The food and drink industry has raised serious concerns about the new EU-UK trade deal because businesses face punitive tariffs on goods from the bloc processed at British distribution hubs that are re-exported to member states.
Industry bodies on both sides of the Channel have warned that the so-called rules of origin chapter of the deal effectively blocks existing supply chains, and have urgently raised the issue with both the UK government and the European Commission.
Under rules of origin clauses in the UK-EU Trade and Cooperation Agreement, which came into force on January 1, all goods must be able to demonstrate that they “originate” in the EU or the UK — containing approximately 50 per cent UK content for most products — in order to qualify for zero tariff treatment.
Dominic Goudie, head of international trade for the UK’s Food and Drink Federation, said the group was “very concerned about the implications of the clause for food and drink suppliers in both the EU and UK”.
“Goods shipped to distribution hubs in Great Britain face the payment of full EU tariffs when they return to the EU and, as a result, suppliers are being forced to cancel the delivery of products to customers in Ireland,” he said.
But an EU official warned that some businesses would simply have to adapt their operations given the new regime. “You can’t expect Brexit not to have consequences,” said the official. “The UK won’t be a distribution hub for the EU any more. EU businesses will need to stop relying on UK hubs.”
The Cabinet Office said the problem was “not an issue” if businesses did not clear customs or used so-called “transit procedure” in order to route goods through the UK without them entering into the marketplace. “We continue to work closely with businesses to help them to adapt to any new trading requirements,” a spokesperson added.
However the FDF said that transit did not provide a “workable solution” for many producers as the goods did not simply pass through the UK but were broken up and repackaged for onward transport back into EU markets.
“It adds significant extra cost and complexity for EU and UK producers that would need to restructure supply chains, putting many more lorries on the road, and would have implications for consumer prices in both the EU and the UK,” Mr Goudie added.
UK industry concerns have been echoed in the EU. One major producer, who asked not to be named, said the issue affected 25 to 30 of its trucks a week containing EU-finished goods that had been split up at a GB warehouse en route to Dublin.
Muriel Korter, the director-general of the EU’s association of chocolate, biscuit and confectionery industries (Caobisco), said it had contacted EU authorities to seek an “immediate solution” to the issue. “Our EU-UK supply chains are so interdependent . . . especially businesses that have factories across the Channel and use the facilities to store goods and re-ship them,” she added.
The problem has started to hinder food importers in Ireland. “Companies are beginning to raise this across the industry,” said Paul Kelly, director of Food Drink Ireland, the main lobby group for the sector. “There’s still a lot of clarity that needs to be brought to the issue so people can make any necessary changes to their supply chain.”
Trade experts said the problem had arisen because the basic Canada-style trade deal sought by the UK did not take into account the integration of supply chains and proximity of the UK to the EU.
Goods that arrive in the UK “zero tariff” but are not altered in any way and re-exported to the EU do not count as “UK-origin” and so face the full EU common external tariff on returning to the EU — with food and agricultural products attracting some of the highest rates.
“The problem is that in normal circumstances, when the EU signs a [trade agreement] with, say Japan or Canada, the goods don’t normally come straight back to the country they came from,” said Anna Jerzewska, a trade consultant.
The commission declined to comment. Ms Jerzewska said that Brussels could address the problem by issuing a derogation, or waiver, a view supported by Sam Lowe, trade specialist at the Centre for European Reform think-tank. “If the EU wants to resolve the issue, it could do so pretty easily with an extra clarification,” he said.
Additional reporting by Jonathan Eley and Judith Evans