Summary
The UNCTAD analysis highlights the central importance of future UK MFN tariffs to the value of any ‘rolled over’ ACP preferential access to the UK market. This is an important issue under both a ‘no-deal Brexit and a ‘hard Brexit’. This will require effective ACP lobbying of the UK government to retain in place existing MFN tariffs in areas of greatest interest to ACP exporters. In the country and product analysis undertaken by UNCTAD the importance of triangular trade flows to the UK via the Netherlands is neglected, with this trade also being adversely impacted by any changes in EU MFN tariffs.
Analysis by UNCTAD posted in April 2019 on the implications for developing countries of the Brexit process, highlights two main areas of concern for low income developing countries, namely:
- maintaining current levels of preferential tariffs for access to the UK market (for most ACP countries this is based on duty free- quota free access arrangements either under the EU’s unilateral EBA scheme or under a EU negotiated economic partnership agreements);
- ensuring with the UK government to retain in place current substantial MFN tariffs for products of importance for low income country exporters (which includes such products as: bananas; sugar cane; rice; some types of meat, primarily beef; fish, especially tuna; and apparel) (1).
The UNCTAD analysis highlights how by lowering UK MFN tariffs in the post-Brexit period the UK government would ‘increase the relative competitiveness of major exporting countries such as China or the United States, thereby eroding market share away from less competitive countries’.
As a consequence the UNCTAD analysis argues ‘the countries which would gain the most from a no-deal Brexit are those that are currently facing higher tariffs: China, the United States and Japan’, with a no-deal Brexit also expected to benefit exporters form Thailand, South Africa, India, Brazil, the Russian Federation, Vietnam and New Zealand amongst others. (1)
The UNCTAD analysis argues it should come as no surprise if UK trade policy were to ‘ultimately adjust to better suit national priorities’. In this context the view is expressed that the Brexit process will ‘penalise some trading partners to the advantage of others’, with a no deal Brexit resulting in ‘significant disruption and economic harm for developing countries whose exports are highly reliant on the United Kingdom market and/or are current beneficiaries of European Union preferences’.
In this context the UNCTAD analysis highlights how the UK government has already indicated its ‘intention to redesign its trade regime to eliminate tariffs in areas where the United Kingdom has no production interests’ (1).
While the UK’s efforts to roll over existing EU preferential trade arrangements has seen a commitment to implementing a parallel unilateral preferential scheme for LDCs which mirrors the EU’s EBA arrangements, the report acknowledges the difficulties the UK is facing in concluding Continuity Agreements with existing ACP EPA signatories.
The UNCTAD analysis highlights how amongst ACP countries the UK is an important export market for Belize, Mauritius, Seychelles, and St. Lucia; with Belize, Guyana and Jamaica being particularly favoured under EU28 preferential trade arrangements, since their competitors are charged much higher tariffs for entry to EU28 markets including the UK (1).
While the reliability of some of the UNCTAD analysis is questionable, it nevertheless highlights how even small changes in preferential margins for preferred ACP suppliers can have a substantial effect on export values, as competition increases from more competitive exporters (1).
Significantly the report highlights how even in the case of an orderly Brexit if the UK were to substantially review its MFN tariff regime by removing tariffs in areas where the UK has no production interest then preferred developing country partners such as LDCs and ACP EPA signatories would suffer serious losses.
These effects are seen as being ‘very evident in the case of Guyana’, despite the signing of a Caribbean-UK Continuity Agreement, since any removal of existing MFN tariffs in the sugar sector would see increased competition on the UK market from more competitive sugar producers (1).
Against this background the UNCTAD report highlights the need for currently preferred EU28 developing country partners (e.g. LDCs and ACP EPA signatory countries) to pay close attention to the future evolution of the UK’s MFN tariff regime, since the value of retained preferential access set in place under UK-only Continuity Agreements will ultimately depend on the UK’s long term MFN tariff policy (1).
In this context it should be noted that the UK’s currently announced post-Brexit MFN policy is only temporary and is scheduled for review within a year of its entry into force (in November 2019 if the event of a no-deal Brexit or 1st January 2021 in the event of ratification of the EU/UK Withdrawal Agreement) (2).
| Comment and Analysis
The most significant point arising from this UNCTAD analysis is the importance of the UK’s future MFN regime to the value of any ‘rolled-over’ preferential access to the UK market. This issue arises whether there is a ‘no-deal Brexit’ or just a ‘hard Brexit’, in which the UK leaves the EU customs union and single market. ACP governments whose exporters currently benefit most from EU negotiated tariff preferences on the UK market should therefore consider developing a lobbying strategy to persuade the UK government to retain in place current high MFN tariffs where major national ACP export interests are at stake (e.g. for sugar, bananas, rice, table grapes, citrus fruit, cut flowers etc., although given the UK’s structural deficit sugar should also probably be added to these products). In this regard the need for the UK government to ‘keep its powder dry’ for subsequent bilateral UK trade agreement negotiations should be highlighted, as a means of deferring any sudden change in MFN tariffs in areas where ACP countries have export interests and the UK has no domestic production interests. While the UNCTAD analysis seeks to draw out the vulnerabilities of certain ACP exporters in particular products, the analysis shows certain factual errors. For example reference is made to lemon exports from Namibia, when Namibia has no recorded lemon exports to the EU28. Namibia does however have a €65 million trade in table grapes which has been growing in recent years (+30% since 2015), although with a declining dependence on the UK market (down from 36% in 2017 to 25% in 2018) (3). This however is by no means straight forward since by far the largest EU destination for Namibia grape exports is the Netherlands (71%), which is a major trade distribution hub serving both northern Europe and the UK. Indeed, grapes represent the 3rd largest category of fruit and vegetable re-exports from the Netherlands (4). This highlights an important issue overlooked in the UNCTAD country vulnerability analysis when considering changes to UK MFN tariffs, namely the extensive triangular trade which takes place from ACP countries into the UK via the Netherlands and to a lesser degree, Belgium, France and Germany. This triangular semi-transit trade will also be impacted by any changes to UK MFN tariffs. In this context it should be noted that for grapes and cut flowers there is a huge trade centred on the Netherlands which includes onward trade into the UK. This is also the case for products as varied as bulk rums and cocoa products, where processing takes place in the Netherlands before onward shipment to the UK (although in this case the key issue is the application of MFN tariffs on value added cocoa products). These triangular trade flows to the UK also need to be taken into account when assessing the impact of any revision of UK MFN duties. The table below, based on 2018 data available via the EC’s Market Access Data Base, sets out ACP exporters of a range of agricultural products where the current margins of tariff preferences enjoyed on the basis of existing EU MFN tariffs are significant in trade with the UK. High MFN Tariffs: ACP Dependence on the UK Market in Exports to the EU (Volume) & 2018 Value (€ millions)
* The Netherlands plays a central role in the international cut flowers trade with substantial onward shipments to the UK (see accompanying epamonitoring.net article ‘No-Deal Brexit Challenges in Cut Flower Sector Highlight Problems for ACP Triangular Supply Chains’ 1 March 2019 Source: EC Market Access Data Base, https://madb.europa.eu/madb/statistical_form.htm |
Sources:
(1) UNCTAD, ‘Brexit: implications for developing countries’, 9 April 2019
https://unctad.org/en/PublicationsLibrary/ser-rp-2019d3_en.pdf
(2) gov.uk, ‘Temporary tariff regime for no deal Brexit published’, 13 March 2019
https://www.gov.uk/government/news/temporary-tariff-regime-for-no-deal-brexit-published
(3) EC Market Access Data Base
https://madb.europa.eu/madb/statistical_form.htm
(4) freshplaza.com, ‘The Netherlands as a hub for international trade’, 15 January 2019
https://www.freshplaza.com/article/9061652/the-netherlands-as-a-hub-for-international-trade/