EU Pacific EPA Trade Committee Meet, but with no discussion of the impact of BREXIT

Given the focus on market access commitments is perhaps somewhat surprising that the impact of the UK’s departure from the EU on the value of Pacific signatories’ market access rights was not discussed. In the agro-food sector both Fiji and PNG have a high dependence on the UK market in their trade with the EU.

In reviewing the impact of Brexit on the benefits derived by Pacific island nations form the EPA four categories of dependence can usefully be used to classify levels of dependence on the UK market in their trade with the EU:

·  ‘Below Average Dependence’ (below 18% dependence on the UK market in trade with the EU28);

·   ‘Above Average Dependence’ (between an 18% & 30% dependence on UK market);

·  ‘High Dependence’ (between a 30% to 55% dependence on UK market);

·  ‘Exceptionally High Dependence’ (above a 55% dependence on UK market in trade with the EU28).

This classification can be applied both in regard to overall trade dependence on the UK market and in terms of individual product and sector dependence on the UK market in trade with the EU.

Using this categorisation we find Fiji has a high overall dependence on the UK market in its trade with the EU with primarily being accounted for by sugar exports, where the UK still takes around 48% of Fijian sugar exports to the EU.  However this is down from a 100% dependency as recently as 2011, suggesting a process of market diversification is underway.

Main Fijian Exports to the UK Potentially Affected by Loss of Preferential Access – € million (2015-16)

PNG has an average dependence on the UK market in its overall trade with the EU, but a high dependence on the UK market in its palm oil exports to the EU, where the principal refinery for fully traceable sustainable certified palm oil is located.

Main PNG Exports to the UK Potentially Affected by Loss of Preferential Access – € million (2015-16)

The Solomon Islands are similarly placed, with an average or below average dependence on the UK market in their overall trade but with an Exceptionally High Dependence’ on the UK market for exports of palm oil to the EU.

Main Solomon Island to the UK Potentially Affected by Loss of Preferential Access – € million (2015-16)

This UK palm oil refining facility serves the market for fully traceable sustainably certified palm oil across the EU.

It should be noted the decline in the value of the UK market in total exports to the EU in 2016 was in part attributable to the devaluation of British pound against the Euro following the Brexit referendum, although proportionally in tonnage terms the UK’s market share was also down.

For Samoa in the EU is a marginal trade partner, with no significant agro-food exports to the EU taking place. However in 2016 the UK did account for 72% of total Samoan exports to the EU, up from 35% in 2015.

The hard reality faced is that once the UK leaves the EU (scheduled for 29^th March 2019) the existing EPA agreement which governs Fijian and PNG exports to the EU28 countries will lapse with reference to the UK market.  There is thus an urgent need for PNG and Fiji to ascertain just how the UK intends to roll over the current terms and conditions of access to the UK market enjoyed under the EU-Pacific EPA.

While there is reportedly an “understanding” between the UK and the EU27 on the needs to ensure no third countries trade relations are disrupted by the Brexit process, operationalising this understanding could become more difficult if the UK were to leave the EU with no alternative trade deal in place.

If the UK’s exit was to be acrimonious, this could potentially throw up particular problems for PNG and the Solomon Islands given the importance of the current triangular trade in palm oil products, based on the use of a dedicated refinery in the UK from which the whole of the EU market for fully traceable sustainably certified palm oil is served.

However since freight volumes of UK agro-food exports are only 20% of the level of UK imports and fully traceable sustainably certified palm oil is not perishable in the same way as fresh horticulture products which are exported from ACP countries to the UK via the Netherlands and Belgium, it is unclear how commercially damaging delays at channel ports would actually be in the palm oil sector. Nevertheless, unless carefully managed a ‘hard Brexit’ could serve to disrupt this trade in palm oil, with this suggesting a need for contingency planning.

With the current delays in the launch of the EU27/UK trade negotiations and the prospects for a ‘hard BREXIT’ increasing there would appear to be some important trade issues to be discussed in the context of the next Pacific-EU EPA Trade Committee meeting.