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16 March 2018

Rules of origin: Food and drink sector faces hidden hard Brexit

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A new report commissioned by the Food and Drink Federation (FDF) and the National Association of British and Irish Flour Millers (NABIM) from Global Counsel has revealed that the UK's food and drink manufacturing sector could face a hidden 'hard Brexit' once the UK leaves the EU as a result of rules of origin.

'Rules of origin in an EU-UK FTA: A 'hidden hard Brexit' for food and drink exporters?' warns that due to the international nature of food and drink manufacturing, many UK producers have built supply chains within the EU's Single Market which may fail to comply with future origin requirements. The report also sets out eight practical recommendations the UK and EU can take to minimise disruption to our essential and seamless trade in food and drink.

While it is the intention of the UK Government to negotiate an ambitious free trade agreement with the EU that delivers continued tariff-free trade in goods, including food and drink, exporters would still need to comply with complex origin requirements. This poses a significant risk for UK firms exporting to the EU. This is worth more than £13.3 billion each year.

In essence, rules of origin dictate if a product is deemed sufficiently 'British' – its economic nationality – and whether it qualifies for a preferential tariff that has been agreed in a trade deal. Once this economic nationality is identified, customs officials then apply the correct tariff or duty to the product.

Our manufacturers are committed customers of UK farming but this is dependent on having continued access to imports that complement our use of UK raw materials. The ingredients in many food and drink products are a mix of domestic and international goods, many of which are not produced in the UK or not in sufficient quantity throughout the year to meet consumer demand.

We know that under existing models applied by the EU, many UK manufactured products would not qualify for preferential tariffs. For example, UK chocolate producers that export £530m of products each year to the EU could face tariffs of 27 per cent or more depending on the value of UK refined cane sugar originating from the world's poorest countries and the volume of Irish milk in their products.

Manufacturers could face the prospect of either a costly restructuring of their supply chains or de facto barring from future EU-UK trade as a result of the EU's Most Favoured Nation (MFN) tariffs which are prohibitively high for food and drink, rising to more than 100 per cent on many of our products.

Ian Wright CBE, Director General of the Food and Drink Federation, said:
“Rules of origin are a big piece of the Brexit puzzle for the food and drink industry. If we fail to secure sufficiently generous rules as part of a preferential trade agreement with the EU, food and drink manufacturers will be the ones who suffer this hidden hard Brexit. They could be facing an increase in exporting costs, or a complete ban of entry to the market. This report is essential reading for those who want to avoid both.”

Alex Waugh, Director General of the National Association of British and Irish Flour Millers, said:

“Flour millers in the UK source 80 per cent of their wheat from the UK, but also use grain from Canada, the USA and other European countries to make a range of flours with different baking qualities. If the rules of origin adopted in many of the EU's trade agreements were to apply in a trade deal between the EU 27 and the UK, flour milled with even a small proportion of these grains, and many foodstuffs made from it, would no longer be considered 'of UK origin' and would therefore be subject to very significant duties. This would add, for example, €0.10 to the cost of a loaf in Ireland, which is mainly supplied with flour from the UK. Negotiating the right agreement is therefore crucial to the entire food supply chain, including consumers.”

Notes for editors:

  1. The Food and Drink Federation (FDF) is the voice of the food and drink manufacturing industry – the UK's largest manufacturing sector.
  2. The rules of origin report
  3. The UK exported £22 billion of food and drink last year and has seen growth of 93 per cent since 2007. 70 per cent of food and non-alcoholic drink exports went to the EU but while exports of UK food and drink are an industry success story, fewer than one in five UK food and drink manufacturers currently sell their products overseas.
  4. What is the purpose of ROO? Rules of origin exist to ensure that when two or more WTO members agree a Free Trade Agreement (FTA), preferential tariffs are not abused by importers shipping goods produced in other markets through one of the signatories of the FTA in order to avoid payment of tariffs.

More information

Contact Debbie McCreath, Corporate Affairs Division, at: debbie.mccreath@fdf.org.uk, or +44 (0) 20 7420 7152.

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