The imposition of rules of origin on trade between the EU and the UK is often poorly understood as an important factor in managing the impact of a UK exit from the EU. While it is generally expected that the UK and the EU will ultimately trade with each other on a largely or completely tariff-free basis via a preferential trade agreement, accessing the preferential terms of such an agreement will require that exporters in both directions comply with origin rules. These are the detailed local content requirements that goods must meet to benefit from a preferential trading framework.
Brexit makes this relevant in two ways. First, UK and EU food and drink manufacturers may find that the products they make with imported commodities for the current EU/UK market will not meet origin requirements for preferential trade between the two. Second, they may also find that products manufactured from a mix of EU and UK inputs and exported to existing EU FTA partners – such as Canada – no longer qualify for preferential tariff treatment after the UK’s exit from the EU. This report focuses primarily on the first challenge, although it also highlights potential policy solutions to the latter.
Modern European and UK foodstuff manufacturing is an internationalised business, routinely sourcing inputs from across the EU single market, but also globally. This reflects not only the fact that UK production of key ingredients is insufficient to meet industry demand all year round, but also that many key ingredients – such as tropical fruits – are simply only produced in parts of the world outside of Europe’s temperate zone. This imported content currently has no bearing on a product’s right to be traded freely between the EU and the UK. Under any future origin framework, it will.
Many EU and UK producers have built supply and distribution models in the single market framework that may fail to comply with origin requirements in a future framework, and therefore will be ineligible for preferential trade terms. Because the EU (and, in the future, UK) are likely to maintain high basic tariffs for many processed food and drink products, some producers excluded from preferential terms may face the prospect of either costly restructuring of supply chains, or de facto barring from EU-UK trade. This would be to impose a ‘hard Brexit’ on these businesses, even if the EU and the UK were able to reach an accommodation on tariff-free trade.
Section 1 of this report explains how origin requirements work and why they pose a particular challenge in a Brexit context.
Section 2 of this report uses a series of case studies of common foodstuff products to demonstrate the ways in which various approaches to origin requirements are likely to impact current supply and distribution models.
Section 3 of this report sets out these and other practical recommendations in greater detail.