COLEACP Updated Brexit Impact Assessment Posted

epamonitoring

Summary
The comprehensive nature of COLEACP’s Brexit assessment makes it a useful starting point for all ACP agri-food exporters in their efforts to get to grips with the new trade challenges thrown up by the culmination of the Brexit process. Its analysis of the short-term transitional and long-term structural challenges faced, also raises policy issues which now need to be addressed if disruptions to ACP supply chains which cross the new EU/UK customs and regulatory border are to be minimised. This sets an agenda for concerted ACP action, drawing in stakeholders from the multiplicity of sectors adversely affected by the new trade realities faced. While in the horticulture sector these issues primarily affect ACP exporters using triangular supply chains, in other sectors ACP exporters directly serving EU and UK markets could also be affected. This is particularly the case where imports are used in manufactured food and drink products and where the use of domestically produced alternatives (of either EU or UK origin) could avert any rules of origin complications (e.g., in the use of imported sugar in food and drink products destined for export).

COLEACP has posted its updated Brexit impact assessment document on-line (1). The initial draft of this document was prepared in November 2019 and was intended to identify those areas where the Brexit process would impact on the functioning of ACP horticultural supply chains, so the affected ACP exporters could begin to prepare for the impending changes. It was then intended to update the document when the EU-UK trade agreement was concluded, so further details could be provided which would enable ACP horticultural exporters to adequately prepare for the changed trading conditions, prior to the entry into force of the new arrangements.

However, a host of unexpected challenges have emerged at the operational level which are proving highly disruptive of ACP short shelf-life product supply chains where the movement of goods across an EU/UK customs and regulatory border is required. This is a product of:

  • The late stage at which the EU/UK negotiations on future trade arrangements were completed.
  • The very ‘thin’ nature of the trade agreement concluded.
  • Shortcomings in the delivery of required trade related IT systems.
  • Shortcomings and delays in the establishment of necessary physical infrastructure for the conduct of border controls.
  • The Covid-19 related disruption of necessary staff recruitment and training programmes in the concerned government departments involved in implementing the new arrangements for the cross-border movement of goods between the EU and UK customs and regulatory territories.
  • The impact of the Covid-19 pandemic on business level preparedness for Brexit related changes.
  • The cumulative impact of all these shortcomings, which act to compound the adverse effects in individual areas of concern.

Particularly problems have been faced along UK to the Republic of Ireland supply chains, given the high level of integration of the Irish food and drink product wholesale and retail sectors with UK focussed supply chains.

This revised COLEACP Brexit assessment focusses on the impact of the UK’s withdrawal from the EU customs union and single market and the new EU/UK trade agreement on the functioning of ACP horticulture supply chains serving both UK and EU markets (2).

It reviews the impact on the functioning of 5 types of ACP horticultural supply chains:

 

  • ACP supply chains where horticultural products are exported directly to the UK (3).
  • ACP supply chains where horticultural products are exported directly to the EU27 (4).
  • ACP supply chains where horticultural products are exported indirectly to the UK via the EU27 (5).
  • ACP supply chains where horticultural products are exported indirectly to the EU27 via the UK (6).
  • ACP supply chains where horticultural products are exported indirectly to the Republic of Ireland via the EU27 and the UK (using the UK ‘land-bridge’) (7).

Along each of these types of supply chains it looks at the trade administration, border clearance, logistical and market challenges which have arisen as a result of the culmination of the Brexit process.

 

The nature and the scale of the challenges faced along each of these supply chains varies, with the most serious impacts being felt along those supply chains requiring ACP goods to cross an EU/UK border prior to delivery to the final customer (so called triangular supply chains).

In terms of direct exports to the UK (3) and indirect exports to the UK via the EU27 (5) the review looks at the impact in 10 core areas:

  • Customs procedures.
  • VAT issues.
  • Certifications and authorisations issues.
  • Autonomous GB phytosanitary import control requirements.
  • Border control issues.
  • Logistics issues related to truck and driver availability.
  • Logistics issues related to increasing warehousing and cold storage costs.
  • Contract issues arising for ACP exporters.
  • The impact of the establishment of the UK’s own autonomous MFN tariff policy.
  • The market effects of the culmination of the Brexit process (3).

The section on indirect exports to the UK via the EU in addition reviews the potential long-term implications for ACP exporters of any divergence in EU and GB (Great Britain, that is the United Kingdom excluding Northern Ireland) phytosanitary import controls which may emerge.

In terms of direct exports to the EU the review looks at the impact in 2 areas: customs procedures and certification and authorisation issues (4).

In terms of indirect exports to the EU via the UK (6) and indirect exports to the Republic of Ireland via the EU27 and the UK (7) the review looks at the impact in 7 common areas: customs procedures; VAT administration; certifications and authorisations; SPS requirements and controls; border control issues; related to truck and driver availability; contract issues.

In addition, in regard to indirect exports to the EU via the UK the logistics issues linked to increasing warehousing and cold storage costs are also reviewed.

In each of the reviewed supply chains, the analysis highlights the impact on ACP horticultural exporters of the UK’s withdrawal from the EU customs union and single market and what can be done by ACP exporters to adjust to the changed trade realities faced (the Brexit Preparedness Checklist). While this primarily focusses on business level responses, it also raises policy issues, where policy changes are required to minimise the current disruptions to ACP horticultural supply chains arising as a result of the culmination of the Brexit process.

In the main document (2) a series of annexes are included which provide more in-depth analysis of particular issues faced along the various types of supply chains review.  This is divided into 4 main sections:

  • Part 1: Tariffs and related trade documentation issues
    • Tariff Issues in Trade with the UK
    • The MFN Tariff Issue
    • The AEO Scheme
    • What are EORI, BTI and BOI?
    • Applying for EORI in an EU27 Member State
    • Applying for EORI, BTI and BOI in the UK
    • The REX system of origin certification
    • Making Use of the Common Transit Convention
  • Part 2: Border control Issues
    • Border Infrastructure: State of Play
    • Business Preparations for EU/UK Border Controls: State of Play
    • Border Control Issues for Direct Delivery of ACP Horticultural Exports to the UK
    • Border Control Related IT System Challenges: State of Play
    • Border Control Related Staffing Challenges and the customs intermediary sector: State
    • of Play
  • Part 3: Logistical challenges and supply chain issues
    • Non-Tariff Issues
    • Potential UK Road Haulage Challenges: State of Play
    • Groupage Issues
    • Increased Warehousing and Cold Storage Costs
  • Part 4 Future market developments
    • A Summary of Key Contractual Concerns 110
    • GB SPS Requirements and Controls 112
    • Organic Certification 116
    • Necessity Markets and Luxury Purchase Markets
Comment and Analysis
Almost all of the basic trade issues arising as a result of the UK’s withdrawal from the EU customs union and single market analysed in the COLEACP Brexit assessment apply across a multiplicity of ACP agri-food sectors.

While the details may vary from sector to sector, issues related to ‘UK only’ customs procedures, VAT systems, certifications and authorisation requirements, phytosanitary import control, border controls, logistics and contracts will need to be addressed by all ACP agri-food exporters.

As such the COLEACP Brexit assessment is a useful starting point for all ACP agri-food sectors in getting to grips with the impact of the culmination of the Brexit process on ACP exporters. This needs to be seen in the context of the shortcomings of the ‘thin’ EU/UK trade agreement concluded hastily at the end of 2020.

In terms of the trade issues currently faced, it is important to make a distinction between:

a) short term transitional, cost increasing and trade disrupting issues, which
in due course will be resolved as IT, systems, physical infrastructure, and training
initiatives begin to come on stream; and

b) longer term structural cost increasing and trade disrupting issues, which
are now a permanent feature of the operation of horticultural sector triangular
supply chains.

While in regard to short term transitional, cost increasing and trade disrupting issues the situation is likely to get worse before it gets better, by mid-2022 and certainly 2023, these issues will begin to be resolved and the high levels of cost increases and disruptions currently seen along triangular supply chains will begin to be reduced.

However, the longer-term structural cost increasing, and trade disrupting issues faced, by their nature, will result in permanent increases in the costs of doing business along triangular supply chains. The two most important structural cost increasing issues in this regard are:

a) The new rules of origin requirements applicable to ACP goods shipped along
triangular supply chains.

b) The scope for divergence in phytosanitary standards which will lead to a
permanent increase in the costs of phytosanitary import controls along triangular
supply chains.

The new rules of origin complications are likely to prove the most serious for ACP countries, since this issue extends substantially beyond the horticulture sector. This issue potentially adversely affects products as diverse as bulk and bottled rum exports, cocoa paste and cocoa butter and raw cane sugar; unless of course these are used solely in products destined to remain in the market to which they were directly exported.

The new rules of origin complications mean that unless goods traded along triangular supply chains remain under customs supervision until delivery in the territory of final sale, then these products will lose their initial originating status and become ‘stateless goods’. These ‘stateless goods’ then face standard MFN import tariffs when imported into either the EU or UK along triangular supply chains, even where trade agreements are in place which grant full duty free-quota free access to these products if exported directly to either the UK or EU.

This adds cost to ACP goods delivered along triangular supply chains. This is most significant for products where high MFN tariffs apply.  This is a particular challenge for short shelf-life horticulture and floriculture products, given the relatively high MFN duties applicable and the time sensitivity of deliveries.

However, concerns also arise for other ACP products, particularly those used in food and drink manufacturing, where alternative domestic EU/UK sources of supply exist. Here the use of ‘domestically’ sourced inputs would side-step any potential rules of origin complications under the EU/UK trade agreement which might arise from using imported raw materials (e.g., ACP raw sugar exports) (see companion epamonitoring.net article, ‘EU Sugar Projections to 2030 Suggest Less Room on EU27 Market for ACP Sugar Exports’, 16 February 2021).

The issues and analysis contained in the COLEACP Brexit assessment thus have a far wider applicability than simply the ACP-EU/UK horticulture trade.

The implications of these rules of origin complications need to be urgently assessed, agri-food sector supply chain by agri-food sector supply chain. Since this issue reaches beyond the horticulture sector and even beyond triangular supply chains, the scope for ACP alliance formation to pressure for policy initiatives to remove the new rules of origin complications now faced by ACP agri-food exporters, is substantial.

The scope for building such alliances across ACP countries and export sectors and enlisting the support of concerned stakeholders in the EU, needs to be urgently explored.  This would appear to be essential if the market for ACP supplied products delivered along existing supply chains is not going to be dramatically reduced.

While without doubt supply chains will eventually adjust to the new post-Brexit trade realities, the question arises: to what extent will smaller ACP suppliers will remain part of these new supply arrangements once the necessary adjustments have been made?

Sources:
(1) COLEACP Brexit Assessment, home page
https://news.coleacp.org/brexit-update-of-coleacps-general-information-document/
(2) COLEACP Brexit Assessment, full document
https://eservices.coleacp.org/sites/default/files/file_fields/2021/documents/Brexit%20readiness%20assessment%20tool_EN_2021_BD.pdf
(3) COLEACP, ‘Direct Exports to the UK: I am a company exporting directly to the UK and my products stay in the UK’
https://eservices.coleacp.org/sites/default/files/file_fields/2021/Brexit/Brexit%20-%20Direct%20exports%20to%20the%20UK.pdf
(4) COLEACP, ‘Direct Exports to the EU27: I am a company exporting directly to the EU27 and my products stay in the EU27’
https://eservices.coleacp.org/sites/default/files/file_fields/2021/Brexit/Brexit%20-%20Direct%20exports%20to%20the%20EU27.pdf
(5) COLEACP, ‘Indirect Exports to the UK via the EU27: I am a company exporting to the UK via a point of landing in the EU 27’
https://eservices.coleacp.org/sites/default/files/file_fields/2021/Brexit/Brexit%20-%20Indirect%20exports%20to%20the%20UK%20via%20the%20EU27.pdf
(6) COLEACP, ‘Indirect Exports to the EU27 via the UK: I am a company exporting to the EU27 via a point of landing in the UK’
https://eservices.coleacp.org/sites/default/files/file_fields/2021/Brexit/Brexit%20-%20Indirect%20exports%20to%20the%20EU27%20via%20the%20UK.pdf
(7) COLEACP, ‘Indirect Exports to the Republic of Ireland via the EU27 and the UK: I am a company exporting directly to the Republic of Ireland via the UK land bridge’
https://eservices.coleacp.org/sites/default/files/file_fields/2021/Brexit/Brexit%20-%20Indirect%20exports%20to%20the%20Republic%20of%20Ireland%20via%20the%20EU27%20and%20the%20UK.pdf