Summary
Of the three major issues arising in the ACP horticulture sector trade in the context of the new EU/UK trade arrangement, the most important relate to rules of origin verification, given the absence of any ‘diagonal cumulation’ arrangements. This may require all ACP horticultural exports entering the UK market via the EU to remain under customs supervision (under Common Transit Convention procedures) if duty-free access to the UK market is not to be lost. Currently the infrastructure for the effective implementation of CTC procedures is not fully in place, with this potentially posing challenges for the onward trade in ACP horticultural products to the UK market. The phasing in of UK phytosanitary import controls poses tricky choices for ACP exporters in the first months of 2021. Efforts to simplify EU/UK procedures for the cross-border movement of goods could usefully take on board ACP concerns. ACP organic exporters will need to keep a close eye on how EU/UK mutual recognition of organic certification evolves in 2023, so timely and appropriate action can be taken to ensure exports can still be placed for sale as organic products in the target markets after 2023.
- Overview of the Issues
Negotiations for a successor EU-UK trade agreement were completed on 24 December 2020. Through this agreement the EU and UK committed to continued duty free-quota free trade (1). However, this much publicized headline agreement masked a more complex reality. Given the ‘thin’ nature of the final agreement concluded, for products to be allowed duty-free entry to the market of the respective trade partners, complex rules of origin requirements need to be complied with. Failure to adhere to these rules of origin requirements would mean duty free access could not be enjoyed under the new EU/UK trade arrangement. In addition, a host of standard third country non-tariff measures and requirements also need to be complied for goods to be allowed access to the EU/UK market.
With this complex agreement entering into force on 1st January 2021, there was little time for businesses dealing with EU/UK cross-border trade to assimilate the new requirements and effectively prepare their trading operations for the new realities. This saw many businesses deciding to ‘pause’ EU/UK cross border trading operation (2), having stockpiled products in the run up to the end of the transition period. However, this is not an option for short shelf-life fresh horticultural products, which form such an important part of ACP triangular trade flows to the UK via the EU.
These complex new requirements will give rise to additional trade challenges along ACP triangular supply chains which serve the UK market via EU27 Member States and EU27 markets via the UK.
The principal new trade challenges impacting on triangular supply chains used by ACP horticultural exporters, particularly for short shelf-life products will relate to:
- The new rules of origin requirements faced by goods crossing an EU/UK border, in the absence of provisions allowing ‘diagonal cumulation’ (see box)
- The phased introduction of UK-only phytosanitary import control measures on goods crossing EU/UK borders.
- The time limitation on mutual recognition of organic certification included in the EU/UK trade agreement, with the extension of current arrangement being reviewed in the course of 2023, in light of the compatibility issues arising in light of the implementation of the new EU organic regulations from 1 January 2022.
While an important additional issue impacting on the horticulture sector relates to the impact of the UK’s departure from the EU customs union and single market on road haulage operation along the main EU/UK ‘roll-on/roll-off’ (RoRo) ferry transport corridors, the main impact of the new EU/UK trade agreement is the avoidance of additional difficulties beyond those which were already anticipated resulting from shortcoming in UK border control and business level preparations (see epamonitoring.net ‘Key Challenges Identified in the NAO Brexit Preparedness Report: Implications for the ACP’, 7th January 2021).
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What is Diagonal Cumulation? The inclusion of ‘diagonal cumulation’ provisions in the EU/UK trade agreement would have allowed inputs from third countries to which both the EU and UK grant duty free access, to be counted as ‘originating inputs’ when traded between the EU and UK. This would have eliminated any rules of origin verification problems faced along current EU/UK triangular supply chains and would have facilitated the smooth functioning of such supply chains under current arrangements and haulage practices. |
- The Absence of ‘Diagonal Cumulation’ and Verification of the ACP Originating Status of Products
While duty free access to the UK market was rolled over for LDCs as early as 2017 (see epamonitoring.net ‘UK government commits to extending EBA access for LDCs post Brexit’, 30 June 2017) and all EPA signatories except Ghana had concluded UK only trade agreements by the end of 2020, ACP horticultural products exporters using triangular supply chains will now need to pay close attention to verifiably maintaining and documenting the ‘originating status’ of their exports to the UK in order to be able to continue to claim duty-free access to the UK market.
Given the absence of ‘diagonal cumulation’ provisions in the EU/UK trade agreement, it appears that for fresh produce exported to the UK via the EU (and the EU via the UK) consignments will need to remain under customs supervision (under Common Transit Convention procedures) if the ACP ‘originating status’ and hence, duty-free access to the UK market, is to be retained when traded along triangular supply chains.
Documentation of ‘originating status’ along triangular supply chains was not previously an issue for EU27 trade partners handling the onward trade of ACP-originating products to the UK market, because there have been no border controls on trade between the EU27 and the UK since 1993. Until 1 January 2021 goods moved freely to the UK once they had entered into free circulation within the EU. This situation changed on 1 January 2021.
Against this background, the very real danger exists that in the early months of 2021, lack of familiarity of traders with the new rules of origin related customs handling requirements and the infrastructure and IT system constraints on the implementation of Common Transit Convention procedures, could lead to delays, and even a loss of tariff preferences, for certain ACP exports delivered to the UK market along triangular supply chains.
Air freighted produce would appear to be particularly vulnerable, given the existing serious financial pressures arising from the impact of the Covid-19 pandemic on inter-continental air freight services. Smaller scale exporters would also appear to be particularly vulnerable to these disruptions along triangular supply chains.
In the short term these effects may be mitigated by the UK governments’ flexible implementation of its phased approach to the introduction of border controls on imports from the EU.
This is in part based on the joint EU/UK commitment to allowing a 12-month grace period for the submission of the paperwork required to validate the self-certification claims for the ‘originating status’ required for securing duty-free access to the UK market when traded across an EU/UK border.
- UK Only Phytosanitary Import Controls
While the EU/UK trade agreement includes a chapter and annexes on SPS measures, these provisions are based on the underlying reality of the UK becoming a sovereign territory for the design and implementation of its own SPS regime and its own phytosanitary import controls. Against this background the EU has made the sovereign decision to phase in its phytosanitary controls on crossing an EU-UK border.
From 1 January 2021 the UK has introduced standard phytosanitary import controls for High-priority plants and plant products entering the UK from the EU. These products must be pre-notified to the relevant UK authorities, be accompanied by a phytosanitary certificate (PC) and undergo physical inspections. During the period from 1 January to 1 April 2021 ACP produce cleared in the EU and re-exported to the UK will be treated the same as EU produce. The phased approach described will apply for customs, as well as for sanitary and phytosanitary (SPS) checks.
However, from 1 April 2021, it will be obligatory to ‘use the relevant IT system to notify the Animal Plant Health Agency (APHA) that you’re importing regulated plants and plant products.’ All regulated plants and plant products imported from the EU must be accompanied by a duly authenticated phytosanitary certificate.
This includes some cut flowers, root and tubercle vegetables, some common fruits other than fruit preserves by deep freezing, leafy vegetables other than vegetables preserved by deep freezing. It appears as if, from 1st April 2021, these phytosanitary requirements will apply to all concerned products crossing an EU/UK border, including ACP products.
From 1 July 2021, ‘regulated plants and plant products will have extra documentary checks and physical inspections’, with the use of UK IT systems to notify APHA of impending imports being obligatory.
Throughout this phase in period and beyond, products not requiring a phytosanitary certificate do not need to undergo phytosanitary import inspection. The UK’s list of products not requiring a phytosanitary certificate for entry to the UK market extends beyond the EU list applicable up to 1 January 2021.
Pre-Existing and Newly Announced UK Imports Not Requiring a Phytosanitary Certificate
| Bananas and plantains° | Pineapples° | Coconuts° | Durian° | Dates° | Mangoes |
| Guava | Passionfruit | Persimmon | Kumquat | Kiwi | Cotton (bolls) |
| Citrus and bitter orange | Curry leaf |
° indicates product already exempt from import controls under EU regulations
The provisions of the recently concluded EU/UK trade agreement have no impact on this planned phasing in of UK controls. However, the agreement does set up consultative committee structures for addressing SPS issues which may arise in the implementation of the EU/UK trade agreement.
- EU/UK Mutual Recognition of Organic Certification
In the final months of 2020 both the UK and the EU decided unilaterally to continue to recognise throughout 2021 organic certification issued by the EU and the UK respectively (see epamonitoring.net articles, ‘UK Decision to Roll-Over Recognition of EU Issued Organic Certification for Whole of 2021 Welcome News for ACP Organic Exporters, But IT Constraints Will Be Faced’, 5 November 2020 and ‘EU joins UK in rolling over recognition of organic certification throughout 2021’, 9 December 2020). This unilateral recognition was extended in the 24 December 2020 EU/UK trade agreement through a formal commitment to mutual recognition of organic certification for products listed in specific annexes until the end of 2023.
These mutual recognition arrangements will be reassessed by the 31st December 2023, to determine whether such arrangements will be extended. This reassessment will largely be based on whether there has been a significant divergence in UK and EU organic standards as a result of the implementation of the EU new organic regulation. In light of the impact of the Covid-19 pandemic on the adoption of necessary secondary regulations the operational application of the new EU organic regulation has been deferred until 2022.
The 24 December 2020 agreement stated ‘if, as a result of that reassessment, equivalence is not confirmed by a party, recognition of equivalence shall be suspended.’
| Comment and Analysis
– Addressing Rules of Origin Issues The EU/UK trade agreement require primary products to be ‘wholly obtained’ to benefit from the duty-free access agreed under the agreement. Clearly imports entering the EU for onward shipping to the UK do not meet these criteria and hence are not eligible for duty free access to the UK market under the EU/UK trade agreement. However, by clearing customs and entering the EU market verifiably documenting the ACP originating status of the product subsequently onward traded into the UK market, will be extremely difficult unless special verification of origin arrangements is set in place. It is on this basis that the UK authorities in negotiations with an African government at the end of 2020 insisted that for duty free access to be claimed for ACP triangularly traded products, such goods would need to remain under customs supervision and should not formerly enter into the customs territory of the EU, prior to onward trade to the UK. However, making use of Common Transit Convention procedures in the handling of triangularly traded products along ACP-EU-UK supply chains is not a cost less exercise. New investments will be required in the establishment of bonded warehouses (in the EU27), freight operators will need to become familiar with the procedures and comply with all necessary handling requirements and customs discharge facilities (in the UK) will also need to be established across the country. There will also be a need to reorganise of logistical arrangements for the forwarding of triangularly traded shipments to the UK, including a re-design of current ‘groupage’ cargo shipment practices from the EU to the UK. At the present time much of the infrastructure for the handling of cargoes under Customs Transit Convention procedures are simply not in place, particularly in the UK. This extends to the vehicle movement IT system which was intended to support the full implementation of Common Transit Convention customs handling procedures (see epamonitoring.net article, ‘Key Challenges Identified in the NAO Brexit Preparedness Report: Implications for the ACP’, 7th January 2021). Against this background, it needs to be recognised that if, within the 12-month period for the submission of rules of origin paperwork, it is not possible to provide authenticated documentary evidence for the ‘originating status’ claimed under the applicable trade agreement then MFN tariffs will be levied on these consignments. Financial guarantee lodged with the UK customs authorities could be forfeit and UK importers could even be faced with additional tax bills, depending on the level of import tariff incurred should ‘originating status’ claims and hence duty-free access claims, be rejected. It is unclear what impact these rules of origin/tariff uncertainties will have on the functioning of all ACP horticultural supply chains which deliver fresh produce to the UK via initial entry to the customs territory of the EU. Unless these issues are resolved traders using triangular supply chains to deliver horticultural products to the UK market could be in for some very unpleasant commercial surprises at the end of 2021, once the 12-month grace period on submission of authenticated documentary evidence of self-certification claims of originating status comes to an end. – Future Phytosanitary Import Controls Issues From an ACP perspective a key consideration in the coming months in shipping goods to the UK via the EU will be whether to a) enter the customs territory of the EU and thereby be treated like EU b) ‘transit’ through the EU, under Common Transit Convention procedures, in A critical consideration in this regard will be then relative cost of MFN tariffs compared to the cost of UK phytosanitary inspections (both as a result of UK inspection fees and the value losses resulting from delivery delays), given the current shortcomings in UK phytosanitary impost control infrastructure. After June 2021, these relative cost and benefit calculations will no longer be relevant since standard 3rd country phytosanitary import controls will also be applied to imports from EU. The establishment of consultative structure for the resolution of SPS disputes and to address issues which arise in the implementation of the EU/UK trade agreement could potentially provide a mechanism for addressing any issues which arise in regard to the disruption of triangular supply chains and the additional cost burdens which the new arrangement for the SPS handling of ACP products generate along triangular supply chains. However, these triangular supply chain issues are not likely to be a priority for EU or UK agricultural producers. Allies will need to be sought amongst EU27/UK businesses actively involved in the onward trade of ACP horticultural products into the UK market and UK supermarkets and wholesalers actively involved in importing goods to the UK and exporting products from the UK to the Irish market. The British Retail Consortium has already called for the establishment of a dialogue with the UK and EU authorities in order to find a long-term solution to the current challenges being faced in regard to these emerging rules of origin issues, which are serving to undermine the value of duty free/quota free access arrangement announced on 24 December 2020(3). More broadly the Irish government ‘plans to explore whether Brexit border checks on food can be eased under the EU-UK trade agreement to allow Irish-British supplies to flow more smoothly’. With the government of Ireland fully implementing EU SPS checks from 1 January 2021, there is concern delivery delays could lead to shortages on Irish supermarket shelves. The food industry in Ireland has called for ‘border checks to be reviewed and relaxed under the terms of the agreement’, given the ‘highly integrated supply chains between Ireland and Britain’ and the extra costs new administrative requirements are generating (4). The affected ACP exporters will need to make a sustained effort to ensure that within the evolving debates and discussions on EU/UK border controls for food products, the interests of ACP horticultural exporters using triangular supply chains are fully addressed. This will require the concerned ACP private sector operators and concerned ACP governments to reach out to potential private sector and governments allies within the wider European body politic. These potential allies will need to be carefully identified and mobilised. – The Future of EU/UK Mutual Recognition of Organic Certification If mutual recognition of EU/UK organic certification agencies is suspended from 31 December 2023, ACP exporters of organic products will need to obtain certification from either an EU27 certification agency or a UK certification agency, depending on which market the good is finally placed for sale. If both EU27 and UK markets are being served than two sets of organic certification documents would be required. This would serve to duplicate organic certification costs. An invalid organic certificate would not prevent ACP organic product exporters from selling their product on the EU or UK market after 31 December 2023, but it would mean they would not be allowed to sell it as an organic product and hence would lose the organic price premium currently enjoyed. A close eye will need to be kept on this issue to see how the EU/UK mutual recognition agreement of organic certification evolves, so timely and appropriate actions can be taken by ACP organic product exporters to ensure they remain eligible to sell their products on the organic markets targeted. |
Sources:
(1) Official Journal of the European Union, ‘TRADE AND COOPERATION AGREEMENT BETWEEN THE EUROPEAN UNION AND THE EUROPEAN ATOMIC ENERGY COMMUNITY, OF THE ONE PART, AND THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND, OF THE OTHER PART, 31 December 2020
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22020A1231(01)&from=EN
(2) The Guardian, ‘Firms halt deliveries from UK to EU over Brexit border problems’, 8 January 2021
https://www.theguardian.com/politics/2021/jan/08/firms-including-ms-suspend-eu-exports-over-brexit-smallprint
(3) Euractiv/Reuters, ‘UK retailers face tariffs for re-exporting goods to EU, trade body says’, 8 January 2021
https://www.euractiv.com/section/economy-jobs/news/uk-retailers-face-tariffs-for-re-exporting-goods-to-eu-trade-body-says/
(4) The Irish Times, ‘Ireland to explore easing of checks on food and animals, 12 January 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/ireland-to-explore-easing-of-checks-on-food-and-animals