The MFN Tariff Issue

The tariff preferences enjoyed by ACP horticultural exporters arise solely as a result of the high Most-Favored-Nation (MFN) tariffs and supplementary levies which the EU applies to varying degrees on imports of horticultural products from non-preferred suppliers.

In the absence of these high MFN tariffs no tariff preferences can exist and ACP horticultural exporters would be competing on the same terms and conditions as any third country supplier.

Once the UK is no longer part of the EU customs union and single market the UK will be free to pursue its own autonomous MFN policy.

In October 2019 the UK announced its No-Deal Brexit’ MFN tariff schedule which included the removal of existing EU MFN tariffs and the lapsing of the EU’s entry price system on almost all horticultural products, with the notable exception of bananas and beans.

The full proposed UK post-Brexit MFN tariff schedule can be found here.

For the small range of fruit and vegetable products where the UK plans to retain in place these high EU MFN tariffs then at least temporarily the continued value of the rolled over duty-free access to the UK market granted ACP exporters has been assured.

However, the UK government plans to undertake a further review of its proposed post-Brexit MFN tariff schedule at the beginning of 2020, with a public consultation taking place in January-February 2020. After this review, a revised MFN schedule is likely to be announced, although this could not enter into effect until the UK leaves the EU customs union.

The implications of this UK policy choice need to be assessed by ACP horticultural exporters in light of:

  • whether the exported product is one of the few exceptions where the UK intends to keep in place existing EU MFN tariffs and the prospects for retaining in place current rolled over MFN tariffs after the proposed UK MFN tariff regime review scheduled for the first quarter of 2020;
  • the level of existing EU MFN tariffs applied on the specific product exported;
  • whether existing competitors pay the MFN tariff or enjoy some level of preferential access under other EU trade agreements or under the EU’s GSP or GSP+ scheme;
  • whether an entry price system is applied to the product exported and whether this prevents the price secured being undercut by alternative lower cost third country producers;
  • the importance of the UK market in current exports to the EU28 market.

On this basis, an assessment can be made of the likely profitability of continuing to serve the UK market for the current horticultural products being exported to the UK, under the trade conditions which will prevail once the UK has left the EU customs union and single market and the UK’s autonomous MFN tariff regime enters into force

Uganda: An Illustrative Case of the Potential Significance of the Post Brexit UK-Only MFN Tariff Treatment of Vegetables
While still relatively small, since 2012 the value of Ugandan vegetable exports to the UK have doubled in value, in part as a result of the tariff preferences and the entry price system currently applied under the EU regime. However, the UK’s post-Brexit UK-only MFN tariff regime announced in October 2019 plans to set most of the import tariffs for Ugandan vegetable exports at zero.

In all but two of these product areas (lentils and kidney beans) this would see existing margins of tariff preference enjoyed over competing suppliers disappear.
These margin of tariff preference over 3rd country supplier trading under standard MFN terms (e.g. India and Brazil) range from a 3% to 12.8%.
The implications of the erosion of these margins of tariff preferences and the lapsing of the entry price system will need to be assessed on a product by product basis in light of how individual supply chains function and the market components being served in the UK.
This also needs to be reviewed in light of the dependence on the UK market in trade with the EU.


Trends in Ugandan Vegetable product exports to the UK 2012-2018 (Value €)

 

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