Rules of Origin Report (2018)
This report, commissioned by nabim and the Food and Drink Federation (FDF), from Global Counsel highlights 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.
The report 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.
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. Manufacturers could face the prospect of either a costly restructuring of their supply chains or de factor 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.
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.