Brexit Notes blog, UK WTO & 3rd countries, UK-EU negotiations

Brexit Notes – Future FTA: Japan and food industry want origin cumulation

Japanese business groups want the EU and the UK to start working on rolling over the yet-to-be ratified EU-Japan free trade accord so that it also applies to Britain after Brexit. They also set out specific demands for the future EU-UK trade agreement. These demands echo origin rule requests by Britain’s food industry that were also released today.


In a joint statement, the Keidanren, Japan’s main business association, and the Japan Business Council in Europe called on Brexit negotiators to “cultivate an economic relationship that is as close as possible” between the European Union and Britain after the latter leaves the bloc.


The call comes as the EU27 is expected to decide next week whether to move on to a new phase of Brexit negotiations tackling the long-term future relationship.


The decision next week hinges on whether the remaining 27 member states consider both sides have made sufficient progress on the technicalities of withdrawal terms, and on the conditions for a ‘status quo’ transition period while the future relationship is being thrashed out in more detail. This decision in turn the EU has conditioned on a political agreement on how to treat the Northern Ireland border question (see Jennifer Freedman’s story).


Japanese business says it is “desirable that the period of transition be long enough to give both partners sufficient time to reach an agreement on a future relationship, and for businesses to prepare for the necessary operational changes”. The statement adds to calls from business on both sides of the Channel to extend the planned transition period beyond the official December 2020 target set by the European Commission.


Concerned about the integrity of the existing intra-European and cross-Channel supply chains in their investments in automotive and other industries, Japan’s businesses want continued “regulatory coherence” between the EU and the UK, and duty-free trade over the long term.


The Japanese statement specifically calls for “simplified customs procedures and appropriate rules of origin”. This involves in particular the EU’s Authorised Economic Operator and “cumulative rules of origin which can be extended to third-country FTA partners”. It also says that “approvals, registrations, licences or any other kinds of rights” should be guaranteed “for a time after the transition period”.


The EU envisages offering the UK a classic if ambitious free trade agreement that involves Britain being out of the single market and the bloc’s customs union to meet Britain’s demands.


Japan’s demands on cumulation of rules of origin and on approvals and licences are something the EU might be reluctant to do. The EU is formally sticking to the view that the transition period should be short and coincide with the end of the EU’s multiannual financial framework, which means it would last only 21 months.


Food and drink warns of ROO ‘hard Brexit’


Japanese calls for nonrestrictive rules of origin to avoid supply-chain disruption were matched today by a report released by Britain’s Food and Drinks Federation. The FDF says that rules of origin are the “hidden hard Brexit” for their sector.


“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,” the FDF report warns. In the future trading framework, “some producers … might face the prospect of either costly restructuring of supply chains, or de facto barring from EU-UK trade”.


In a future FTA between the EU and Britain, “there should be a basic de minimis allowance for non-local content at 10% by value in addition to any other product-specific allowances”, says the FDF. The industry body also calls for the possibility of cumulation. “French wheat in a UK biscuit should be treated as local content in the free trade zone created in an EU-UK FTA and vice-versa,” the report says.


The FDF wants  negotiators to further consider including imports of inputs for processed food and drinks from least developed countries as qualifying for inclusion in the preferential tariff terms of the future trade deal.


Also, “the EU and UK could agree that, for a small number of origin protocols for sensitive food and drink products, inputs where the UK and the EU share a common external tariff are excluded from origin calculations”.


This might be a politically and technically challenging demand on the EU. In its FTAs, the bloc generally includes simple physical transformation requirements for foods, or weight-based ratios of ingredients. This means that even if a complex processed food qualified for duty-free treatment under an FTA, such basic rules of origin would preclude it from this special tariff treatment.


Experts have long warned that the technical issue of rules of origin in current and future trade agreements in which the UK will be involved could be a major complicating factor in securing good deals for businesses trading in or with Britain. Now the matter – generally left to technocrats – is becoming politically more salient.

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