Summary
While recovery in UK exports to the EU is underway after unprecedented declines in January 2021, the recovery in EU exports to the UK is less pronounced, with trade still down significantly compared to 2020. No data is available on the impact this is having on ACP goods shipped along triangular supply chains. However, the need to get to grips at the policy level with the sources of cost increases along triangular supply chains has bene given a new urgency by the UK’s Covid-19 linked ‘red list’ of countries subject to restrictions on entry to the UK.
According to figures released by the UK Office for National Statistics (ONS) ‘exports of goods from the U.K. to the EU showed signs of a partial recovery in February.’ UK exports to the EU reportedly ‘increased by £3.7 billion (46.6 percent) after a record fall of £5.7 billion (negative 42 percent) in January.’ However, ‘exports were still significantly lower in February, compared to 2020, before the end of the Brexit transition period.’ Meanwhile the ONS reported ‘imports from the EU also picked up, though only slightly, increasing by £1.2 billion in February after a record drop of £6.7 billion in January.’. According to the ONS while ‘exports to the EU recovered significantly from their January fall’, they ‘still remain below 2020 levels.’ Imports from the EU however ‘are yet to significantly rebound.’ Survey data cited by the ONS suggests ‘businesses’ trading activities were being held back by Brexit frictions, such as extra paperwork and higher transportation costs’ (1). This is the case despite the UK government’s decision to defer the introduction of border controls on imports across EU borders until 2022 (see companion epamonitoring.net article ‘UK Deferment of Implementation of Phase 2 and Phase 3 UK/EU Border Controls Leave Problems Faced by ACP Triangular Supply Chain Exporters Unaddressed’, 16 March 2021).
While it is held that shipping data supports the idea of a recovery in trade, reports of an increase in the percentage of empty trucks returning from the UK to the EU from the ‘normal’ 30% level to around 50%, suggests shipping data based on ships crossing the channel needs to be further disaggregated and assessed.
No data is available on the impact of the collapse on EU to UK trade on the movement of ACP goods along triangular supply chains between the EU and UK. However, for air freighted horticulture and floriculture products from Eastern Africa to the UK, the need to address the cost increasing complications which have arisen along triangular supply chains has been given added importance by the UK’s 2 April decision to indefinitely restrict from 9th April entry from a group of ‘red list’ countries, where the risk of contagion of new variants of the Covid-19 virus are deemed to be high (see companion epamonitoring.net article, ‘East African Air Freighted Horticulture and Floriculture Exports to UK facing Devastation Given UK ‘Red List’ Travel Restrictions’, 13 April 2021).
| Comment and Analysis Anecdotal evidence from ACP exporters shipping along triangular supply chains from the mainland EU to the UK suggests that smaller scale exporters and exporters of lower value short shelf-life products are being most severely affected by the trade disruptions generated by the creation of a new EU/UK border. This is despite the decision of the UK government to phase-in border controls and defer the introduction of phase 2 and phase 3 border controls until 2022. A number of key factors can be identified which particularly affect smaller scale exporters and lower value products.Firstly, the virtual abandonment of ‘groupage’ road haulage practices between the EU and UK. This means this low-cost onward shipment arrangement is no longer available. The cost increases this gives rise to fall particularly heavily on small scale exporters and exporters of lower value products. Secondly, the increase in the fees charged by customs intermediaries, also fall most heavily on smaller scale exporters and low value exports, given the fixed nature of these cost increases and the limited volume and value over which these cost increases can be spread. The third key factor impacting on the onward trade in ACP products across the EU/UK border is the UK MFN tariffs charged on imports onward shipped outside of customs supervision. These vary from product to product, with ACP vegetable and fruit products traded along triangular supply chains facing particularly high tariffs. The following table is illustrative in this regard. Value of the Top 10 ACP Fruit, Vegetable, and Cut Flower Exports to the EU28 in 2019 (Million Euro) by UK MFN Tariffs on Triangular traded Products Shipped Outside of Customs Supervision
Source: If we take just the top 10 fruit and vegetable exports by value, we find: · 5 ACP product categories with a value of almost €2 billion exported to the EU28 · 2 further product categories valued at almost €600 million would face tariffs of · 3 product categories valued at €470 million would face zero tariffs or tariffs Clearly a more detailed analysis is required of the extent of the ACP triangular trade and the commercial significance of the MFN tariffs faced alongst these top 10 ACP fruit and vegetable exports. This also applies to other ACP fruit and vegetable products where tariffs in excess of 10% or between 5% and 10% are faced, if onward traded across an EU/UK border outside of customs supervision. This includes a further 31 vegetable product categories and 10 fruit product categories where tariffs in excess of 10% would be faced and 4 vegetable product and 15 fruit product categories where tariffs of between 5% and 10% would be faced. A preliminary, more detailed analysis of the ACP cut flower trade suggests that given the structure of the global distribution network for cut flowers (where the Dutch cut flowers auctions play a critical role in serving UK markets), major volumes of ACP cut flowers will be impacted by the UK 8% MFN tariff faced when goods are shipped to the UK outside of customs supervision. In addition, in the cut flowers sector VAT complications will be faced resulting from the creation of the UK as a completely separate VAT tax jurisdiction and the application of 20% VAT on cut flowers. The impact of these developments however will be mitigated by the highly organised nature of this onward trade, in cut flowers which potentially makes it easier to address issues related to customs supervision for onward traded products and changes in VAT administration. What is more, the cut flowers sector has its own dedicated road haulage fleets, which enables it to side- step the ‘groupage’ challenge and the worst of the cost escalations in the road haulage sector. Want is more, with much of the cut flower market being a ‘luxury purchase’ sector, the scope for passing on price increases to consumers is greater than in other ‘necessity purchase’ vegetable sectors. These kinds of detailed considerations will need to be factored into any supply chain by supply chain analysis of the impact of the new EU/UK border on ACP triangular supply chains. Such analysis will also need to consider the scope for shipping under customs supervision or re-routing cargoes towards direct shipment to the UK, which will vary from supply chain to supply. A similar analysis would also appear necessary for other major ACP export product sectors, where triangular trade occurs, such as fisheries, and textile and clothing products. |
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Sources:
(1) politico.eu, ‘UK goods trade with EU signals recovery’, 13 April 2021
https://www.politico.eu/article/uk-goods-trade-with-eu-signals-recovery/