Chapter 3: Non-tariff barriers
What are non-tariff barriers and why might they apply post-Brexit?
36.Tariffs are only one potential barrier to trade. Non-tariff barriers include requirements for goods to be inspected, for them to be labelled in a certain way and for them to meet certain standards, as well as documentation requirements.
37.UK membership of the EU Single Market and customs union means that food imported from the EU to the UK is not currently subject to non-tariff barriers.44 The EU Commission’s draft withdrawal Agreement, if agreed, would allow for the current customs arrangements for food imported from the EU to remain in place until the end of the transition period (31 December 2020).45 After this time (or from March 2019 if transition arrangements are not agreed) non-tariff barriers will be determined by any agreement reached between the UK and the EU.
38.The Minister, George Eustice MP, told us that the Government hoped to secure a “comprehensive customs agreement” post-Brexit:
“It is possible to establish principles around mutual recognition that mean we can understand that, while our regulations may not be identical in certain areas, they are definitely equivalent and therefore, on a risk-based approach to border inspection, there is no need for us to inspect one another’s products as they cross the border”.46
39.The European Council draft guidelines on the framework for the future relationship with the UK, published on 7 March 2018, state that the Council will work towards an agreement including “appropriate customs cooperation” and “disciplines on technical barriers to trade (TBT) and sanitary and phytosanitary standards (SPS) as well as a framework for voluntary regulatory cooperation”.47 The extent of the cooperation, and the nature of the disciplines, that are agreed during the negotiation will determine the extent of future non-tariff barriers. In a statement issued alongside the draft guidelines, Council President Donald Tusk said: “Our agreement will not make trade between the UK and the EU frictionless or smoother. It will make it more complicated and costly than today, for all of us. This is the essence of Brexit”.48
40.If no agreement is reached, the UK Government will need to decide what customs and border arrangements to put in place on food imported from the EU. These would need to comply with WTO requirements, including applying ‘rules of origin’ (see Box 2).
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Rules of origin are criteria to define where a product was made, and thereby ensure that the correct tariffs and other regulations are applied. The WTO Rules of Origin Agreement requires that these rules are administered in a consistent and impartial manner although, as with tariffs, countries can adopt different rules where trade preference agreements, such as a customs union, are in place.49 WTO members must notify the Secretariat of what their rules are; as a member of the EU, the UK currently applies the EU rules of origin.50 Importers present proof of origin to the customs authority, in line with that country’s rules. This issue is explored in more detail in the EU Committee’s report Brexit: trade in goods.51 There are no origin requirements for trade within the EU, but when the UK leaves the customs union, producers will need to meet whatever origin regime is put in place. This will apply even if a trade agreement is reached, as producers will need to demonstrate their product is eligible for preferential trade terms. Rules of origin can be problematic for products that have inputs from different countries; depending on the approach taken to origin requirements products could be excluded from the benefits of any free trade agreement negotiated. The Food and Drink Federation gave the example of a frozen pizza made in the Republic of Ireland, but with flour milled in the UK from grains bought from Canadian, US and UK growers. Failing to meet origin requirements would mean the flour would be subject to EU MFN tariffs when imported from the UK; the pizza would then also be subject to tariffs if exported for sale to the UK.52 |
41.There will also be additional checks on food from non-EU countries imported via the EU. Which? explained: “At the moment these checks may take place in another EU port, as the first point of entry into the EU.” Once the UK has left the EU, the UK will become responsible for ensuring food imports meet the required standard.53
What might non-tariff barriers mean for the price and availability of food?
Delays
42.Witnesses were concerned about the time that additional checks on food imports would take. The British Retail Consortium, for example, told us:
“Currently due to frictionless borders, even the most perishable products such as soft fruit can be transported from Spain but still have 5 days shelf life in store or fresh beef can be transported from Ireland, minced and still have up to 10 days shelf life. Delays due to border controls will reduce the life of products in the home, driving up food waste or, in the worst cases meaning it is unproductive to put it into store. We know where SPS [Sanitary and Phytosanitary] checks are applied to products from outside the EU such as processed meat coming into the UK that additional checks can take up to 2 days which is not feasible for a fresh supply chain”.54
43.The City of London Corporation are responsible for all port health functions on the Thames, including London City Airport, London Gateway, Tilbury, Thamesport and Sheerness. They stated: “Should the UK undertake veterinary checks in the same way on EU products as it does for current third countries, there could be considerable delays at borders”.55
44.A report produced by KPMG for the Dutch Government highlighted the knock-on effect of delays: “UK retailers apply strict delivery time slots. If a shipment arrives late at the retailer, it cannot be unloaded on the same day and unloading will be delayed by a day or more”.56
45.Walter Anzer, Director General of the British Food Importers & Distributors Association, told us: “If we have lengthy delays in ports, shippers will simply decide to drop goods off in Rotterdam. They go to Rotterdam, to Felixstowe and on to Hamburg … If they get long delays, they just will not call at UK ports”.57
Costs
46.As well as causing delays and shortening the shelf-life of products, non-tariff barriers are an additional cost for businesses. The KPMG report, for example, calculated that “one day of delay for a lorry will easily cost a business EUR 600 to EUR 1,000”.58 It also stated that delays would mean that “businesses will have to make more frequent use of ‘last minute’ carriers charging premium rates”, and that this could add 20–25% to transport costs.59 Professor Tim Benton gave further examples of additional costs: “A container inspection costs £700; £80 per day would be the impound cost; and there will be the cost of the testing fees. For each additional container that might be inspected, you are talking about £1,500 to £2,000”.60
47.Modelling by the UK Trade Policy Observatory found that even if the UK Government negotiated a free trade deal with the EU to keep tariffs at zero and minimise non-tariff barriers, the cost of border inspections and some low-level non-tariff barriers would see food prices rise by 3.8%.61 The predicted increase varies depending on the type of food: bread and cereals were expected to increase in price by 1.4%, meat by 3.3%, fish by 1.8%, dairy products by 4.3%, fruit by 5.1% and vegetables by 4.8%.
Capacity
48.The Freight Transport Association highlighted the issue of capacity at UK borders:
“UK ports and borders (inc. Irish land border) are not designed to hold these checks or the number of vehicles. The lack of adequate infrastructure as well as a possible lack of personnel and capacity in existing inspection facilities could create significant disruptions and paralyse trade … with the impacts of missed deliveries and the spoiling of perishable loads likely to be felt in a matter of days or hours”.62
49.This point was echoed by Andrew Opie from the BRC:
“The ports, where the majority of fresh, perishable food is imported, do not have the facilities to hold vehicles for additional food safety checks and plant health checks, so if we left without a deal in March 2019 that would have a major impact on the availability of meat, processed foods, fruit and vegetables”.63
50.Research done for the European Parliament’s AGRI Committee highlighted similar concerns:
“A lorry driver arriving at the port of entry will stop briefly only to show passport and boarding information, and on arrival will be on the motorway within minutes. This compares to lorry loads of goods entering Dover from outside the EU (around 3% of the total) which are subject to checks that take 45 minutes on average … Currently, the Channel ports do not have the parking facilities to cope with delays of this magnitude, leading to fears of massive congestion for traffic on the cross-Channel and Irish Sea routes”.64
51.The City of London Corporation stated that additional inspection requirements:
“could be particularly problematic at short-sea-crossing ports and smaller airports that have quick turnaround times. These points of entry, which deal with many EU products, often have little or no resource. Developing a resource (suitably trained workers, infrastructure and inspection facilities) will be problematic in the short run”.65
Terry Jones, Director General of the NFU, raised related concerns: “Currently, the only ports set up to do veterinary checks on meat are London Gateway, Tilbury, Felixstowe, Southampton and Liverpool”.66
52.The Minister, George Eustice MP, told us that he was “absolutely confident that we will be ready to handle this”,67 adding that “there is a cross-Government group looking at what additional resources we would need and what inspections we might need”.68 He also explained that Government was looking at what IT systems would be needed. Customs currently use a system called CHIEF for imports from third countries, and Matthew Waite, Deputy Director in Defra’s EU Exit and Trade Analysis team, told us:
“The CHIEF system handles about 55 million declarations a year at the moment and it has capacity to go up to about 100 million … The Customs Declaration Service, which is the new system that would take the place of CHIEF, is designed to deal with up to 300 million declarations a year. That is in process at the moment but is due to come on in January 2019”.69
53.Despite the Department’s confidence, the National Audit Office (NAO) has raised concerns that the new system will not be fully functional by the time the UK leaves the EU in March 2019, when it is estimated that the number of customs declarations annually could rise to 255 million.70 While a transition agreement could include the continuation of the customs status quo between the UK and the EU, that would only delay the increase in customs declarations until 31 December 2020.
54.The NAO’s concerns were echoed by Ian Wright, Director General of the Food and Drink Federation:
“There is no chance that our customs system will be ready in two or three years’ time. It simply is not going to happen. The technology is not there. It is not tested. The new customs declaration system will not be ready for testing until February of next year, and theoretically it might have to be in action three weeks later”.71
Minimising the impact of non-tariff barriers
55.Witnesses suggested various ways to reduce the potential impact of non-tariff barriers. In the short term, Andrew Opie from the BRC argued for “time for our businesses and the Government to develop the infrastructure and systems to cope with additional controls”.72 Looking ahead, the City of London Corporation argued that “the UK Government should continue to recognise EU controls, to avoid resourcing implications at the UK Border. This would best be done as part of a wider reciprocal agreement based on mutual recognition”.73 The National Pig Association called for a continued “convergence on standards … so that a frictionless border can be maintained”.74
56.Where checks do need to take place, several organisations suggested they be done away from the border. The Freight Transport Association argued that the more that checks could be undertaken at the point of production, “the easier it will be for those products to move through [the border] with ease”.75 Similarly, the Food and Drink Federation said: “Customs checks need to take place away from the border to avoid gridlock and huge delays because UK doesn’t have the capacity or infrastructure”.76
57.The Minister, George Eustice MP, told us:
“Even if there were no agreement and no formal deal, it would be open to the UK to … say that we are confident that the European Union is doing certain things properly and we are going to have a risk-based approach to border inspection. It would be in our gift to do as much or as little border inspection as we thought was required at that point”.77
58.Which? told us, however, that “it will be essential to ensure that we have an effective system of border controls in place, so that consumers can have confidence that food imports … comply with UK high standards”.78
59.The Government hopes to negotiate an agreement with the EU that will allow the ‘frictionless’ import of food to the UK to continue. This was a clear priority for witnesses and, given its importance to the UK’s food supply, we strongly support this objective. It is not, however, a guaranteed outcome. We note that there will only be 21 months to negotiate a FTA and that, at the time of writing, there is a significant gulf between the ‘red lines’ set out by the EU and the UK Government, which will need to be bridged to achieve frictionless trade.
60.The Minister told us that if no agreement is reached, the UK could decide to minimise the impact of non-tariff barriers by placing very minimal checks on imports from the EU. We note, however, that the UK Government would at the very least be obliged to comply with WTO rules. To provide much needed clarity to the industry, we urge the Government to publish exactly what customs and border requirements it would put in place on EU food imports in that situation.
61.While the extent of future non-tariff barriers is unknown, it seems unavoidable that in either a ‘deal’ or ‘no deal’ scenario Brexit will result in some additional border checks and documentation requirements for food imported from the EU to the UK. These will increase the time it takes for food to reach shop shelves and result in additional costs to businesses, which may be passed on to consumers through food price rises.
62.Based on the evidence we have heard, we do not believe the UK’s ports and airports will be able to cope with the additional workload that new checks will create, and this will add significantly to the import timescales. Significant delays will disrupt the ‘Just-In-Time’ supply chains that food manufacturers and retailers depend on and could affect the availability of food. We urge the Government to conduct a thorough assessment of the additional staffing, infrastructure and IT requirements that differing levels of post-Brexit border and customs checks would require.
63.In determining post-Brexit arrangements, the UK Government will need to balance the need to maintain easy access to EU food imports with the need to maintain food standards through adequate checks on imports. The Minister’s suggestion of minimal checks on EU imports appears at odds with the Government’s obligations under the WTO and its commitment to maintain food safety and animal welfare standards.
Requirements on EU countries
64.EU businesses exporting food to third countries encounter a number of non-tariff barriers before their product leaves the EU. Depending on the product, this could include completing export declarations, and obtaining veterinary health and phytosanitary certificates. Post-Brexit, EU businesses wanting to export food to the UK will encounter these additional barriers for the first time.
65.This has cost implications for the businesses involved. The study conducted by KPMG for the Dutch Government, for example, found that obtaining the necessary veterinary certificates to export meat products “costs between EUR 130 and EUR 725 per shipment”.79 They calculated the “potential additional export costs [for Dutch businesses exporting meat to the UK] as a result of Brexit range from EUR 8.5 million to EUR 24.0 million per year”.80
66.These are direct costs, but just as the introduction of non-tariff barriers would have wider resource implications for businesses based in the UK, so it will have resource implications for EU countries, creating the potential for delays. KPMG’s work highlighted concerns about capacity at regulatory authorities, a lack of personnel with customs expertise and a lack of capacity at Dutch ferry terminals.81 It also highlighted that many businesses have no experience of trading with third countries, and so are not familiar with the paperwork required or registered with customs authorities.82
67.It was recently reported that the Dutch Government intend to employ at least 750 additional customs agency staff, to manage the additional workload caused by Brexit.83
68.Regardless of the customs and border arrangements that the UK puts in place for imports, EU countries exporting food to the UK will have additional checks and documentation to complete. It seems probable that the costs associated with this will affect the price of food in the UK.
69.These additional checks will create resource requirements for border and customs agencies, and ports and airports, in EU countries. Just as a lack of capacity at UK entry points would result in delays and affect food availability, a lack of capacity at EU exit points would affect the price and availability of food in the UK.
44 Article 30 of the Treaty on the Functioning of the European Union (TFEU) states that customs duties on imports and exports and charges having equivalent effect are prohibited between Member States. Articles 34–36 of the TFEU prohibit “quantitative restrictions” and measures with equivalent effect with regard to the free movement of goods between Member States.
45 Article 43, 15 March 2018, Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community
47 Council of the European Union, European Council (Art.50) (23 March 2018) - Draft guidelines (7 March 2018): https://g8fip1kplyr33r3krz5b97d1-wpengine.netdna-ssl.com/wp-content/uploads/2018/03/European-council-Art.50-23-March-2018-Draft-Guidelines-1.pdf [accessed 18 March 2018]
48 President Donald Tusk, Statement on the draft guidelines on the framework for the future relationship with the UK, 7 March 2018: http://www.consilium.europa.eu/en/press/press-releases/2018/03/07/statement-by-president-donald-tusk-on-the-draft-guidelines-on-the-framework-for-the-future-relationship-with-the-uk/ [accessed 18 March 2018]
49 World Trade Organization, ‘Non-tariff barriers: red tape, etc’: https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm [accessed 29 March 2018]
50 Ibid.
51 European Union Committee, Brexit: trade in goods (16th Report, Session 2016–17, HL Paper 129)
52 Food and Drink Federation, Rules of origin in an EU-UK FTA: A ‘hidden hard Brexit’ for food and drink exporters? (2018), p 18: https://www.fdf.org.uk/corporate_pubs/FDF-Rules-of-origin-report.pdf [accessed 18 April 2018]
56 KPMG, Impact of non-tariff barriers as a result of Brexit (January 2018), p 53: https://assets.kpmg.com/content/dam/kpmg/nl/pdf/2018/sector/overheid/impact-of-non-tariff-barriers-as-a-result-of-brexit.pdf [accessed 8 March 2018]
59 Ibid., p 45
64 Alan Matthews, Research for AGRI Committee - Possible transitional arrangements related to agriculture in the light of the future EU-UK relationship: institutional issues (2017), p 58: http://www.europarl.europa.eu/RegData/etudes/STUD/2017/602009/IPOL_STU(2017)602009_EN.pdf [accessed 8 March 2018]
68 Ibid.
70 National Audit Office, The Customs Declaration Service, HC 241 (13 July 2017), p 6: https://www.nao.org.uk/wp-content/uploads/2017/07/The-Customs-Declaration-Service-Summary.pdf [accessed 8 March 2018]
80 Ibid., p 44
81 Ibid., p 7
82 Ibid., p 34
83 ‘UK will need ‘thousands’ more customs officers after Brexit, Dutch MP warns’, The Guardian (17 February 2018): https://www.theguardian.com/politics/2018/feb/17/brexit-uk-thousands-customs-netherlands [accessed 15 March 2018]