On June 15, 2018, the Office of the United States Trade Representative (USTR) released a list of products imported from China that will be subject to additional tariffs as part of the United States response to China’s alleged unfair trade practices related to technology and intellectual property. The tariffs will pose an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies. The announcement follows a Section 301 investigation in which the USTR found that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden United States commerce. United States Customs and Border Protection will begin to collect the additional duties from China on July 6, 2018 on an initial list of products affecting $36 billion in imports.
The Food and Drink Federation (“FDF“) has published a report on the potential impact of rules of origin on UK food and drink exporters in the likely event that the UK ceases to be part of the EU customs union after Brexit.
Rules of origin are the detailed content requirements that determine whether goods are produced “locally” in order to benefit from preferential tariff rates. Food manufacturing is an internationalized business, with UK producers regularly sourcing ingredients from across the EU and globally, often because sourcing equivalent ingredients in the UK would not be economically or practically feasible.
To date, the UK has benefited from the absence of origin requirements for trade within the EU. However, after Brexit, while it is expected that the EU and UK will negotiate largely or complete free tariffs on food and drink under a preferential free trade agreement (“FTA“), the ability of UK exporters to benefit from those rates will depend on whether their goods meet the criteria to be classified as UK products. Depending on the outcome, many UK producers who have built supply and distribution models on the basis of the single market framework may find that they no longer comply with the permitted levels of global ingredients and may therefore be ineligible for preferential trade terms and tariffs.
Because the EU and the UK are likely to maintain high basic tariffs for food and drink products, the margin between preferential treatment and non-preferential treatment is likely to be considerable. As a result, FDF argues that producers excluded from preferential terms will face a ‘hidden hard Brexit’ and may face costly restructuring of supply chains, absorption of higher costs or de facto barring from EU-UK trade, potentially requiring a restructuring of operations to avoid cross-border trade altogether.
To reduce this risk, the report sets out eight rules of origins provisions that the UK should seek to include in an EU-UK FTA to ensure any new origin rules are suitable for the globalized industries they will impact. The proposals include:
- a de minimis allowance for non-local content in all goods, set at 10% of the value in addition to any other product-specific allowances;
- cumulative origin requirements, meaning that goods originating in either the UK or EU are treated as originating in both for the purposes of meeting origin requirements;
- origin protocols reflecting the unique value added by high quality manufacturing, established brands and other forms of technological input that often characterize the EU and UK food and drink sectors and contribute to a price premium for these goods; and
- a simplification of the administrative burden of complying with origin requirements through wider use of self-certification, extended validity for origin designations and exemptions for low value shipments.
As a major producer and exporter of food and drink both to the EU and globally, failure to secure preferential treatment under an FTA will be costly for the UK and could have knock-on effects across the food and drink sector. Any solution will need to effectively balance the importance of encouraging local production with the reality of global production in order to prevent serious disruption to existing supply and distribution chains.
The full report is available here.
On 1 February 2018, the European Commission issued a notice on the impact of Brexit for food products originating from the UK. The Commission confirmed that, in the absence of a transitional agreement, the UK will become a ‘third country’ from the date of its withdrawal from the EU. This will impact a number of key areas of EU food regulation, including:
- Food labelling: changes will need to be made to labels of food products originating from the UK. An EU-based importer must be named on the product, and mandatory references to the origin of products will need to be changed from “EU” to “UK” or “non-EU”.
- Food composition, contaminant levels and food contact materials: UK-produced food sold in the EU will remain subject to EU rules including requirements for certain ingredients to be authorised by the Commission (e.g. additives and flavourings and novel foods), maximum permitted levels of contaminants and residues in foodstuffs, and rules on food contract materials. These apply to all foods placed on the EU market, irrespective of the place of production.
- EU establishment requirements and submission of EU authorisations: some products such as genetically modified food must have a food business operator, authorisation holder or a representative that is established in the EU. Establishments in the UK will no longer comply with this requirement. The Food Standards Agency, the UK’s competent authority, will also no longer be able to accept applications for EU authorisations such as for the cultivation and placing on the market of genetically modified materials, and for use of new materials in food contact materials.
- Food of animal origin: the import of food of animal origin from the UK into the EU will be prohibited, unless certain requirements are met. These include:
- the UK must be listed by the Commission as an approved third country for the export of each category of food of animal origin. The Commission has not addressed whether the UK will automatically be approved post-Brexit or whether the UK will need to apply for authorisation as a third country;
- the establishment from which the food is dispatched and obtained or prepared must further be approved for the export of the specific category of food of animal origin;
the imported food satisfies all EU food hygiene requirements; and
- the product will be subject to mandatory border checks and must enter the EU through approved border inspection posts of a remaining Member State.
- Organic products: UK-originating organic foods will be subject to the same regulation as organic foods entering the EU from other third countries. In particular, all consignments of organic products must be accompanied by a certificate of inspection on import to the EU. These certificates can be issued by an authorised EU organic control body or authority or a non-EU control body or authority recognised as having equivalent standards as the EU. Certificates issued by UK bodies will no longer be valid.
The full notice published by the Commission is available here.
Since President Donald Trump was sworn in on January 20, the Trump administration has taken several actions that will affect the regulation of the food and agriculture industries domestically, as well as potential trade opportunities for these industries internationally. First, on January 20, White House Chief of Staff Reince Priebus issued a memorandum to the heads of all executive departments and agencies issuing a freeze on new or pending regulations (“Priebus Memorandum”). As described in more detail below, the effect of the freeze on regulations that have already been published in the Federal Register is limited to those that have not yet become effective (usually 60 days after publication), rather than those for which the compliance deadline has not yet been reached. The number of existing rules affected by the memorandum that would affect the food and agricultural industries, therefore, is rather limited because most of them were published in 2016 and have already become effective.
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Guest Authors- Jonathan T. Stoel