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Rules of origin in an EU-UK FTA

A 'hidden hard Brexit' for food and drink exporters?

Food and drink is at the heart of our national security – the first duty of the Government is to ensure the country is fed and watered. There is no sector with more at stake in the Brexit negotiations than the UK's £112 billion 'farm to fork' food and drink industry which employs four million people.

Leaving the EU will inevitably change the terms on which food and drink are traded between the UK and the EU. As with all other products and services, these goods will go from being traded seamlessly in the EU Single Market to being exports and imports between the EU and the UK. With over 70% of our food and non-alcoholic drink exports going to the EU, policymakers and businesses in the EU and the UK will need to undertake a wide range of mitigating actions to manage the disruption this change will bring and help businesses get to grips with the new trading environment.

Assuming the UK doesn't agree to a comprehensive customs union with the EU, one of the greatest challenges facing businesses, large and small, would come in the form of 'rules of origin'. The UK Government has set out its intention to negotiate an ambitious free trade agreement with the EU. We hope this will avoid the introduction of tariffs on food and drink traded between the UK and EU. However, to benefit from that preferential access, business on both sides will need to comply with origin requirements.

Rules of origin are the complex requirements that determine whether or not a product is produced 'locally' in the UK or the EU – its economic nationality. If it is not deemed to be sufficiently British, it may not qualify for these preferential tariff rates.

This is a hugely important issue for food and drink manufacturers, in both the EU and the UK. The UK, like the EU, is a major producer and exporter of high quality food, selling over £22 billion in overseas markets. But like most modern economies, the ingredients in those UK products are a rich mix of goods from the UK and around the world, many of which are not produced in the UK or not in sufficient quantity throughout the year.

The levels at which global content will be allowed in such food and drink products will be set during negotiations to determine our future trading relationship with the EU. When this happens, producers may find themselves shut out of preferential trade between the EU and the UK. In effect, as this report sets out, they face a 'hidden hard Brexit'.

This is why we asked Global Counsel to offer constructive solutions as to how we might minimise the impact of these stringent rules on the UK's manufacturers of food and drink. As many of the issues it raises also apply for EU exporters to the UK, we hope it will be read as widely in Brussels as in Whitehall. At the heart of the dilemma is how the EU and the UK design a new agreement that avoids disruption to supply chains that are central to the economy and to food security. In short, how do the EU and UK provide shoppers and consumers with the fantastic array of safe, affordable and nutritious food and drink that they currently expect to enjoy every day.

Download full report: Rules of origin in an EU-UK FTA - A 'hidden hard Brexit' for food and drink exporters?