Summary
While the UK Secretary of State for International Trade has committed to taking account of the impact the removal of MFN tariffs would have on the preferential treatment accorded developing countries, there remain persistent rumours that given the absence of any domestic UK production, bananas would be one of the first products where existing EU MFN tariffs would be eliminated. However such a move would bring only marginal benefits to UK consumers, with the banana pricing policies of UK supermarkets having a far greater impact on the final purchase price of bananas than the MFN tariffs applied. This would however see a significant erosion of the competitive position of mainly Commonwealth African and Caribbean banana exporting countries which are focussed on the UK market in their banana export trade with the EU. This could cause considerable harm to these banana exporting economies, in a context where the banana sector not only providing significant livelihood opportunities in rural areas in the main banana exporting countries but where it is also providing the commercial basis for the development of variety of new non-traditional fruit exports to the UK market.
In recent discussions with the House of Commons International Trade Committee, Secretary of State for International Trade, Liam Fox has highlighted how in order to combat soaring food price inflation a no-deal Brexit could cause as a result of the re-imposition of MFN tariffs on food imports from the EU, the UK is considering the unilateral removal of MFN tariffs where the UK has no production interest (1).
Addressing the International Trade Committee on 6th March 2019, Secretary of State Fox indicated the decision on the UK’s MFN tariffs to be applied under a no deal Brexit had been made within government but the government was not yet ready to publish the details. In response to questioning he indicated three factors were being taken into account in setting specific tariffs to be applied:
- the price shock which would arise from moving over to MFN tariffs;
- the impact full tariff liberalization would have on UK businesses; and
- the impact the removal of MFN tariffs would have on preferential treatment accorded developing countries, through the loss of tariff preferences (2).
Pressed on the details, with specific reference to products such as bananas, the Secretary of State restricted himself to the observation that he wanted to ensure developing countries got the same advantage as under GSP today. The remark is not relevant to the main African and Caribbean banana exporters all of which export under economic partnership agreements concluded with the EU28 (2).
In particular regard to the banana sector the remarks of the Secretary of State need to be seen in a context of press reports suggesting that as part of its approach of ‘grouping foods into bands with ratcheting tariff levels’, the UK government was considering setting tariffs at zero for ‘foods such as oranges and bananas, which are not grown in the UK’, while “sensitive” products, such as beef and cheese, would however be managed through reduced duty or zero duty tariff rate quotas (3).
The Secretary of State’s remarks also need to be seen in the context of the margins of tariff preferences enjoyed by traditional African and Caribbean banana exporters under the EU’s managed trade regime in the banana sector. Under this EU banana trade regime while African and Caribbean banana exporters enjoy duty free-quota free access to the UK market under the various economic partnership agreements concluded with the EU. In contrast competing $ banana exporters continue to face tariffs for a quota restricted volume of bananas.
While the tariffs applied under these free trade area agreements with $ banana exporters have been falling and the volumes allowed reduced duty access have been increasing, in 2019 the tariff applied under these agreements was still €75/tonne (except for Mexico where the tariff was set at €70/tonne) (see table). The applicable MFN tariff for bananas exported outside of these agreements is €114/tonne.
EU $ Banana TRQs 2015 and 2019+
| Reduced Duty TRQs | |||
| Country | 2015 (€110/t) | 2019+ (€75/t) | |
| Colombia (Andean Pact FTA) | 1,687,500 | 1,957,500 | |
| Ecuador (Andean Pact FTA) (6) | 1,645,111 | 1,957,500 | |
| Costa Rica (Central American FTAs) | 1,281,250 | 1,486,250 | |
| Panama (Central American FTAs) | 468,750 | 543,750 | |
| Peru (Andean Pact FTA) | 86,250 | 101,250 | |
| Guatemala (Central American FTAs) | 62,500 | 72,500 | |
| Nicaragua (Central American FTAs) | 12,500 | 14,500 | |
| El Salvador (Central American FTAs) | 2,500 | 2,900 | |
| Mexico (Bilateral FTA) | *2,000 | 2,000 | |
| Sub total | 5,248,361 | 6,136,315 | |
* Duty €70/tonne
Setting the UK MFN tariff (currently €114/tonne) at zero for bananas would remove the margin of tariff preference which African and Caribbean banana exporters enjoy. According to representatives of Africa’s leading banana exporting company Compagnie Fruitière, the maintenance of current margins of tariff preferences is critical to the competitive position of African banana exporters vis a vis $ banana exporters.
The future UK MFN banana tariff is thus a critically important issue to banana exporters in those Caribbean and African countries which have traditionally supplied bananas to the UK market. This needs to be seen in a context where, while the UK takes 1 in 5 of every banana imported into the EU, it takes 1 in 3 of every African and Caribbean banana imported into the EU.
The UK market is particularly important for five African and Caribbean banana exporters, four of which are Commonwealth countries. In 2017 the UK took 100% of St Lucia’s banana exports to the EU, 62% of Belize’s banana exports to the EU, 52% of the Dominican Republic’s banana exports to the EU, 50% of Ghana’s banana exports to the EU and 59% of Uganda’s banana exports to the EU and 22% of Ivorian banana exports to the EU. Only Cameroon and Surinam of the leading African and Caribbean banana exporters have a below average dependence on the UK market in their banana trade with the EU.
Share of the UK in Total Banana Exports to the EU from leading African and Caribbean Banana exporters
| 2016 | 2017 | |||
| EU27 | UK | EU27 | UK | |
| St Lucia | 0% | 100% | 0% | 100% |
| Belize | 39% | 61% | 38% | 62% |
| Dominican Rep | 42% | 58% | 48% | 52% |
| Ghana | 46% | 54% | 50% | 50% |
| Uganda | 52% | 48% | 41% | 59% |
| Cameroon | 85% | 15% | 87% | 13% |
| Ivory Coast | 86% | 14% | 78% | 22% |
| Suriname | 100% | 0% | 100% | 0% |
Source: EC Market Access Data Base http://madb.europa.eu/madb/statistical_form.htm
The issue of future UK MFN tariff policy for bananas was raised in memorandum sent to the UK government by the ACP Ambassadorial Working Group on Bananas. This memorandum sought to comprehensively review ACP banana sector concerns under a no-deal Brexit. It highlighted in particular ‘the issue of the future value of rolled over tariff preferences in the light of the uncertainty over future UK MFN tariff levels, once it has left the customs union and moves beyond its initial commitment to roll over currently applied MFN tariffs, based on EU tariff schedules’ (4).
The memorandum called on the UK government to make a ‘commitment to maintaining the existing applied MFN tariffs on bananas for at least 10 years from the date of signature of the Continuity Agreements, so as to ensure the future value of the duty free-quota free access granted ACP banana exporters’. Otherwise it was argued that while the proposed Continuity Agreements ‘would ensure continuity of current tariff treatment’ they would provide no ‘guarantee of continuity in the value of ACP tariff preferences in the banana sector’, with this being described as a ‘critical issue for ACP businesses exporting bananas to the UK market’ (4).
This memorandum was shared with the Chair of the House of Commons International Trade Committee and provided the basis for the Chairs efforts to secure clarity from Secretary of State Fox on the MFN tariffs the UK government proposes to apply to bananas under a no-deal Brexit.
Afruibana, the association of African banana exporting countries has on a number of occasions highlighted the importance of the recent growth in African banana exports to EU28 countries to employment and rural development. In the three main exporting countries, Côte d’Ivoire, Cameroon, Ghana, the banana sector directly employs 28,000 people and indirectly a further 50,000. With an average of each job supporting 6 family members, around half a million people are therefore seen as depending on the banana sector in these countries.
Afruibana has further highlighted how in recent years the banana sector has provided the logistical underpinnings for the commercial development of a range of other fruit exports from African banana exporting countries to the UK, with the banana sector thereby playing an increasingly important role in creating jobs and wealth in rural areas and combatting rural poverty in the countries concerned.
| Comment and Analysis
The banana sector provides an important test case of the extent to which the interests of traditionally preferred developing country partners are being taken into account within the UK governments approach to Brexit. While Secretary of State Fox has indicated the impact the removal of MFN tariffs would have on preferential treatment accorded developing countries, would be a factor in the governments post-Brexit tariff formulation policy, the absence of banana production in the UK could make it an attractive product for full tariff liberalisation, particularly since bananas are the most consumed fruit in the UK. However at an applied tariff of only €75/tonne, the savings would amount to only 7.5 euro cents per kg (6.4 pence per kg). If this MFN tariff saving were passed on in full to UK consumers than this would amount to a saving of slightly over 1 penny per banana to UK consumers (or around 70 pence – £0.70 – per UK citizen per annum). This potential ‘saving’ on the price of each banana arising from the elimination of MFN tariffs on imports into the UK also needs to be seen in the context of the price variations across the three main UK supermarkets (Tesco, ASDA and Morrisons) for a standard banana, which is over 5 pence per banana (5). This places in context any proposal to remove MFN tariffs in the interests of combatting soaring post-Brexit food price inflation. It suggests eliminating MFN tariffs on bananas while providing a high profile demonstration the ‘value’ of being freed from EU tariff constraints, would in fact deliver marginal benefits to UK consumers at considerable cost to banana exporters in Africa and the Caribbean. |
Sources:
(1) UK Parliament TV, Dialogue Secretary of State for International Trade, Liam Fox with the House of Commons International Trade Committee, video, 6 February 2019
https://parliamentlive.tv/Event/Index/f7cd8517-3b7f-492e-a178-ff1ac193862d
(2) UK Parliament TV, Dialogue Secretary of State for International Trade, Liam Fox with the House of Commons International Trade Committee, video Liam Fox before International Trade Committee, 6 March 2019
https://parliamentlive.tv/Event/Index/ba435b21-fa87-47d1-a032-f26597e2c01a#player-tabs
(3) Guardian, ‘UK food imports from EU face ‘£9bn tariff bill’ under no-deal Brexit’, 23 February 2019
https://www.theguardian.com/politics/2019/feb/23/uk-food-imports-from-eu-face-9bn-tariff-bill-under-no-deal-brexit
(4) Memorandum from the ACP Ambassadorial Working Group on Bananas, ‘ACP Banana Sector Concerns under a No-Deal Brexit Outcome to the Current UK Withdrawal Process’
(5) mysupermarket.co.uk, Price Comparison website
http://www.mysupermarket.co.uk/grocery-categories/bananas_in_tesco.html?store=Morrisons
http://www.mysupermarket.co.uk/grocery-categories/bananas_in_tesco.html?store=ASDA
http://www.mysupermarket.co.uk/grocery-categories/bananas_in_tesco.html?store=Tesco
http://www.mysupermarket.co.uk/grocery-categories/bananas_in_tesco.html?store=Sainsburys