Summary
The BEIS Committee has come out heavily in favour of maintaining as ‘frictionless’ access to the EU27 market as possible in order to protect the interests of UK processed food and drink exporters. The BEIS Committee further noted the lowering of tariffs on imports could be extremely damaging for UK farming, while bringing only marginal consumer price benefits. The importance of replicating all existing and pending EU trade deals to the UK processed food and drink sector was highlighted if growth in exports to non-EU markets is to be promoted. Amongst ACP countries particularly importance was attached to replicating the EU trade agreement with South Africa. In terms of resolving any potential conflict between maintaining access to EU27 markets and concluding new trade agreements the Committee implicitly came down in favour of concluding a comprehensive FTA with the EU27. While future close alignment of UK and EU27 agro-food sector tariffs could avert the threat of preference erosion on UK markets for products like bananas, rice, citrus fruit and other Mediterranean products, it would not assist in addressing the deteriorating position of the less efficient ACP sugar exporters on the UK market, which is linked to growing EU27 sugar exports to the sugar deficit UK market.
In reviewing the impact of Brexit on the UK processed food and drink sector the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee sought to place in context the UK food and drink industries current relationship with EU27 countries. It highlighted how ‘the processed food and drink sector is the largest manufacturing sector in the UK and contributes £28.8 billion to the economy’, with exports to the EU in 2017 worth £22 billion and employing directly ‘400,000 people throughout the country, a third of whom are EU nationals’. It noted how the sectors operations were ‘characterised by just-in-time delivery of products with short shelf lives’ with ‘heavily integrated… supply chains spread across the UK and the EU for sourcing raw materials, processing goods and selling them’.
It further highlighted how ‘many manufacturers have factories in both the UK and the rest of the EU’, with it being implied Brexit could carry very real implications for the future investment decisions of pan-European food and drink sector companies. It noted how the success of the UK agro-food sector has been ‘so far highly dependent on participation in the Single Market and Customs Union’, with the ‘ free movement of goods and people have tipped the UK export balance towards an over reliance on the EU as a trading partner with 60% of UK exports going to EU markets’ (1).
Against this background the Business, Energy and Industrial Strategy (BEIS) Committee report took the view a ‘no deal’ scenario in which EU MFN tariffs were imposed ‘would be disastrous for UK exports and must be avoided at all costs’. As a consequence it was argued the negotiation of an FTA with the EU should be the UK governments ‘number one priority’ (1).
The Committee further noted how ‘UK competitiveness would also be adversely affected by any additional delays and bureaucracy encountered at the UK-EU border, given the prevalence of cross-border just-in-time supply chains in the sector’. In this context it was advised that the UK government ‘should seek to secure as few additional impediments to trade between the UK and the EU as can be negotiated’ (1).
The BEIS Committee acknowledged the majority of submissions made to the Committee were in favour of the UK ‘remaining aligned with EU regulations’, although some opportunities for regulatory divergence were held to exist in certain sectors. However it was acknowledged that these ‘opportunities are both relatively slight and distinctly uncertain, when set against the benefits to the consumer of free access to the current range of products facilitated by conformity with agreed standards’. In this context most stakeholders supported the UK’s continued membership of the EFSA after Brexit (1).
In terms of future relations with non-EU countries, while acknowledging the potential for substantial growth in food and drink exports to non-EU countries the BEIS Committee noted ‘should the UK lower or remove its tariffs on imports in the future, the consequences for British farming could be extremely damaging and the positive impact on prices for goods to households is likely to be very limited’ (1). It further noted how an expansion of food and drink industry exports to non-EU markets in the post Brexit period would not be achievable without ‘replicating all existing EU trade deals with third countries and negotiating preferential agreements with other countries that include mutual recognition’ (1).
In its submission to the BEIS Committee the UK Food and Drink Federation placed particular importance on replicating EU trade deals with Korea, Canada, South Africa, Mexico and Norway which ‘are the top five non-EU destinations for UK exports’ where EU trade agreements are already in place (2). In 2017 the UK Food and Drink Federation reported some £237.6 million in exports to South Africa, with a 5.7% growth in the value of exports over 2016 (3). The BEIS Committee therefore took the view that a key UK government priority should be to ‘secure the roll-over of existing and forthcoming trade agreements’ (1).
Overall the BEIS Committee concluded ‘more than anything UK businesses need clarity and certainty about the future of our relationship with the EU’ and warned that ‘the Government is almost out of time to negotiate an orderly trade system after the transition that will provide businesses with the certainty they need to invest and innovate’ (1).
| Comment and Analysis
It needs to be recognized the ability of the UK government ‘to secure as few additional impediments to trade between the UK and the EU as can be negotiated’, will be heavily influenced by the 3rd country trade arrangements which the UK seeks to set in place post-Brexit. To the extent these 3rd country trade agreements give rise to lower tariffs for food and drink inputs which diverge from EU tariff levels the more likely it will be that impediments will arise for UK food and drink sector exports to EU27 markets. Any significant divergence of UK tariffs from EU tariffs on 3rd country inputs to UK food and drinks (e.g. on sugar) would be likely to require strict rules of origin and verification arrangements under any future UK-EU27 trade arrangement which would greatly complicate UK-EU trade and distort sourcing decisions (e.g. UK processors would be likely to avoid using raw cane sugar sourced from non-preferred EU suppliers in order to avoid rules of origin complications on exports to the EU). Any EU27-UK FTA which comprehensively covered agro-food products and aimed at maintaining current frictionless trade would have at its heart a requirements for UK tariffs and regulatory systems to remain broadly aligned with EU tariffs and regulatory requirement, if complex rules of origin and standard 3rd country documentation requirements related to alignment with EU regulatory standards were not to emerge for processed food and drink products. Any comprehensive EU27-UK FTA which included all existing agro-food sector trade between the UK and the EU would have knock on effects for ACP agro-food sector trade. For example, in the banana sector the continued alignment of EU27 and UK tariffs would limit the process of erosion of traditional banana sector tariff preferences on the UK market, while across a range of ACP agro-food products continued UK and EU regulatory alignment would reduce the prospects of duplication of SPS and food safety verification costs. A comprehensive EU27-UK FTA which included all existing agro-food sector trade between the UK and the EU would also reduce the potential for disruption of ACP triangular supply chains (i.e. delivering ACP exports to the UK market via an initial point of landing in another EU27 member state), with this bringing particularly benefits to smaller scale ACP horticulture and floriculture exporters. However in the sugar sector the maintenance of ‘frictionless’ tariff free trade between the EU27 and the UK would maintain the current downward trend in the participation of all but the most efficient ACP sugar producers in supplying the UK sugar market, as in the absence of production quotas EU27 sugar producers continued to expand sugar exports to the sugar deficit UK market.
The continued expansion of EU27 refined sugar exports to the UK, without an expansion of duty free access for world market priced sugar would then place intense pressure on the commercial viability of Tate & Lyle Sugars Thames refinery. This would increase the prospects of the closure of Tate & Lyle Sugars Thames refinery, with this carrying serious consequences for Caribbean and Pacific sugar exporters which have traditionally had an almost exclusive export relationship with Tate & Lyle Sugars in their trade with the EU (although this is now changing). ACP Sugar exports to the UK, EU and UK % share 2015-2017
Source: EC Market Access Data Base, http://madb.europa.eu/madb/statistical_form.htm |
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Sources:
(1) House of Commons Business, Energy and Industrial Strategy (BEIS) Committee, ‘The impact of Brexit on the processed food and drink sector’, 17 April 2018
https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/381/381.pdf
(2) Foodnavigator.com, ‘Brexit-Trade-deal-with-EU-should-be-top-priority-for-government-say-MPs’, 23 April 2018
https://www.foodnavigator.com/Article/2018/04/23/Brexit-Trade-deal-with-EU-should-be-top-priority-for-government-say-MPs
(3) Food and Drink Federation, ‘2017 Final Export Statistics’
https://www.fdf.org.uk/exports/ukexports-2017-datasets-full.aspx#item4