Summary
This article seeks to highlight the main areas of impact of the new EU/UK border arrangements as these are likely to affect ACP exporters serving EU27 markets. While this will mainly impact ACP exporters using triangular supply chains, it will also have some effects on direct exports to the EU, mainly via it effects on trade administration documentation requirements, the need for valid authorisations and certifications, customs and taxation rules and the rules of origin requirements under preferential trade agreements. While ACP exporters themselves need to make their own assessments of the impact of the UK’s full withdrawal from the EU and set in process appropriate preparations for the changes which will occur, there is some scope for policy interventions to try and mitigate the adverse impact on ACP supply chains. However, this will require proactive engagement with the EU by the governments of the country’s most seriously impacted by the impending changes. To date there is no evidence the concerned government have yet appreciated the urgency of such policy initiatives. This could leave ACP exporters having to cope alone with further trade disruptions. This is likely to be most severely felt by those ACP exporting countries already suffering most severely because of Covid-19 related trade disruptions.
- The Urgency of Getting Ready for Inevitable Changes
In July 2020 the EC issued a communication entitled ‘Getting ready for changes Communication on readiness at the end of the transition period between the European Union and the United Kingdom’, which highlighted how from 1st January 2021 the UK will no longer be bound by EU rules and international trade commitments (1).
It is further highlighted how regardless of the outcome of the EU/UK negotiations, from 1st January 2021 arrangements for the movement of good between the UK and the EU ‘will be very different from the United Kingdom’s participation in the EU Single Market and Customs Union’. This will extend to VAT and excise duty issues.
The EC emphasises how the UK’s withdrawal from EU policy making will ‘inevitably…. create barriers to trade in goods and services and to cross-border mobility and exchanges that do not exist today.’ This it is pointed out will ‘risk compounding the pressure that businesses are already under due to the COVID-19 outbreak’ (1).
The EC also emphasises how it is essential that all stakeholders be made aware of the changes which are likely to occur so as to ensure all affected businesses are properly prepared for the ‘broad and far-reaching changes’ which are inevitable. The EC stresses how ‘there is no room for complacency or postponing readiness and adaptation measures in anticipation that an agreement would ensure continuity’.
Against this background this EC communication sets out the changes which will automatically occur because of the ending of free movement of goods between the EU and the UK.
- Customs Formalities, Checks and Controls
As of 1st January 2021, standard EU ‘customs formalities…will apply to all goods entering the customs territory of the Union from the United Kingdom or leaving that customs territory to the United Kingdom’. This means standard EU customs controls will be carried out at ports of entry from the UK. It is highlighted how this is ‘likely to lead to increased administrative burdens for businesses and longer delivery times in logistical supply chains’ (1).
Administratively, UK issued Economic Operator Registration Identification (EORI) numbers will no longer be valid for the movement of goods across an EU border (whether exported directly to the EU or entering via the UK).
A new EU27 issued EORI number will need to be obtained along with associated Binding Tariff Information (BTI) and Binding origin Information (BOI) decisions, if tariff preferences nominally available, are to be secured for specific consignments (2). Alternatively, ACP exporters will need to appoint an EU registered customs representative who has a valid EORI number as their agent. In addition, the EC highlights how from 1st January 2021 ‘Authorised Economic Operators authorisations or other authorisations issued by the United Kingdom will cease to be valid in the Union’, with new EU issued AEO authorisations needing to be obtained (1).
The EC advices all concerned businesses to acquaint themselves with the new formalities and procedures which will need to be complied with because of the UK’s departure from the EU customs union and single market. It also recommends that they ‘factor in the increased administrative obligations and potentially longer timeframes resulting from these formalities and procedures’ and that they recognise that this may require ‘significant changes to the organisation of existing supply chains’ (1).
- Certificates and Authorisations
The EC highlights how from ‘1 January 2021, the Union and the United Kingdom will be two separate regulatory and legal spaces.’ It highlights how ‘all products imported from the United Kingdom to the Union will need to comply with Union rules and standards and will be subject to all applicable regulatory compliance checks and controls on imports for safety, health and other public policy purposes’ (1).
From an ACP perspective the most important point is this context is that ‘Certificates or authorisations issued by UK authorities or by bodies based in the United Kingdom will no longer be valid for placing products on the Union market’ (1). It notes how when operators need to be established in the EU to place goods on the market or require an EU legal entity to place the good on the market, entities established and registered in the UK will no longer qualify. This will then require a ‘relocation of the authorised representative/responsible person from the United Kingdom to the Union’ or the appointment of ‘a new authorised representative/responsible person established in the European Union’ (1).
- Customs and Taxation Rules
From 1st January 2021 the UK will no longer be part of the EU’s VAT and excise duty regime. This is potentially an issue for Caribbean rum exporters who export bulk rum to the EU27 where it is bottled (often under supermarket ‘own label’ programmes which include specific ‘country of origin’ rums), prior to onward trade to the UK. This onward trade will in future need to accommodate the new tax realities arising from the UK’s departure from common EU policies in these areas. This will result in some significant changes since onward trade in products subject to VAT and excise duties were not previously subject to border controls. However, from 1st January 2021 new and separate VAT and excise regimes will be applied in the EU and UK.
- The Rules of Origin Issue
The EC highlights how from 1st January UK inputs to EU produced goods will be counted as non-originating under all EU preferential trade agreements. This applies to both EU exports to the 3rd countries and EU imports from 3rd country signatories of preferential trade agreements. This means exports containing UK inputs could lose their EU originating status and hence preferential access if too high a level of UK content is included in the final product. The EU highlights how this will require EU exporters to reassess their supply chains, with ACP exporters who source inputs form the UK needing to similarly reassess their supply chains, in light of these rules of origin realities in trading with the EU.
The ECs’ guidance notes state ‘in order to maintain their preferential originating status, goods will need to meet provisions related to direct transport/non-manipulation contained in EU preferential agreements if passing through or stopping over in UK territory’ (1).
This does not bode well for ACP exports to the EU market which undergo some level of repackaging or simple processing in the UK prior to onward shipment to the EU.
The EC stresses how the effects outlined above will be inevitable, regardless of the outcome of ongoing EU/UK negotiations. Rather, a no-deal UK departure will lead to even ‘more far reaching’ trade disruptions. In this context the EC is urging to ‘undertake their own risk assessment and implement their own readiness actions in light of their individual situation’.
The EC calls on EU member states to ‘continue national communication and awareness raising activities’ to encourage businesses to take the necessary readiness measures (1). However, the EU has now gone further by creating a ‘€5 billion off-budget fund called the Brexit Adjustment Reserve.’ This reserve fund is to be used to support ‘governments, businesses and industries hardest hit if no deal is struck with the U.K.’ This is likely to see Ireland, Belgium and the Netherlands being the principal beneficiaries, alongside EU fisherfolk, who would suffer in the absence of a new UK/EU fisheries agreement (3).
| Comment and Analysis While the EC’s emphasis on the need to ensure effective preparations for the inevitable changes which will occur as a result of the UK’s departure from the EU customs union and single market is aimed at EU businesses and other stakeholders, it applies equally to: a) ACP exporters whose business operations have been primarily focused on the UK market, with as a result, trade registration and authorisations used to date having been issued by UK authorities. These UK issued registrations and authorisations will no longer be valid for trading into the EU from 1st January 2021. b) ACP exporters whose trade relations in some way involve crossing an EU/UK border in reaching their final customers. ACP exporters will need to review their current export operations to see to what extent they could be potentially affected and the remedial measures which need to be taken. However, this will first require the initiation of targeted information activities, to raise awareness of the areas of impact on ACP exporters, in a context where there has been a generalised denial that the Brexit process will have any adverse effects on current patterns of ACP exports. In terms of trade administration issues, ACP exporters using UK issued Economic Operator Registration Identification (EORI) numbers, will need to secure a new EU27 issued EOPRI number and associated tariff and origin decisions (2). This is a relatively simple process, with holders of UK issued EORI numbers being able to apply in advance for an EU EORI number. This new number would then be automatically activated as soon as the UK officially leaves the EU customs union. Ensuring early action in this area will avoid any EORI related trade disruptions and reassure EU27 buyers that their existing supply arrangements will not be interrupted. Similarly, ACP exporters whose authorisations and certifications to place goods on the EU market were issued by UK authorities will need to seek new authorisations and certifications issued by the comparable body in an EU27 member states (4) The potential for trade disruptions is not the same for all ACP exporters serving EU27 markets. ACP exporters of short shelf life products using triangular supply chains or making use of the UK ‘land bridge’ to the Republic of Ireland will be most vulnerable. This needs to be seen in a context where disruptions to these supply chains have already occurred in the face of the Covid-19 pandemic. For goods using the UK ‘land bridge’ to the Republic of Ireland exporters may need to explore the option of using newly expanded direct shipping services between mainland EU countries and the Republic of Ireland, with this potentially extending to reviewing initial ports of landing in the EU. In addition, specific issues will arise regarding ACP exports to EU27 markets, which undergo repackaging or some level of simple processing in the UK prior to onward trade to EU27 markets. The most obvious examples in this regard are Fairtrade sugar exported in raw form and refined in the UK prior to onward sale to customers across the EU and fully traceable sustainably certified palm oil exported from Pacific Island suppliers to a dedicated fully traceable palm oil refinery in the UK, prior to onward export to industrial users across the EU. Here the question arises: what specific processing activities can be undertaken in the UK without losing ‘originating status’ and hence duty free-quota free access when onward shipped to the EU? This raises the related question of what level of documentary proof is required to ensure that despite the processing activities undertaken, the ACP originating goods can continue to enjoy the duty-free access to the EU market? These issues will need to be taken up with the EC in the context of the respective EPAs concluded with the EU by CARIFORUM countries, Mauritius, SADC EPA, and Pacific island EPA signatories. At a minimum, there would appear to be a need for an extended transitional dispensation which would allow special treatment to be extended to such products from 1st January 2021, given the ongoing failure to agree the basis for the conduct of future EU/UK trade. This would appear to be essential to minimize disruptions of existing supply chains. This is a particularly sensitive issue for exporters of fully traceable sustainably certified palm oil. It has taken decades to build up a specialist niche market which seeks to build on the environmental concerns of EU consumers, which are often influenced by broadly based campaigns, which fail to differentiate between standard palm oil and fully traceable sustainably certified palm oil. If special arrangements are not set in place, some ACP sugar exporters may need to review their refining partners for products destined for EU27 markets. Belize Sugar Industries is probably best placed to make such adjustment given its corporate links to Tate & Lyle Sugars which has refineries in the UK, Portugal and Italy (see companion epamonitorng.net article, ‘EU Sugar Market Still Attractive but Brexit Related Complications Likely in 2021’, 30 July 2020). Additional questions also arise regarding the continued validity of existing sustainability, Fairtrade and organic certifications when serving the EU27 market if these were issued by bodies registered in the UK. This is an area to which the concerned ACP exporters will need to pay attention in the coming months, with appropriate action being taken where necessary. This forms part of the wider issue of the need for ACP exporters to ensure their partners in the UK are fully abreast of the new trade documentation requirements which will arise from the UK’s departure from the EU customs union. Finally, the departure of the UK from common EU VAT an excise regimes, may serve to complicate the onward trade in Caribbean rums from the EU to the UK which arrives in ‘bulk’ form and are bottled in the EU in line with retailer requirements, prior to onward trade. The VAT and excise complications may require Caribbean rum exporters to discuss with supermarket buyers alternative bottling arrangement for their current bulk-to-bottled rum exports where bottling takes place in an EU27 member state. These are simply the most obvious areas of “triangular trade” involving ACP exports where the introduction of a new border controls between the EU and UK will carry cost implications for ACP exporters currently serving the EU market via the UK. |
Sources:
(1) EC, ‘Getting ready for changes Communication on readiness at the end of the transition period between the European Union and the United Kingdom’, COM (2020) 324 final, 9 July 2020
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0324&from=EN
(2) COLEACP, ‘WHAT ARE EORI BTI AND BOI?’
https://eservices.coleacp.org/sites/default/files/file_fields/2019/BREXIT/EN/SC1/SC1A%20-%20WHAT%20ARE%20EORIS%20BTIS%20AND%20BOIS.pdf
(3) politico.eu, ‘EU says landmark budget deal adds pressure on UK in Brexit talks’, 24 July 2020
https://www.politico.eu/article/eu-says-landmark-budget-deal-adds-pressure-on-uk-in-brexit-talks/
(4) COLEACP, ‘TRIANGULAR SUPPLY CHAINS SERVING THE UK MARKET VIA INITIAL POINTS OF LANDING IN EU27 MEMBER STATES: CERTIFICATION AND AUTHORISATIONS’
https://eservices.coleacp.org/en/triangular-supply-chains-serving-the-uk-market-via-initial-points-of-landing-in-eu27-member-states