Summary
The ending of the two year notification period set out under Article 50 of the EU Treaty alongside the House of Commons rejection of the Withdrawal Agreement for a 3rd time, leaves the Brexit process on borrowed time. The UK government will now have to submit an alternative way forward in the Brexit process if a no deal Brexit is to be avoided on the 12th April 2019. While this may include a longer extension of the Article 50 period beyond the 2 weeks the EU Council has currently granted, the prospect of a no-deal Brexit on 12th April cannot be ruled out. This is despite a huge 240 Parliamentary majority against the UK leaving the EU without a deal. While a no-deal Brexit will not impact on the duty free quota free access which LDCs enjoy to the UK market, where the UK government has committed to rolling over the existing EU preferential system for LDCs as a unilateral UK trade arrangement, a wide variety of non-tariff related issues will also need to be addressed. If these issues are not comprehensively addressed then current trade flows from LDCs could be disrupted in the short term while in the longer term the value of the duty free-quota free access enjoyed could be undermined by changes in the UK’s independent MFN tariff regime. In addition there are a range of UK trade policy issues which need to be addressed if trade with least developed countries is to become a tool for wider poverty focussed sustainable development in LDCs. Most notably in this regard are the rules of origin and SPS control requirements to be applied by the UK to imports from LDCs.
The State of Play in the Brexit Process
On the 29th March 2019, the EU/UK Withdrawal Agreement was once again defeated in the House of Commons by 344 votes to 286, a majority of 58 against the Withdrawal Agreement. This left the British government needing to advance an alternative way forward if a no deal Brexit is to be avoided on the 12th April. However any alternative put forward by the UK government will need to be acceptable to the EU. The EU Council will meet in emergency session on 10th April 2019 to respond to any proposals which the British government may table on an alternative way forward.
These alternative proposals will need to be consistent with the Withdrawal Agreement which the EU Council is unwilling to reopen. Thus while the EU Council is open to alternative ways forward, this will require the British government to shift its ‘red lines’, or set out a credible process for breaking the Parliamentary deadlock. Under such circumstances the EU Council would be likely to grant a longer extension to the article 50 process, until for example, the end of 2019 or even beyond. However, this would require the UK to participate in the European Parliament elections scheduled for the last week in May 2019.
Immediate political analysis carried by the BBC following the latest House of Common vote on the Withdrawal Agreement was that it was now likely Prime Minister May would seek a longer extension to the Article 50 period, given the firm opposition of the House of Commons to a no deal Brexit (240 vote majority against a ‘no-deal’ Brexit). However, any request for a longer extension to the Article 50 process could see further resignations from Prime Minister May’s Cabinet and even moves to push Prime Minister May out of office.
Considerable uncertainty therefore remains with less than two weeks to go before the UK’s newly scheduled withdrawal date of 12th April. This creates a situation where a no-deal exit ‘by accident’ is a realistic possibility. Against this background the question arises what steps need to be taken to ensure LDCs enjoy not only continuity in the duty free-quota free access they currently enjoy to the UK market, but also continuity in current trade flows in the short term and continuity in the value of existing duty free access in the medium to long term?
A No Deal Brexit and LDCs:
- DFQF Access Secured, But…
The announcement by the British government that it would roll over the EU’s existing EBA scheme in favour of least developed countries as a unilateral UK-only preference scheme in June 2017, secured continued duty free-quota free access for LDC exporters to the UK market regardless of the outcome to the EU/UK Brexit negotiations (1).
However tariffs are only one dimension of the application of trade preferences. Important trade administration issues also have to be addressed in order to ensure continuity of trade flows. In addition in the medium term broader trade policy issues need to be addressed in order to maintain and enhance the value of the duty free-quota free access granted least developed countries.
This requires not-only the setting in place of trade arrangements by the UK government which roll over current duty free-quota free access arrangements but also the setting in place of a range of supplementary agreements and the adoption of specific policy choices if the continuity of trade flows and continuity of the value of rolled over DFQF access for LDC exporters is to be ensured.
What is more if trade is to be used as a tool for development, it will require modifications to existing rolled over trade arrangements, most notably in regard to the rules of origin to be applied to LDC exports to the UK market under the UK’s unilateral GSP preference scheme and a new UK specific approach to phytosanitary controls, consistent solely with the agro-climatic conditions prevailing in the UK.
- …Short Term Trade Administration Issues Left Unaddressed
At the most basic level this will require LDC exporters who export directly to the UK/EU27 to ensure existing Economic Operator Registration Identification (EORI) numbers remain valid for their geographical area of operations (either the EU27 or the UK). The current situation is that once the UK leaves the EU customs union, EORI numbers issued by UK customs authorities will no longer be valid for the entry of goods to EU27 markets and EORI numbers issued by EU27 custom authorities will no longer be valid for the entry of goods to the UK.
This may require new EORI numbers to be registered where exports to the UK take place on the basis of an EORI number issued by the customs authorities in a EU27 member state or where exports to the EU27 take place on the basis of an EORI number issued by the UK customs authorities. Put simply in future trade separate and distinct EORI numbers will be required for LDC exports to the UK and EU27 respectively.
Correct EORI registration is essential since a valid EORI number provides the basis for binding tariff information decisions (BTI decisions) and binding origin information decisions (BOI decisions), which are a pre-requisite for the benefits of any agreed tariff preferences to be claimed by individual exporters.
It is unclear to what extent these administrative requirements are widely known by LDC exporters and to what extent these administrative requirements are being addressed by LDC exporters. Failure to get to grips with these administrative changes for exporters whose existing EORI numbers would be invalidated for some of the current exports would prevent market entry on preferential terms, resulting in commercial losses and even delays which could reduce the final sale value of the products being exported.
If LDC exporters are themselves not the agency involved in the trade process they will need to ensure their trade partners in the EU27 trading onward into the UK have valid EORI numbers and/or their trade partners in the UK trading onward into the EU27 have valid EORI numbers and all associated documentation (e.g. BTI and BOI decisions).
While securing an EORI number is a relatively straight forward task, only a small minority of businesses involved in EU27/UK trade who will now need an EORI number for the first time have actually registered.
LDC exporters will need to rapidly assess the implications of these changes for their current routes to market and make sure they are in a position to deal with these administrative changes. If these administrative issues are not addressed certain LDC exports to the UK and EU would be likely to be held up at the border. This would then delay the delivery of exported products to the final customers, with this stripping value out of these supply chains to the detriment of LDC exporters.
In addition it needs to be borne in mind that unless an agreement to the contrary is reached, once the UK is no longer part of the EU, the UK customs authorities will no longer have access to EU trade administration systems over which the EU has proprietary rights, this includes the newly introduced REX trade administration system. This is an important issue, for many LDCs have already made the transition to the REX scheme (see box).
For LDC exporters, who began the transition to the REX trade administration system under a no-deal Brexit outcome this will require the application of two separate trade administration arrangements to trade with the EU27 and UK. These LDC exporters will have to revert back to a paper based system of trade preference administration in trade with the UK. This will potentially add a new administrative burden which could increase costs beyond those which applied when a single EU market which included the UK was being served.
| LDCs Transitioned into the REX Trade Administration System
GSP Country Effective Application Date of REX system End of Transition Angola 25/04/2018 30/06/2018 Burundi 27/07/2018 30/06/2018 Comoros 06/01/2017 30/06/2018 Ethiopia 07/03/2017 31/12/2017 Guinea Bissau 05/12/2017 30/06/2018 Kiribati 04/04/2018 30/06/2018 Malawi 01/01/2018 31/12/2018 Mali 22/06/2018 30/06/2018 Mozambique 28/12/2018 30/06/2019 Rwanda 07/03/2018 31/12/2018 Sao Tome&Prince 29/06/2018 30/06/2018 Senegal 01/01/2019 31/12/2019 Sierra Leone 16/08/2018 31/12/2018 Solomon Islands 20/09/2017 30/06/2018 Tanzania 14/06/2018 31/12/2018 Togo 27/07/2018 30/06/2019 Tuvalu 03/10/2018 31/12/2019 Uganda 01/01/2019 31/12/2019 Vanuatu 01/01/2019 31/12/2019 Zambia 01/01/2017 30/06/2018 |
- …Then There are the Short Term Non-Tariff Trade Issues
Beyond these basic trade administration issues in the short term the question arises as to whether the UK will continue to recognise EU issued SPS and food safety certification documentation under a no-deal Brexit scenario. While UK government officials have suggested the use of EU SPS and food safety certification systems could be extended until the end of 2019, there is no guarantee that under a no-deal Brexit, alternative UK only systems of SPS and food safety certification would be effectively in operation by this date. If UK only systems of SPS and food safety certification are not effectively in place by the end of 2019 this could create additional short term problems for LDC exporters.
This issue is complicated by the phasing in of the EU’s Plant Health Regulation which may only be fully in place after the UK has left the EU. This raises the issue of which elements of this EU Plant Health Regulation the UK would then be committed to enacting.
This is potentially an important issue for LDCs whose exporters often lack the economies of scale required to be able to carry the costs which the EU’s increasingly strict phytosanitary controls place on exporters. Against this background the new EU Plant Health Regulations could potentially serve to drive smaller LDC suppliers out of EU markets (for an illustrative example see companion epamonitoring.net article, ‘New EU Plant Health Regulation on Non-European Fruit Fly Could Put Squeeze on Smaller ACP Mango Exporters’, 15 April 2019).
Given the pan-ACP nature of these trade administration issues the Governments of LDCs may need to seek the support of fellow ACP governments in obtaining assurances from both the UK and EU authorities that all necessary steps will be taken to ensure continuity in the use of existing trade documentation in trade with the UK, for as long as is necessary in the post-Brexit period, namely until such time as new UK only trade administration systems are in place.
- ….But There Are Also Long Term Possibilities in the SPS Field
In the longer term a range of trade administration issues also arise. For example in the SPS sphere once no longer part of the EU the UK government may wish to pursue a phytosanitary control regime which more accurately reflects the agro-climatic conditions in the UK.
Put simply the UK may not wish to fully replicate and apply the phytosanitary controls now being phased in under the EU’s new Plant Health Regulation (Regulation (EU) 2016/2031 and subsequent implementing regulations), where these controls simply add costs without being relevant to the phytosanitary challenges faced under the specific agro-climatic conditions which prevail in the UK.
Against this background if the UK were to apply phytosanitary controls based solely on the agro-climatic conditions in the UK for a range of products these controls may need to be less strict than those required under an EU systems (2). A control system which has to take account of the agro-climatic conditions across the whole of the EU.
Against this background LDC exporters in their relations with the UK may find they have an in interest in pushing for a review and removal of phytosanitary checks which become un-necessary under an SPS control regime which addresses solely the agro-climatic conditions in the UK rather than the agro-climatic conditions in existence across the whole of the EU.
- …For Some LDCs The Functioning of Triangular Supply Chains is Important
In addition important issues arise for LDC exporters in regard to the functioning of triangular supply chains. This is particularly important for East African floriculture and horticulture exporters who serve the UK market via trade hubs in the Netherlands.
Cut Flower Exports to the EU and the Netherlands (tonnes) 2017
| Ethiopia | Uganda | Zambia | Zimbabwe | Tanzania | |
| EU | 76,524 | 12,566 | 6,586 | 5,443 | 3,451 |
| Netherlands | 73,889 | 12,477 | 5,242 | 5,399 | 2,932 |
| Netherlands % exports to the EU | 97% | 99% | 80% | 99% | 85% |
Source: EC, Market Access Data Base, http://madb.europa.eu/madb/indexPubli.htm
Fully 80% of all flowers sold in the UK are imported from or via the Netherlands in a context where most LDC flower exports to the EU enter the single EU market via the Netherlands; from where they are auctioned and distributed to buyers across Europe, most notably in the UK.
These triangular supply chains serving the UK market via the Netherlands will be facing four main Brexit related sources of disruption:
- The potential imposition of tariffs on onward trade if products ‘lose’ their LDC identity during transhipment and face the standard MFN duties applicable to imports into the UK;
- The imposition of standard non-tariff controls on imports from 3rd countries into the UK via the EU, if the EU no longer carries out necessary phytosanitary checks on goods being forwarded to the UK; under current UK proposals for the conduct of these 3rd country import controls this could generate substantial delays along these triangular supply chains in ways which would strip value out of these supply chains (a 1 day delay in cut flower deliveries is estimated to reduces an exporters profits by 30%);
- The need to restructure existing logistical operations to minimise the administrative complexity of onward forwarding for goods landed in the Netherlands for delivery to the UK;
- The transport delays and disruptions which could arise around the main cross channel ‘roll on-roll-off’ (RORO) routes as a result of the imposition of new regulatory controls on EU27/UK trade.
Some of these causes of disruption can be addressed via policy discussions and appropriate policy responses, while others will require a fundamental adjustment of how these triangular supply chains function and even whether or not such triangular supply chains are used in the future in serving the UK market.
What is clear is that a no-deal Brexit could severely disrupt these current supply chains, with new triangular trade administration arrangements being needed if such disruptions are to be minimised.
Against this background the LDC Governments’ may wish to join with other similarly placed ACP countries in calling on the EU an UK to take all necessary steps to establish appropriate customs and border clearance arrangements to facilitate onward trade between the EU and UK, where products enjoy the same terms and conditions of access to both the EU and UK markets.
In the short term LDC government’s may further wish to request the EU to support processes of dialogue with private sector traders, port authorities and ferry operators so as to ensure the necessary arrangements are set in place to ensure the continued free flow of exports along triangular supply chains once the policy level issues have been addressed.
These issues will need to be addressed if continuity in the flow of LDC exports to the UK market is to be ensured.
- Medium Term Value of Tariff Preference Issues
In the medium term an important issue for LDC exporters will be the future of the UK’s MFN tariff regime. While high MFN tariffs which give value to the duty free-quota free access enjoyed by LDC exports to EU28 markets have been maintained for the immediate no-deal Brexit period, these UK MFN tariffs are to be reviewed within 12 months.
Thus from as early as May 2020 there may be no guarantees that the existing rolled over UK-Only MFN tariffs will be retained in place. The prospect of the removal of high MFN tariffs is particularly likely where there is no competing UK domestic product. In this context the primary British government concern may well prove to be combatting the high food price information effects of a no-deal Brexit.
This means the value of any rolled over duty free-quota free access granted LDC exporters could rapidly be eroded, if it did not disappear altogether.
This issue will need to be addressed if continuity in the value of the duty free-quota free access rolled over for LDCs under the UK’s unilateral EBA style scheme is to be ensured.
- Medium Term Rules of Origin Issues
Under the UK’s rolled over EBA style arrangement in favour of least developed countries no consideration has been given to the scope for new, more accommodating, rules of origin which could be applied to exports from LDCs to the UK. From a development perspective, given the UK government’s policy emphasis on using trade as a tool for poverty focussed development this is a significant shortcoming in UK policy formulation.
Specifically there would appear to be a need for new rules of origin to be established for LDC exports to the UK which allow full cumulation of origin for all inputs originating within regional integration initiatives to which LDCs are a party; not only regional customs union (e.g. in the EAC or the SACU) but also regional free trade areas (e.g. the African Continental Free Trade Area).
Of particular interest in the agro-food sector there would appear to be a need to relax rules on the non-originating input content of value added agro-food product exports, by the removal of all packaging and preservative materials from the calculation of value of non-originating inputs used.
This could open up new opportunities for the export of high value low volume agricultural based products.
There would also appear to be scope for a revision of rules of origin applied to LDC fisheries products to remove needless crewing and ownership requirements for fishing vessels involved in capture operations, given the absence of any UK long distance fishing fleet.
LDC governments will need to find an institutional mechanism for taking up these varied issues with the UK government, with the ACP Group potentially being able to play a role in this regard while the UK is still a member of the EU.
Sources
(1) Gov.uk, ‘Government pledges to help improve access to UK markets for world’s poorest countries post-Brexit’, 24 June 2017
https://www.gov.uk/government/news/government-pledges-to-help-improve-access-to-uk-markets-for-worlds-poorest-countries-post-brexit
(2) DEFRA, ‘Search for priority pests – Pest Risk Analysis (PRA)’
https://planthealthportal.defra.gov.uk/data/priority-pests/pra