Future UK Only MFN Tariff Schedule Announced

epamonitoring

Summary
After much speculation, the MFN tariffs on most agricultural and food products of greatest export intertest to ACP countries have been retained largely unchanged by the UK government.  This will bring considerable relief to ACP banana, sugar, canned tuna, and value-added cocoa product exporters, where fears of the adoption of a ‘zero production-zero tariff’ approach had arisen. Across a range of other areas, relatively minor tariff reductions are unlikely to carry serious trade implications for ACP agri-food product exporters. The only area of uncertainty arises from the removal of the EU entry price system currently applied to a range of products and its replacement by simpler ad valorem import duties.  It is unclear what the commercial impact of this change will be on individual ACP exporters of specific products.

On the 19th May 2020, the UK government announced the MFN tariffs to be applied once the UK leaves the EU customs union (currently scheduled for 1st January 2021).  This followed the public consultation process which closed on 3rd March 2020. In its press release the UK government highlighted how ‘some tariffs are also being maintained to support imports from the world’s poorest countries that benefit from preferential access to the UK market’ (1).

The UK government maintains the UK MFN regime will be a lower tariff regime which is simpler and easier to use than the EU common external tariff regime. It is argued the new tariff regime ‘will scrap red tape and other unnecessary barriers to trade, reduce cost pressures and increase choice for consumers and back UK industries to compete on the global stage’ (1). According to the UK government the new regime involves ‘scrapping unnecessary tariff variations, rounding tariffs down to standardised percentages, and getting rid of all “nuisance tariffs” (those below 2%)’ as well as ‘streamlining and simplifying nearly 6,000 tariff lines’ (1).

The most notable feature in the agri-food sector is the UK’s decision to move away from the EU’s entry price system and associated large range of seasonal variations to applied MFN import levies this can give rise to.

However, for those products of greatest interest to ACP exporters serving the UK market there are either no changes or no major changes. Thus, we find:

  • For bananas (€200 million in ACP export directly to the UK in 2019) the existing EU MFN duty has simply been converted from €114/tonne to £95/tonne (based on an exchange rate of €1 = £0.83687).
  • For sugar (€137 million in ACP exports directly to the UK), the existing MFN duty has simply been converted from €419/tonne to £350/tonne.
  • For ethnic roots and tubers (€7 million in ACP exports directly to the UK), the existing EU MFN duty has simply been converted from €95/tonne to £79/tonne.
  • For cocoa paste (€27 million in ACP exports directly to the UK), the existing MFN ad valorem tariff has been reduced from 9.3% to 8%.
  • For cocoa butter (€106 million in ACP exports directly to the UK), the existing MFN ad valorem tariff has been reduced from 7.2% to 6%.
  • For cut flowers (€75 million in ACP exports directly to the UK and substantially more via the Netherlands), the existing seasonally variable MFN ad valorem tariff has been reduced from 8.50% from 1st January until 31st May and from 1 November until 31st December and 12.00% from 1st June until 31st October, to a year round 8% tariff.
  • For preserved tuna fish (€196 million in ACP exports directly to the UK) the pre-existing tariff has been reduced from 25% to 20% (with the exception of tariff line 160401490 where the UK tariff rate has been maintained at 25%) (2).

For other products where both EU MFN tariffs and export values to the UK were lower, some minor adjustments to UK import tariffs have been introduced. Thus, we find:

  • For avocadoes (direct ACP exports to the UK of €38 million) the pre-existing tariff has been reduced from a seasonally adjusted level of between 4% and 5.1% to a year-round ad valorem rate of 4%.
  • For peas (direct ACP exports to the UK of €16 million) the pre-existing seasonally adjusted MFN tariff has been slightly adjusted from between 8% and 13.6% to 00% to be applied between 1st September and 31st May and 12.0% to be applied from 1 June to the 31st August.
  • For raspberries etc (direct ACP exports to the UK of €13.3 million) a tariff of between 8.8% and 9.6% is replaced by a simple across the board 8%
  • For Onions and Shallots (direct ACP exports to the UK of €9 million) the pre-existing tariff has been reduced from 9.6% to 8%.
  • For melons/watermelons (direct ACP exports to the UK of €9 million) the pre-existing tariff has been reduced from 8.8% to 8%.
  • For peppers/pimento (direct ACP exports to the UK of €8 million) the pre-existing tariff has been reduced from 6.4% to 6%.
  • For Aubergines (direct ACP exports to the UK of €4 million) the pre-existing tariff has been reduced from 9.6% to 8%.
  • For sweet potatoes (direct ACP exports to the UK of €4 million) the fresh tariff for human consumption has been reduced from 3% to 2% while for non-human consumption it has been converted from €64/tonne to £53/tonne.

The situation is more complex for products where the EU applied an entry price system, which the UK is moving &away from. The UK government is replacing Standard Import Values by ad valorem duties and is simply doing away with minimum import price requirements.

It is far from clear what the impact of this UK simplification process will be.  Certainly, by removing minimum import price requirements it will de facto do away with the import floor price from which new ACP entrants to the EU market have benefitted across a variety of products.

The most important ACP products affected by this change are largely citrus fruit and deciduous fruit, although a variety of additional fruit and vegetables are also affected.  Thus, we find:

  • For most oranges, the EU Standard Import Value system is replaced by a seasonally variable tariff of between 2% (1st May until 31st October) and 10% (1st November until 30th April).
  • For satsumas, mandarins and clementines a simple ad valorem tariff of 16% is applied.
  • For lemons and limes a simple ad valorem tariff from 6% to 12% is to be applied.
  • For table grapes the entry price system is replaced in the UK by an ad valorem tariff of 8%.
  • For deciduous fruit such as apples is replaced by a seasonally variable duty of between 0% and 8%.

Together in 2019, the main ACP citrus, deciduous and table grape product exports to the UK totalled €135 million.

Other products where the minimum import price system is being replaced include:

  • For fresh beans (direct ACP exports to the UK of €53 million) where an EU combination of seasonally adjusted ad valorem tariffs (ranging from 10.4% to 13.6%) and minimum import price requirements is replaced by a simple UK 10% ad valorem tariff
  • For headed broccoli and cauliflower (direct ACP exports to the UK of €18 million) where an EU combination of seasonally adjusted ad valorem tariffs (ranging from 9.6% to 13.6%) and minimum import price requirements is replaced by a simple UK 8% ad valorem tariff
  • For fresh Plums (direct ACP exports to the UK of €15 million) the entry price system is replaced by a UK 6% ad valorem tariff.
  • For peaches and nectarines (direct ACP exports to the UK of €21 million) the entry price system is replaced by a UK 16% ad valorem tariff.

For a product like mangoes and guavas where ACP exports to the UK market in 2019 were valued at €43 million, since the EU MFN duty was already zero, this zero MFN duty has simply been replicated.

Comment and Analysis
After much discussion of a possible ‘zero production-zero tariff’ approach to the UK’s future MFN tariff schedule, the final announcement will come as a relief to a wide cross section of ACP exporters.  ACP banana exporters who will see the existing EU duty simply converted from € to £, will be particularly relieved.  The recent experience of reduced tariff access for bananas under EU preferential trade agreements with Central American and Andean Pact $ banana exporting countries strongly suggests tariff reductions and the relative margins of tariff preferences enjoyed by different exporters has a major bearing on import sourcing decisions and banana sector trade flows. ACP sugar exporters, where a similar straight forward conversion of the existing MFN rate has been agreed will also be relieved.The only marginal UK reduction of existing MFN tariffs on cocoa butter and cocoa paste will also be welcomed. If no UK-EU trade agreement is agreed by the end of 2020 and UK MFN duties are then applied to imports of cocoa butter and cocoa paste from EU27 suppliers, then this could create commercial space for a substantial expansion of Ghanaian and Ivorian direct exports of cocoa butter and cocoa paste to the UK.  This would consolidate a process of growth which has been underway for some time. And could even open opportunities for exports of such value-added cocoa products from other ACP cocoa exporters (most notably Cameroon).However, with the UK largely removing the import duty on cocoa powder this would be likely to close off opportunities for the development in ACP countries of value-added processing in this component of the cocoa value chain.The only marginal reduction in UK MFN tariffs on cut flowers, particularly for cut roses, will also be welcomed by ACP exporters, whose export trade has been devastated by the impact of the Covid-19 pandemic. In the case of cut roses considerable concerns arose over the impact of any reduction or removal of the existing MFN duties on trade flows, in light of the extensive state support investment underway in India in the development of cut rose exports, focused on the UK market.

Indian exporters saw the high freight rates faced and the Standard GSP duties levied (which are linked to the baseline MFN tariff) as the principal obstacle to export expansion. To the extent the recent COVID-19 related 3-fold increase in air freight rates between East Africa and the EU becomes a permanent feature of trade realities in the cut flower sector in the coming years, the freight disadvantage faced by Indian exporters could easily disappear, leaving the MFN/GSP tariffs applied by the UK the key factor in future investment decisions and trade flows in the cut roses sector.

An important issue arising in the cut flower sector in the coming year will be however the measures taken to facilitate the continued smooth functioning of triangular supply chains for the delivery of ACP cut flowers to the UK market, should there be no trade arrangement between the EU and UK in place by the end of 2020.

Since these triangular supply chains provide the route to market for the majority of ACP cut flower exports to the UK market, this is a matter of some concern. Specific measures will need to be set in place to prevent a disruption of these supply chains. Any such disruption which would profoundly set back the process of post-Covid-19 recovery in the ACP cut flower sector which is only likely to get underway in 2021.

The announcement of the maintenance of 80% of the high MFN import duty applied to preserved tuna, will also have been a relief to ACP island economies whose export trade with the UK is heavily dependent on canned tuna exports (e.g. Seychelles).

The relatively small tariff reductions introduced for a range of agri-food products (valued at more than €120 million where ACP countries have an export interest would appear unlikely to have any significant impact on trade flows to the UK market.

Of more series concern is the uncertainty generated by the removal of the EU entry price system and its replacement by simple ad valorem tariffs. This could potentially affect over €242 million in ACP exports to the UK market.  However, it is not anticipated this will have particularly serious effects in most areas given exports from ACP countries to the UK in most of these products are dominated by South Africa or Kenya, which have strong market positions in the citrus/deciduous fruit sectors and fresh bean sectors respectively.

However, the position of smaller ACP exporters could be compromised.  This is most likely where the entry price system, provided a floor price below which import prices could not fall.  This ‘floor price’ effect of the entry price system has in the past facilitated the establishment of ACP exporters on EU markets, when export product quality was initially an issue, but where, over time with experience, more consistent quality standards and better prices have been being obtained by these smaller ACP exporters.

Sources:
(1) gov.uk, ‘UK Global Tariff backs UK businesses and consumers’, 19 May 2020
https://www.gov.uk/government/news/uk-global-tariff-backs-uk-businesses-and-consumers
(2) UK Global Tariff: Search Engine
https://www.check-future-uk-trade-tariffs.service.gov.uk/tariff?q=070410&n=25&p=1