Leaving the EU is unquestionably changing the way that the UK trades with the EU. With over 70% of our food and non-alcoholic drink exports going to the EU the UK has, to a degree, been 'spoilt' for many years by having such easy trading conditions with the EU.
The post-Brexit trading environment is taking some adjusting to.
When news of the deal with the EU (the Trade and Cooporation Agreement aka the TCA) first started to circulate, the headlines stated that the EU and UK would be able to continue to trade without extra tariffs, but as more detail came to light it became apparent that there were in fact more hurdles than first anticipated.
One of those hurdles is the new rules surrounding the 'rules of origin'.
What are the rules of origin?
The rules of origin help to establish where products originate from and whether or not the goods are sufficiently 'local' to benefit from preferential (i.e. zero) tariff rates when imported or exported between the UK and EU. However, there are increased concerns that international goods from countries without a trade deal will try to enter the EU via the UK to avoid tariffs or vice versa. So on making this deal, new rules have been developed.
Businesses will now need to prove that goods are sufficiently local (e.g. a certain percentage of ingredients originate from the exporting country or have been sufficiently processed in the exporting country to make them 'local') and as these rules can be incredibly complex, this can add a huge administrative burden which cuts already tight profit margins. This is of particular importance to the UK as many ingredients are imported and because the UK is considered by any non-EU countries as the ideal springboard for distribution into the EU.
What are the practical effects of the changes?
The example that has become widely known is that of the M&S Percy Pig, which in some cases is produced in Germany, shipped to UK distribution centres and from there sometimes re-shipped to the EU. Under the old rules, these goods would have remained tariff-free on their return to the EU. However, under the new rules, once the goods arrive in the UK they need to be sufficiently processed into something different in order to make them local enough to be tariff-free when they return to the EU.
The tariffs which may apply on certain food and drinks products could make production unviable which may also have a significant impact on UK distribution industry as it is no longer the EU springboard it once was for food and drink exporters.
But let's consider the positives. The new rules of origin will mean that many F&B businesses need to re-asses their processes and seek out opportunities. It is anticipated that in time there will be a new 'norm' and the unrivalled tenacity of F&B businesses is likely to mean that the UK can adjust in a way that makes our incredibly strong food and drink industry stronger and more robust for the foreseeable future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
