On 22 February 2018 ACT Alliance convened Seminar on the Implications of Brexit in the agro-food sector for ACP countries and for the forthcoming ACP-EU Post-Cotonou negotiations. A series of twelve 2 page summary notes were produced for the seminar covering both substantive issues arising within the Brexit process and the current state of play in the Brexit process. Note 1 provided a summary of the main areas of impact of Brexit on ACP agro-food sectors.
Six Main Areas of Impact
There are six main dimensions to the impact of the Brexit process on ACP agro-food sectors:
- the UK tariff dimension;
- the UK non-tariff dimension;
- the UK preference erosion dimension;
- the functioning of EU27 markets dimension;
- the trilateral trade dimension;
- the trade displacement dimension.
It is now apparent that in assessing these six dimensions a distinction needs to be made between the short term transitional period in EU27/UK relations, currently scheduled to run from 30th March 2019 until 31st December 2020 and the long term post Brexit period, currently scheduled to start on 1st January 2021. During the transition period it seems likely that an accommodation will be reached which de facto defers any impacts on ACP trade. However in the long term profound changes could well emerge in not only ACP trade with the UK but also ACP trade with the EU27.
The UK Tariff Dimension
The UK tariff dimension refers to the impact of the UK’s withdrawal from the EU on the terms and conditions of access for ACP agro-food exports to the UK market, which currently in large part take place either under the terms and conditions of EU negotiated Economic Partnership Agreements or for least developed countries (LDCs), the EU’s unilateral Everything But Arms initiative. Maintaining existing duty free-quota free access to the UK market under the EBA for LDCs is easier than reconsolidating existing duty free-quota free access for non-LDCs under EU negotiated EPAs. The tariff preferences extended under these EU arrangements are most significant for agro-food products, fisheries products and clothing and textile products.
The Non-Tariff Dimension
The UK non-tariff dimension refers to the impact the UK’s withdrawal from the EU could have on the non-tariff rules and regulations applied to imports. In the agro-food sector these range from rules of origin verification documentation to SPS and food safety certification requirements. In the modern world these dimensions of trade policy can be more important than the tariffs applied to imports, since non-compliance can lead to complete market closure for certain exports.
While during the transitional period in EU27/UK relations there are unlikely to be significant Brexit related changes, beyond 1st January 2021 a process of divergence of EU27 and UK regulatory standards could emerge, which could carry either positive or negative implications for ACP exporters to the UK.
Preference Erosion Dimension
The UK preference erosion dimension of Brexit arises from the likelihood of the adoption by the UK of a far more liberal trade policy, which would then impact on the value of the tariff preferences which ACP exporters currently enjoy relative to other third country exporters to the UK market.
The ACP export products most likely to be affected are Mediterranean and sub-tropical products where the UK has no domestic production, but where the EU maintains high tariffs in the interest of producers in some EU27 member states. This includes: bananas, rice, citrus fruit and other sub-Tropical and Mediterranean fruit and vegetable products, as well as sugar, where the UK has a structural deficit.
UK tariff changes could then undermine the competitive position of ACP producers on these product markets in the UK.
Trilateral Trade Dimension
The trilateral trade dimension arises from the impact the withdrawal of the UK could have on the functioning of supply chains which pass through a EU27 member state in serving the UK market, or the UK in serving EU27 markets. The functioning of these agro-food supply chains could be badly affected by a ‘hard’ Brexit. Products potentially affected include:
- East Africa floriculture exports to the UK via Dutch auction houses;
- African and Caribbean horticulture exports to the UK via Belgium and the Netherlands;
- West African cocoa supply chains which increasingly export beans to the Netherlands and Belgium for processing for use in the UK chocolate and confectionary industries;
- Pacific fully traceable sustainably certified palm oil supply chains, which serve EU27 markets for fully traceable sustainably certified palm oil through a dedicated refining facility in the UK.
Resolving these issues will require trilateral discussions and will need to be linked to the issue of the rules of origin to be applied to UK exports under ‘UK-only’ refitted EPAs.
Functioning of EU27 markets dimension
The impact of the UK’s withdrawal from the EU on the functioning of EU27 markets arises from the impact which the loss of UK import demand will have on the functioning of EU27 markets. This occurs in products where the EU has made TRQ based trade concessions in bilateral trade negotiations. These EU TRQ obligations will remain unchanged post-Brexit, while overall EU import demand will shrink in the absence of the UK. This will then increase the commercial significance of TRQ restricted access to EU27 markets. This will mainly affect the functioning of EU27 markets for bananas, sugar and rice; although a range of other TRQ restricted fruit and vegetable markets could also be affected to a lesser extent.
Trade Displacement Dimension
The trade displacement dimension arises from the impact which a ‘hard’ Brexit could have on EU27/UK mutual trade if MFN duties were imposed on agro-food products. In some product areas notably poultry meat, sugar and onions, this could then lead to the displacement of current EU27/UK trade onto certain ACP markets, with this intensifying competition for local ACP producers on their domestic and regional markets. This will be strongly influenced by the nature of the long term EU27/UK trade relationship.