports to Ireland falling 65% in January’, 18 March 2021
https://www.theguardian.com/business/2021/mar/18/brexit-blamed-for-british-exports-to-ireland-falling-65-in-january
(4) The Guardian, ‘Data shows collapse of UK food and drink exports post-Brexit’, 22 March 2021
https://www.theguardian.com/business/2021/mar/22/data-shows-collapse-of-uk-food-and-drink-exports-post-brexit
(5) Eurostat, Population projections in the EU’, September 2020
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=People_in_the_EU_-_population_projections&oldid=497115#Population_projections
(6) House of Commons Library, ‘Statistics on UK-EU trade’, Briefing Paper Number 7851, 10 November 2020
https://researchbriefings.files.parliament.uk/documents/CBP-7851/CBP-7851.pdf
[1] Includes other products such as Okra in the statistics