Summary
Pre-export notification requirements, the need to re-issue phytosanitary certificates, problems in delivering ‘groupage’ cargoes, port clearance delays and rising road haulage charges are all undermining the commercial flexibility required for ACP exporters to exploit emerging market opportunities, where this involves the movement of goods across EU/UK borders. This is depressing export earnings, with this being a particular problem for smaller scale ACP exporters. In addition, new rules of origin complication which lead to standard MFN import tariffs being applied if goods delivered along triangular supply chains are not shipped under customs supervision, is requiring a fundamental rethink of the routes to market being used. A policy response, involving modification of the ‘Direct Transport’ provisions of the rules of origin applied under ACP-UK trade agreements and ACP-EU trade agreements is urgently needed, if smaller scale exporters shipping along triangular supply chains are not to be driven of UK and Irish markets.
New Brexit related traded documentation requirements are undermining the commercial flexibility of ACP horticultural exporters. Since 1993, and particularly since 2008, when full duty-free/quota-free access for ACP fruit and vegetable exports to the EU market was granted, ACP exporters have been taking advantage of the economies of scale gained through the distribution of products through single European distribution hubs. This was made possible by the creation of the EU single market on the back of a customs union which came to consist of 28 member states. Within this territory ACP horticultural products could flow freely once landed in an EU member state.
The UK’s departure from the EU customs union and single market, has reduced the flexibility which to date ACP horticulture and floriculture product traders have enjoyed in serving both the UK market via the EU, and the Republic of Ireland via the UK. It has also allowed UK companies to exploit specific market opportunities which may emerge for the re-export of UK landed products to mainland EU markets, when better commercial prospects emerge on these markets.
The newly appointed Brexit supervisor at the VLAM (Flemish Centre for Agriculture and Fisheries Marketing), Ward Verberck has highlighted how due to the need for different phytosanitary certificates and pre-export notifications when goods now move across an EU/UK border, it is no longer possible to fully exploit commercial opportunities where local demand is strong. These new requirements make shipping pallets of products to markets where demand is strongest, and prices are highest, no longer possible for short shelf-life products where this involves crossing an EU/UK border (1).
While to date the effects on EU to UK supply chains has primarily impacted on the floriculture sector, (where these new requirements were introduced from 1 January 2021), from 1 April 2021 this will be extended to virtually all fresh produce. At this point, the types of problems which have been faced by fruit and vegetable traders in accessing markets in the Republic of Ireland via the UK will become generalised.
This has given rise to growing calls for the UK government to defer the introduction of sanitary and phytosanitary administrative requirements for animal and plant imports currently scheduled for 1 April 2021. According to Herman Bosman, MD of Morgan Cargo, ‘it is clear that the EU is not yet ready.’
The hard reality faced is that the concerned government departments in EU member states are simply ‘not set up to accommodate the massive task of inspecting and producing phytosanitary documentation for exporting to the UK.’ What is more, there is uncertainty over whether the new UK IPAFFS IT system (Import of Products, Animals, Food and Feed System), which ‘requires importers to register to the system and provide pre-arrival notification’ will be effectively in place by 1 April (2).
The Chief executive of the Fresh Produce Consortium Nigel Jenney has highlighted how with less than a month to go ‘fruit and vegetable importers had not yet been given access to IPAFFS for logging pre-notifications’, with no training of staff in the thousands of businesses which will be affected having been possible (2).
Questions have also been raised as to whether the infrastructure will be in place at Ro-Ro ports for the conduct of inspections and clearance of cargoes for the volumes of trade to which the new inspections requirements will apply (3).
According to VLAM’s Ward Verberck, particular problems arise for re-exported products (1), since not only are new phytosanitary and pre-notification requirements faced, but new rules of origin complications have been introduced. Unless specific transit procedures are followed and goods remain under customs supervision, this sees the imposition of import tariffs on re-exported products then crossing an EU/UK border (1).
Short shelf-life fresh product supply chains are seen as particularly vulnerable in this regard. Small and medium scale ACP horticulture and floriculture exporters who supply the general wholesale market are seen as being especially vulnerable.
According to a leading UK importer of ACP horticultural products, who sources fresh produce from both LDCs and developing ACP countries in West Africa and East Africa, these products now become “stateless goods” and face standard MFN tariffs when traded across an EU/UK border, even though full duty-free/quota-free access is enjoyed under their trade arrangements with both the UK and EU.
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The Emergence of “Stateless Goods” and MFN on Horticulture Products Nominally Enjoying Duty-Free Access The issue of “stateless goods” has emerged as a result of the rules of origin now applicable to trade between the EU and the UK. Exporters shipping horticultural products to the UK via the EU, or the EU via the UK, now need to proof the ‘origin’ of their product when claiming duty free access. This involves documenting compliance with specific rules of origin requirements under the relevant trade agreement. However, in the absence of ‘diagonal cumulation’ arrangements, this means products exported along triangular supply chains need to remain under customs supervision (under Common Transit Convention procedures) until final delivery, if duty free access is to be claimed. Under current circumstances this is proving extremely difficult. If these horticulture products enter the EU customs territory on route to the UK or the UK customs territory on route to the EU (e.g., the Republic of Ireland), these products lose their initial origin when crossing an EU/UK border outside of customs supervision (e.g., Kenyan products would no longer be seen as ‘originating’ in Kenya for rules of origin and tariff preference purposes). For fresh horticulture products, since no processing takes place on route, EU or UK originating status cannot be claimed. As a result, the horticulture product cannot be on-ward traded on a duty-free basis under the EU/UK trade agreement. The horticulture product de facto becomes a “stateless good” on which no tariff preferences of any sort can be claimed. As a consequence, standard MFN tariffs are being applied when these products are traded across an EU/UK border. This is despite these same products enjoying duty-free/quota free access to both the EU and UK markets when directly exported. This poses particular problems for smaller ACP exporters shipping short shelf-life products along triangular supply chains, who have been exploiting the economies of scale gained from serving multiple European markets through single distribution hubs. Exports from these countries were given a boost in 2008 when full duty-free/quota-free access to EU markets was granted for fruit and vegetable exports. These supply chains are now under serious threat. |
The extra costs these tariffs impose on goods crossing an EU/UK border are being compounded by a situation whereby the initial phytosanitary certification is no longer recognised and new phytosanitary certificates need to be issued. This not only involves further additional costs but also requires 2 to 5 days for the process to be completed. This then leads to delivery delays, which shorten the shelf-life of fresh produce, resulting in a further depression of export revenues for ACP horticultural exporters.
As Ward Verberck points out, when trade is occasional or driven by local demand trends across Europe, a situation is emerging where ‘companies are dropping out’ of EU/UK cross border trade, since it is becoming administratively complex and expensive (1).
In broad terms, the extent to which British companies are disengaging from cross border trading activities in light of the new administrative complexities faced, has been illustrated by two recent surveys. According to a survey by the British Chamber of Commerce across all areas of trade, ‘1 in 4 British exporters are planning on reducing their activity in the EU or eliminating it out entirely post-Brexit.’ A survey from the logistics firm One World Express generated even more startling results, finding ‘44% of UK businesses are planning to cut ties with EU trading partners post Brexit’ (3).
Addressing the International Trade Committee of the House of Commons, Director of trade facilitation at the British Chambers of Commerce Liam Smyth, told MPs ‘demands arising from the deal are making the EU uneconomic, and we are worried that the pace of this will only accelerate because we have not yet really seen a full volume of traffic going through our borders.’ It was held a process of ‘turning away is occurring with businesses facing an existential problem in the manner the [Brexit] deal has operated for them’ (4).
| Comment and Analysis Unfortunately, many ACP horticultural exporters in smaller ACP counties or in non-traditional exporting countries find themselves supplying spot markets rather than multiple retailers and depend on their export partners finding the best possible market for their products. As a consequence, the lack of trading flexibility which the Brexit process has generated, alongside the additional costs which now arise when products need to cross an EU/UK border means the revenues of the affected ACP exporters are being seriously depressed.Many of these exporters will be faced with choosing either to serve exclusively UK markets or exclusively EU27 markets. This will be a difficult choice for exporters in anglophone ACP countries who have traditionally focussed on UK markets. This choice will be further complicated by the availability of air freight options, with an ongoing ‘shortage of belly capacity normally provided by passenger aircraft’, in a context of rising demand for air freight capacity (5). This is making freight route adjustment an extremely challenging task. Many of these supply chains, while small in European terms, play a major role in job creation and agricultural development in smaller least developed African economies from which imports are sourced. For example, the UK fruit and vegetable trading company Wealmoor (6), is the single largest private sector employer in the Gambia. The negative impact of these Brexit related disruptions to ACP horticulture and floriculture trade along triangular supply chains in seen as wholly inconsistent with UK and EU commitments to the sustainable structural development of African economies. In addition, while it appears the UK is willing to take pragmatic and proportionate steps to adjust the operational implementation of the Northern Ireland Protocol, so as to avoid a disruptive cliff edge, the UK government is showing no such willingness to take practical steps to address the disruptions facing ACP exporters who have traditionally used triangular supply chains. For example, adjustments to the ‘Direct Transport’ provisions of the rules of origin set out under UK Continuity Agreements concluded with African and Caribbean countries, to allow the retention of initial ‘originating status’, even when shipped via the EU outside of customs supervision. This at a stroke would remove the rules of origin complications for goods exported to the UK via the EU from countries where UK continuity agreements are in place. A similar, parallel arrangement would then need to be set in place for all least developed countries. This needs to be seen in a context where currently the necessary systems for the use of Common Transit Convention are simply not in place. Such unilateral UK action would then set a precedent for the EU to potentially follow suit under the Direct Transport provisions of the rules of origin applicable under the EU’s various Economic Partnership Agreements with African, Caribbean, and Pacific countries. In the absence of such measures, while over time adjustments to the new trading realities will inevitably take place, this is likely to occur on a basis which sees many small ACP horticulture and floriculture exporters forced out of markets served through cross border EU/UK triangular supply chains. This sits uneasily with the UK governments repeated assurance that developing country partners will not be affected by the Brexit process, but would rather benefit from the new dynamic ‘Global Britain’. Unfortunately, the limited volume of trade from small ACP country suppliers in each of the individual products affected is such that these issues are not on the radar screens of policy makers in the UK, EU or the governments of exporting countries given the scale of the Covid-19 related economic, social, political and health crisis faced. |
Sources:
(1) freshplaza.com, ‘Due to Brexit hassles, flexible trading is no longer an option’, 1 March 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/due-to-brexit-hassles-flexible-trading-is-no-longer-an-option
(2) The Loadstar, ‘No one is ready calls for phase 2 of new customs checks to be postponed’, 4 March 2021
https://theloadstar.com/no-one-is-ready-calls-for-phase-2-of-new-customs-checks-to-be-postponed/
(3) City AM, ‘One in four UK exporters looking to cut out EU customers post Brexit’, 23 February 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/one-in-four-uk-exporters-looking-to-cut-out-eu-customers-post-brexit
(4) The Loadstar, ‘’Trading with the EU becoming financially unviable for some firms’, MPs told’, 16 February 2021
https://theloadstar.com/trading-with-the-eu-becoming-financially-unviable-for-some-firms-mps-told/
(5) freshfruitportal.com, ‘January air cargo demand returned to pre-pandemic levels’, 3 March 2021
https://www.freshfruitportal.com/news/2021/03/03/january-air-cargo-demand-returned-to-pre-pandemic-levels
(6) Wealmoor home page
https://www.wealmoor.co.uk/