UK to Strike Out on Bold New Trade Policy but Will Africa and the Caribbean Take the Hit?

Summary
The UK has formally announced the launch of an on-line public consultation on its future MFN tariff regime. This consultation appears limited to UK stakeholders and largely ignores the UK’s trade and development commitments enshrined in a host of preferential trade arrangements the UK has sought to ‘roll over’. The value of these ‘rolled-over’ trade arrangements would be profoundly undermined by any move towards the kind of zero UK MFN tariff regime which the Secretary of State appears to be championing. Some €1.5 billion in African and Caribbean exports, mainly from Commonwealth countries would be adversely affected, with 8 countries seeing over 70% of their current direct exports to the UK adversely affected and a further 7 countries likely to see between 46% and 69% of their direct exports to the UK adversely affected. With no formal structure for dialogue with the UK government operative, there is a need for special initiatives from African and Caribbean governments to place their concerns around the current UK MFN tariff review on the table for consideration by the UK government.

On 6^th February the UK government formally announced the launch of its public consultation on its future MFN tariff policy. This includes the development of ‘a new UK Most Favoured Nation (MFN) tariff schedule which will enter into force on 1st January 2021’. This will be ‘a bespoke regime known as the UK Global Tariff (UKGT)’. According to the written statement to parliament announcing the public consultation the new regime will ‘be designed specifically for the UK economy’, suggesting some variation from EU tariffs established solely with reference to the production interests of EU27 member states could well occur (e.g. for bananas, a products where the UK has no production interest but around 15% of total EU consumption is produced in EU27 member states). The written statement to parliament maintains the newly launched MFN tariff review will be ‘the first time in almost 50 years that the UK will be able to set its tariff rates on imported goods’. (1).

According to the written statement to parliament the consultation process which has been launched ‘represents an opportunity for every business, every person and every civil society group, in every part of the UK, to have their say’ (1). Through the consultation process the UK government is ‘seeking views on a series of potential amendments as the UK moves away from the EU’s Common External Tariff’. Specifically, the consultation process will seek the views of UK businesses, consumers and civil society on three main areas it is looking at:

How the tariff schedule can be simplified and tailored to meet the needs of UK businesses;
How it can best remove tariffs ‘on key inputs to production’ in the UK;
Whether the UK government should remove ‘tariffs where the UK has zero or limited domestic production’ (1).

This latter question is a particular source of concern in products areas such as for example: bananas, grapes, fresh beans, mangoes, avocadoes, and canned tuna where the value of direct imports to the UK from ACP countries in 2018 was respectively €211 million, €157 million, €57 million, €42 million, €33.4 million and €204.7 million.

The starting point for this tariff review is the existing tariff regime applied on imports to the UK, with the Temporary Tariff Regime (TTR) announced in revised form in October 2019, to be implemented in the event of a ‘no-deal’ Brexit, being seen as ‘no longer relevant’ (1).

The public consultation process will see the UK government organising ‘a series of events across UK regions and Devolved Administrations to engage with businesses, business representatives, consumers, civil society groups, associations and other interested individuals and organisations’ to seek the view of concerned stakeholders. ‘The consultation will close on 5th March 2020’ with, after careful consideration of the evidence submitted, the UK government announcing its new Global Tariff schedule (1).

This review needs to be seen in a context where the UK is looking to ‘use its new powers to make its mark internationally as a champion of free trade and a bulwark against the forces of protectionism that exist in the world’ (1).

The UK’s Government’s core message which it hopes to communicate through its new trade policy is that ‘free trade is good for all nations, is right for the UK and will deliver benefits for British businesses, households and consumers’ (1).

Comment and Analysis

While the UK is planning to strike out with a bold new autonomous trade policy for ‘the first time in almost 50 years’, it is likely to be African and Caribbean exporters who will take the greatest hit from any abandonment of existing applied MFN tariffs by the UK. It is estimated that should the UK move towards a widespread zero tariff policy for products where the UK has ‘zero or limited domestic production’, the value of trade which could be adversely affected in products where margins of tariff preferences for African, Caribbean and Pacific exporters are significant amounts to around some €1.5 billion. This figure includes estimates of triangular trade flows to the UK market via EU27 member states (a trade which is commonly overlooked) but excludes the huge citrus trade with South Africa and North African countries.

For some African and Caribbean countries, the commercial consequences of a zero MFN tariff approach in areas where the UK has ‘zero or limited domestic production’ would be profound. It would virtually eliminate the export trade to the UK of:

· Seychelles (affecting adversely 97.6% of current direct exports to the UK);

· Burkina Faso (affecting adversely 95.0% of current direct exports to the UK);

· St. Lucia (affecting adversely 92.3% of current direct exports to the UK);

· Dominican Republic (affecting adversely 90.0% of direct current exports to the
UK);

· Eswatini (affecting adversely 85% of current direct exports to the UK);

· Gambia (affecting adversely 84.4% of current direct exports to the UK);

· Belize (affecting adversely 75.3% of current direct exports to the UK);

· Namibia (affecting adversely 73.2% of current direct exports to the UK);

Other countries whose exports to the UK would be seriously adversely affected include:

· Zambia (affecting adversely 68.6% of current direct exports to the UK);

· Senegal (affecting adversely 64.5% of current direct exports to the UK);

· Guyana (affecting adversely 61.9% of current direct exports to the UK);

· Uganda (affecting adversely 60.6% of current direct exports to the UK);

· Cameroon (affecting adversely 52.4% of current direct exports to the
UK);

· Mauritius (affecting adversely 47.4% of current direct exports to the UK);

· Kenya (affecting adversely 46.3% of current direct exports to the UK).

It is noteworthy how in the written statement to Parliament announcing the public consultation on the UK Governments’ MFN review, this process was restricted to UK stakeholders, paying no attention to the UK’s pre-existing trading out of poverty and trade and development commitments and obligations ‘rolled over’ under UK-only Continuity Agreements to consult with partners in Africa, the Caribbean and Pacific where new policy developments could adversely impact on the partnership relationship.

This highlights the hiatus in institutional mechanisms for trade policy dialogue with the UK which arises during the critical transition period in UK/EU relations. Having formally departed from all EU institutions on 31^st January 2020, the UK is no longer a party to EU institutional dialogues with African, Caribbean and Pacific countries on trade policy issues (for an example of theses institutional dialogue arrangements at work see companion epamonitoring.net article ‘EU Organic Import Control Implementing Regulation Highlights Potential for Brexit Related Trade Administration Based Disruption of ACP Exports’, 30 January 2020. However, the provisions of concluded UK-Only Continuity Agreements cannot enter effect until 1^st January 2021.

This hiatus in institutional dialogue risks a dangerous lacuna emerging in the discussions around the UK’s future MFN policy, most, notably regarding the development dimension of the UK’s wider trade policy (i.e. the UK’s future MFN tariff policy which sets the tariffs on imports from many suppliers who directly compete or who could directly compete with developing country suppliers in Africa, the Caribbean and Pacific).

Currently in some circles in and around the UK government there is a tendency to limit consideration of the UK’s development obligations to considerations linked to the rolling over of existing preferential market access arrangements via the conclusion of ‘Continuity Agreements’ or unilateral UK measures (mainly in favour of LDCs). However, the commercial benefits of the duty free-quota free (DFQF) access extended under these arrangements hinges crucially around the high margins of tariff preferences enjoyed over MFN suppliers, and suppliers whose applied tariffs are set with reference to these MFN tariffs.

Removing the MFN tariff effectively removes any commercial value for African and Caribbean exporters who benefit from DFQF preferences.

Addressing this hiatus in institutional dialogue on trade policy issues is a matter which needs to be accorded urgent attention by those ACP governments with the highest levels of trade dependence on the UK market (particularly Commonwealth ACP governments). These countries would appear to need to urgently enhance the ability of their High Commissions in London to directly and effectively engage with the UK government on trade policy issues which could have a direct bearing on future trade and investment relations with the UK.

For some sectors this is particularly important since any sudden move over to zero UK MFN tariff would pose immediate and possibly insurmountable commercial challenges (see box on ‘Putting the Challenge of a Zero UK MFN Tariff in Perspective’).

Putting the Challenge of a Zero UK MFN Tariff in Perspective

The situation of Ghanaian banana exporters vividly illustrates the danger of any sudden UK move over to a zero MFN tariff regime. Market access for bananas has gradually been undergoing a process of tariff liberalisation. First this took the form of the phasing down of banana tariffs under the Geneva Agreement on Bananas, which saw import tariffs fall from €148/tonne to €114/tonne, with the reduction of €34/tonne being phased in over 7 years.

This was followed by further tariff reduction which were granted under FTAs concluded with the Andean Pact and Central American banana exporters with tariffs being reduced from €114/tonne to €75/tonne, with this €39/tonne reduction being introduced over 7 years, alongside the maintenance of quantitative restrictions on the volume of bananas benefitting from the reduced tariff access.

Despite these substantial tariff reductions, because they were introduced gradually, Ghanaian producers and exporters were able to adjust, with export volumes to the UK tripling since 2012.

However a sudden movement to a zero UK MFN tariff for bananas on 1st January 2021 (which would automatically apply also to Andean Pact and Central American banana exporters) would mean African producers and exporters such as those in Ghana would need to adjust to a tariff removal on imports from major competitors of €75/tonne over a mere 7 months .

This would furthermore coincide with the complete removal of quantitative restrictions on the volume of imports to the UK which would attract the zero tariff. This would require African banana producers to adjust to a loss of a larger margin of tariff preference over a 7-month period than occurred over the previous 14 years.

Such a rapid change in the UK’s tariff treatment of bananas would pose an enormous if not insurmountable market adjustment challenge to African banana producers in countries such as Ghana. In this context any MFN tariff changes which the UK may seek to introduce in the banana sector will need to be phased in gradually if existing patterns of trade with African banana exporters are not to be severely disrupted.

Sources
(1) parliament.uk, ‘Trade Policy Update: Written statement – HCWS95’, 6 February 2020
https://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2020-02-06/HCWS95/
(2) ‘Approach to MFN Tariff Policy: Designing the UK Global Tariff for 1st January 2021’, February 2020
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/864124/Approach_to_MFN_Tariff_Policy__17_.pdf