Summary
Despite long-standing warnings over the complexities faced in rolling over EU trade agreements with West Africa and the need for transitional arrangement to avert a highly damaging hiatus in trade relations between Ghana and the UK, on 3rd January 2021 the UK government imposed standard MFN tariffs (£95/tonne) on Ghanaian bananas landed in the UK. This is effectively holding a gun to the head of the Ghanaian government to agree to specific provisions in the ‘rolled over’ agreement on the tariff phase down schedule. The Government of Ghana has long expressed concerns over the need to ensure consistency between it tariff commitments under the UK agreement and its regional ECOWAS trade protocol commitments. Given the political sensitivity of this issue in Ghana the ongoing UK/Ghana negotiations could run substantially beyond the matter of weeks alluded to in the Joint December 31st statement. This could seriously undermine Ghana’s long term banana export trade to the UK which has taken over a decade to build up and could ensure Ghana’s tuna canning plants which have been closed over Christmas, never reopen. The first step in the UK’s autonomous trade policy will then have been to undermine tens of thousands of jobs in a key Commonwealth ally in Africa, which represents a bastion of democratic stability in a troubled region.
Despite longstanding warnings of the damage which could arise for Ghanaian exporters from a failure to set in place arrangements to ‘roll over’ duty free access to the UK market from 1st January 2021 (1), on 3rd January 2021 the first post Brexit Ghanaian banana exports to the UK were faced with punitive import tariffs (2). Currently, Ghana exports ‘400 m bananas to the UK each year, supplying the likes of Sainsbury’s, Waitrose and Tesco’ (3). While UK government officials maintained in the absence of a trade agreement, Ghana would enjoy preferential access under the Generalised System of Preference (GSP) scheme (1), this assertion glossed over the absence of any tariff preferences for bananas under the UK’s GSP scheme.
As a consequence, on 3rd January the first of what were intended to be weekly deliveries, faced import tariffs of £95/tonne (of 9.5 pence per kg). This needs to be seen in a context where the average wholesale price in the UK of bananas was 67 pence per kg in week 51 of 2020 (4). In a context where ‘the margins are very small in the banana business’ (3), the application of this level of import tariff will wipe out the Ghanaian exporters profit margins for as long as it takes to conclude the unresolved issues in the UK-Ghana negotiations.
The impact this will have on Ghanaian Fairtrade banana farmers was highlighted by a statement from the Fairtrade Foundation which expressed its disappointment and concern that an appropriate transitional mechanism had not been set in place (6).
George Kporye, corporate affairs manager of the banana-exporting company Golden Exotics, has highlighted how the issue of UK tariffs on Ghanaian banana exports was placing the ‘entire operation’ under threat and putting ‘4,500 direct jobs and tens of thousands of others at risk’. Equally, it was highlighted how ‘the social impact of plantation closures on communities around the plantations will be devastating’, with besides jobs these plantations providing ‘social infrastructure such as road, bridges, electricity, potable water, schools, education scholarships and medical services’ (1).
The application of standard MFN import tariffs on Ghanaian bananas on the 3rd January 2021 occurred despite the UK governments’ long-standing commitment to ensuring within the Brexit process continuity in trade relations with developing countries. As early as 2017 a delegation of Ghanaian banana exporters had met with the then UK Secretary of State for Trade Liam Fox, who promised ‘nothing would be done to jeopardise trade with Africa, especially for countries such as Ghana’. He reassured the delegation ‘that no tariffs would be imposed’ (3). This commitment has now been violated. Labours’ Shadow Trade Secretary, Gareth Thomas argued ‘it beggars’ belief that they left sorting out a deal with a key Commonwealth ally so late’ (2).
The application of standard MFN tariffs on imports of bananas from Ghana also occurred despite the issuing of a last-minute joint UK-Ghanaian Ministerial statement on 31st December 2020 declaring a consensus had been reached on ‘the main elements of a new trade agreement’ aimed at replicating ‘the effects of the existing trade relationship between the UK and Ghana.’ While it was acknowledged there was a need to finalise agreement ‘in relation to rules of origin, cumulation arrangements, time bound commitments, provisions for development cooperation and commitments to human rights and good governance’ (5), the expectation of the Government of Ghana was this statement would be sufficient for the UK government to take unilateral action to roll over existing duty-free access on a transitional basis.
This would have followed the precedent set by similar EC actions taken in 2007 under the EU’s interim Economic Partnership Agreement negotiations, when similar deadlines were fast approaching. While a member of the EU, the UK fully supported this course of action. Unfortunately, this approach was not adopted by the UK government, with officials citing WTO compatibility concerns, despite the fact the EU’s action has never been challenged by any WTO member since its’ initial adoption.
While bananas are the area where most public concern has been expressed, they are not the only Ghanaian export product affected by the imposition of new tariffs. In a context where tariff preferences play an important role in investment location decisions in the canned tuna sector, the application of GSP tariffs of between 16% and 17.2% will also have an important impact on future trade with the UK and even the very future of the canned tuna industry in Ghana.
Similarly, in regard to value added cocoa products, while the Ghanaian industry had been looking at the scope for increasing direct exports to the UK the imposition of duties on such direct exports will discourage this process, setting back the structural development of the sector.
These impacts alongside the knock-on effect on emerging Ghanaian fruit and vegetable exports could serve to undermine an export trade which accounts for ¼ of total Ghanaian direct exports to the UK market and around ½ of non-petroleum exports to the UK.
| Comment and Analysis There appears to be a lack of understanding of the sensitivity of these Ghanaian export supply chains to short term disruptions and the profound long-term consequences such short-term disruptions could carry. Spot market prices for bananas are heavily depressed at the moment. Long-term supply contracts with UK supermarkets are seen as the only profitable basis for exports of the largely Fairtrade bananas which Ghana supplies to the UK market. The sudden imposition of punitive tariffs, despite reassuring statements throughout 2020, has left the Ghanaian banana trade on the horns of commercial dilemma. Do they simply carry the losses arising from the imposition of UK MFN tariffs on bananas, which is equivalent to £20,000 per week, for as long as an agreement proves illusive, or do they fail to meet their supply contract obligations and risk the loss of future annual supply contracts for the UK market? The latter option could put in danger a trade which it has taken ten years to build up. Similarly, while in 2019 Ghana exported €50.5 million in canned tuna to the UK market under the John West label, this trade is heavily dependent on the existence of tariff preferences in the target market. In the absence of such tariff preferences the international companies involved could simply relocate their production to other facilities. Against this background the UK government’s decision to impose GSP tariffs of between 16% and 17.2% on canned tuna imports from Ghana could mean the Ghanaian tuna canning plants which were closed over the Christmas holidays may never reopen. This would be a significant set-back in a sector which directly employs 6,500 people and which, prior to the UK Brexit referendum, was seen as having a huge potential for expansion, with this bringing major social and economic benefits to Ghana. In terms of the value-added cocoa products sector, while Ghana has been developing exports of cocoa butter and cocoa paste to the EU27 market, such exports to the UK market have been limited to date. However, there was seen as being scope for the expansion of direct exports of value-added cocoa products to the UK market in the post Brexit period. These opportunities could now be closed off, given the uncertainties around the future tariff treatment to be accorded UK imports of value-added cocoa products from Ghana. While the UK government asserts the outstanding issues are likely to be resolved ‘over the next few weeks’ (6), this seems an optimistic view, given these issues have been on the table since mid-June 2020 and have not yet been resolved. The issue at stake from a UK perspective is essentially whether the Ghanaian tariff reduction commitments are made on the basis of specific dates for the commencement of implementation of agreed tariff phase downs (as included in the Ghana-EU interim EPA) or whether they are based on an ‘X + year *’ formula (where ‘X’ is the date of the entry into force of the agreement, with tariff phase downs starting from that date). This latter approach was used in determining West African tariff phase down commitments under the EU-West Africa EPA. The UK government has made it clear it wants specific ‘time bound commitments’ included in any final agreement signed. The Government of Ghana has to date favoured the latter approach in order to reconcile its commitments under any trade agreement with the UK with its regional ECOWAS trade protocol commitments. It is unclear how this issue will be resolved, given the apparent misunderstandings which have characterised the final stages of the Ghana/UK negotiations in recent months. An important issue at stake from the Ghanaian export side which still needs to be addressed, relates to the future functioning of triangular supply chains (which serve the UK market via the EU), given the EU’s rejection of ‘diagonal cumulation’ under the EU/UK trade agreement concluded on 24th December 2020 (‘diagonal cumulation’ refers to the right to use inputs from 3rd countries which enjoy duty free access to both the UK and EU markets without these counting as non-originating inputs). Given the absence of an EU/UK trade agreement until the 24th December 2020, the trade complications this gives rise to have simply been glossed over in all UK trade negotiations with ACP countries on the rolling over of pre-existing EU EPAs as UK only trade agreements. Earlier concerns over the UK’s ‘bullying’ tactics (1) are likely to re-emerge in intensified form, given the UK government looks set to impose import duties on Ghanaian goods until such time as agreement has been reached on specific ‘time bound commitments’ on tariff elimination schedules for UK exports to Ghana. Against this background if outstanding issues of concern to both the Ghanaian government and the UK government are to be addressed through a genuine process of negotiations between sovereign equals, then it is essential the ‘gun’ of MFN tariffs faced by the Ghanaian government is taken off the table. To do otherwise would be to make a mockery of the principle of sovereignty in trade policy decision making to which the UK government has attached so much importance through the Brexit negotiation process. |
Sources:
(1) Independent, ‘Final bid to prevent huge new tariffs ruining African farmers amid allegations of UK ‘bullying’, 5 December 2020
https://www.independent.co.uk/news/uk/politics/brexit-tariffs-africa-ghana-farmers-b1766278.html
(2) Bloomberg.com, ‘Ghana’s Costly Wait for Its Post-Brexit Trade Deal with U.K.’, 4 January 2021
https://www.bloomberg.com/news/newsletters/2021-01-04/supply-chains-latest-ghana-s-costly-wait-for-a-u-k-trade-deal
(3) Daily Telegraph, ‘Ghana fears Brexit will fail to deliver the goods’, 16 November 2020
https://www.telegraph.co.uk/business/2020/11/15/ghana-loses-faith-uk-trade-deal/
(4) gov.uk, ‘Wholesale banana prices week 51’
https://www.gov.uk/government/statistical-data-sets/banana-prices
(5) Fairtrade Foundation, ‘Lack of agreed trade deal with Ghana means banana farmers will face tariffs’, 4 January 2021
https://www.fairtrade.org.uk/media-centre/news/lack-of-agreed-trade-deal-with-ghana-means-banana-farmers-will-face-tariffs/
(6) gov.uk, ‘Ghana-UK Joint Ministerial Statement on a Continuity Trade Agreement’, 31 December 2020
https://www.gov.uk/government/news/ghana-uk-joint-ministerial-statement-on-a-continuity-trade-agreement