Food for thought: Rules of Origin in future EU-UK FTA could create ‘hidden hard Brexit’, according to FDF report


26 March 2018

The Food and Drink Federation (“FDF”) has recently published a report on the potential impact of Rules of Origin in any future EU-UK Free Trade Agreement on food and drink exporters.  The report, jointly commissioned by the FDF and the National Association of British and Irish Flour Millers (“NABIM”), highlights the potential adverse effects of such rules on the industry and proposes measures that can be adopted to mitigate those effects.

 

Potential for harm

Presently food and beverage products are traded freely within the EU Single Market.  Any bilateral trade agreement, as may be agreed between the EU and the UK, will contain Rules of Origin i.e. criteria applied to determine the “economic nationality” of goods for the purposes of assessing whether they may be subject to tariffs, quotas, safeguards and other restrictions of free trade. 

Many food and drink products are susceptible to falling foul of such rules as they consist of foreign-sourced ingredients that call into question their national origin.  Often this foreign sourcing is borne out of necessity, as is the case where certain raw materials required to produce the good are not available in the UK at all, or are only available in limited quantity or at certain times of the year.  The FDF report highlights that, unless sensible rules are agreed, producers of these products will be hard-hit with consequences ranging from costly restructuring of their international supply chains to de facto exclusion from the EU market altogether.

 

Report recommendations

The stakes are high, given that over 70% of UK food and non-alcoholic food exports are sent to the EU.  For this reason the report proposes solutions designed to minimise the impact on UK food and drink manufacturers.  Among the eight proposals made by the report include:

  • A de minimis allowance for non-local content of 10% by value in all goods should be agreed, in addition to other product-specific allowances.
  • Origin requirements should be “cumulative” in the sense that goods originating in either the EU or the UK will be treated as originating in both e.g. French wheat used in a UK biscuit should be treated in the same way as UK wheat in a UK biscuit.
  • Consideration should be given to measures which protect the global supply chains of both the EU and the UK producers from disruption, particular where these include exporters from the Least Developed Countries.
  • The rules should fairly account for unique forms of value added by premium manufacturing, rather than adopting methodologies that can be more crudely applied based on pure composition of the goods.
  • The rules should simplify the administrative burden of compliance through measures such as self-certification and exemptions for low value shipments.

 

Commentary

It would be simplistic to conclude that these are all sensible suggestions which ought to be adopted in a reasonably balanced trade agreement to address an issue which impacts parties from both sides.  Rules of Origin have legitimate aims e.g. to prevent veiled access to a market by third party actors.  On the other hand they can be used to disguise protectionism.    Straightforward solutions are often difficult to find, especially in the context of the complex international supply chains required to manufacture many food and beverage products.   In our view the FDF is thus rightly concerned about a “hidden hard Brexit”.

 

If you have any questions and would like to discuss the possible arrangements and the impact on your business please contact David Young or James Lindop.

 

David Young, Head of Food and Beverage
e: davidyoung@eversheds-sutherland.com
t: +44 20 7849 5259
James Lindop, Partner, International Trade
e: jameslindop@eversheds-sutherland.com
t: +44 20 7919 4718