FDF Response to Government on Future UK Customs Arrangements

Transcription

1 FDF Response to Government on Future UK Customs Arrangements 1. This submission is made by the Food and Drink Federation (FDF), the trade association for food and drink manufacturing. Food and drink is the largest manufacturing sector in the UK (accounting for 19 per cent of the total manufacturing sector) turning over 95.5 billion per annum; creating GVA of 28.2 billion and employing around 400,000 people. 2. FDF welcomes Government s paper on future customs arrangements which begins to provide much needed clarity on their plans for future UK customs arrangements. These will play a key role in shaping the UK s future trading relationships with the EU and the rest of the world. 3. We particularly welcome Government s recognition in paragraph 2.11 of the unique challenges that face the UK s food and drink industry and the importance of securing an outcome that delivers speedy and efficient customs processes at the border for food and drink companies operating just-in-time supply chains trading in perishable goods. 4. To achieve a successful outcome, continued close cooperation will be required between UK authorities and their EU counterparts. Technical challenges will arise that require solutions on the EU27 side to ensure trade that is as frictionless as possible. Frontier authorities need to communicate effectively and efficiently to ensure continued interoperability after the UK s new customs system enters into force. 5. A successful relationship between Government and the UK business community is similarly important. FDF and its members will continue to work with HMRC to highlight the unique challenges facing food and drink and the solutions that are needed as Government develops its customs capacity. Further activity will be required to ensure the UK s food and drink manufacturers have the skills that are needed and FDF will work with Government and help to deliver this support wherever possible. 6. Food and drink is part of the UK s Critical National Infrastructure and the success of the UK s largest manufacturing sector is inextricably linked to our ability to import and export raw materials and finished goods across borders. The overwhelming majority of UK trade in food and non-alcoholic drink is with the EU more than 70 per cent of exports and imports. It is therefore vital that Government puts in place customs arrangements that are as frictionless as possible and as a matter of priority avoid disruption to supply chains that rely on unimpeded movements of perishable ingredients and sales of limited shelf life consumer products. 7. Mutual recognition of food regulations between the UK and EU will be essential to ensure continued trade in food and drink. Without this, our exports to the EU will automatically face complex documentary and physical inspection requirements which would make exporting more difficult and costly for UK producers. These issues could be amplified in some EU Member States as the absence of a regulatory agreement could result in a greater risk of protectionism via the use of non-tariff barriers to trade. 8. The paper sets out the strategic objectives that must be delivered by a new model for UK customs. Failure to achieve each of these could present a real threat to parts of the UK s wider food and drink industry which employs 3.9 million people across the UK. The new model must deliver the greatest economic advantage and ensure that vital UK-EU trade in food and drink, which plays a key role in ensuring the UK s food security, remains as frictionless as possible. We support the Government s aim to Food and Drink Federation 6 th Floor 10 Bloomsbury Way London WC1A 2SL Tel: +44 (0) Registered office as above. Registered in London with limited liability. Certificate of Incorporation no VAT number: The Food and Drink Federation seeks to ensure that information and guidance it provides are correct but accepts no liability in respect thereof. Such information and guidance are not substitutes for specific legal or other professional advice.

2 pursue an independent trade policy but this must not come at the expense of the continued free movement of agrifood and drink products between the UK and EU. 9. Nowhere is this more important than at the Irish border. With more than half of all movements of goods across the UK s only EU land border made up of food and drink, our sector can play a central role in helping to find innovative solutions that will help the Government avoid the need for a hard border, ensuring these vital movements of goods are able to continue unimpeded. Checks and inspections should be kept to a minimum and take place as far from the border as is possible. This should apply both to the Irish border and to cross-channel traffic. In the creation of any system, consideration must be given to not creating additional incentives for illegal activity. A system should be easy to use but be robust enough to deliver confidence in its operation to businesses. 10. FDF offers to work in partnership with Government, helping to set up a joint task force to address the particular challenges posed by sanitary inspection checks for movements of our products across the Irish border. We hope that this would help to provide constructive solutions that would help to deliver Government s aims of avoiding a hard border in Ireland and ensuring continued frictionless trade. Interim arrangements 11. An agreement on future customs arrangements with the EU will be critical to protect business from a damaging cliff edge scenario. FDF s priority is to ensure that our members access to EU markets is not undermined during the period of transition to a new UK customs system. We therefore welcome the acknowledgement provided in this paper of industry s call for a transition period. Adequate time will be required both for the negotiation of the future customs arrangements followed by the re-design of the UK s new customs processes and systems. This should ensure that businesses in the UK only have to adjust once to a new customs relationship in order to minimise cost, unnecessary disruption and impacts for consumer prices. 12. We believe that Government should aim to ensure a single point of change for customs systems, avoiding disruption in trade and the risk of a cliff-edge scenario. This can only be delivered by a status quo transition period that allows customs arrangements to continue largely unchanged until new arrangements following the final EU Exit deal enter into force. Having two points of change would necessitate further negotiation with the EU to put in place implementation procedures and this would generate additional costs for businesses and Government alike. We believe these aims would best be delivered by pursuing a customs agreement with the EU that avoids all but the most necessary changes to customs procedures and processes post-march The more change that takes place, the move difficult it will be to avoid a hard border in Ireland and with the rest of the EU. 13. Most food and drink products crossing the EU s external border are subject to a range of sanitary and/or veterinary certification and inspection requirements which necessitate physical checks at point of entry, including for animal and plant health. These simply cannot be resolved through the use of technology. At present, most of these mandatory physical checks do not apply to movements of products between the UK and the rest of the EU. But without explicit allowance for this to continue, our products would be treated by the EU on a par with existing third country requirements. This would add significant logistical challenges and costs, as well as potentially increasing food waste if delays lead to spoilage of goods in transit. These adverse effects would be felt across the food chain by farmers, manufacturers, traders and ultimately consumers. Food and Drink Federation Page 2

3 14. Delays at border would also threaten our industry s exports to the EU, which currently total more than 12 billion each year. We know from experience that European retailers will not tolerate delayed deliveries. Avoiding a hard border during the interim period will be vital if we are to maintain strong export growth into the valuable EU market which is currently growing at a faster rate than sales to the rest of the world. 15. The transition period should have a clearly defined start and end point and the duration provided should not be decided arbitrarily. The length of time required for importers and exporters in UK food and drink manufacturing to adapt, change and test their systems will vary significantly from business to business. This will depend on a range of factors, including the product sector, the complexity of value chains across the EU and their existing experience of trading outside the EU. For some businesses, this can be achieved relatively quickly, painlessly and with minimal cost, however for others this will present a more significant challenge. 16. We share the view expressed by the Chancellor of the Exchequer in the foreword to the Customs White Paper that How long the period is should be determined simply by how long it will take to prepare and implement the new processes and the new systems that will underpin our future partnership, but we are clear that cliff-edge changes are in the interests of no-one, either here, or in the EU. Crucially, this process of transition cannot begin until there is certainty for businesses about the end goal of the whole transition process. Precise details of the UK s future customs model must be negotiated and agreed with the EU and specifications confirmed to industry by HMRC, in conjunction with requirements agreed with the other frontier authorities. 17. It is essential that there is early confirmation that there will be a transition period and that no substantive changes will be required on day one after we leave the EU. We are aware that some food and drink companies are preparing to make serious decisions at the start of 2018 which could have detrimental consequences for jobs and investment in the UK. Therefore, early clarity on the legal form of the transition, and the details of how it will deliver the objective of no substantive changes on day one, is highly desirable. 18. The ability of Government to update its own systems and put in place required new infrastructure on such an accelerated timescale may present a greater challenge to delivering a new UK customs system and could even mean a longer transition period would be required. The new EU-wide customs legislation, the Union Customs Code (UCC) has required a transitional period of over four years. A highly streamlined customs arrangement 19. Food and drink manufacturers support proposals to facilitate the easier flow of trade between the UK and EU, however these measures serve to highlight that there will be friction and a hard border in place after the UK leaves the EU, with food and drink manufacturers required to: declare goods for import or exports; provide detailed documentation to HMRC, including customs declarations, safety and security information and any licences required or supporting documentation such as that required to demonstrate the origin of goods and their ingredients; comply with HMRC while it verifies that a declaration has been made, that it corresponds to the goods arriving and intervenes if necessary; and Food and Drink Federation Page 3

4 ensure that any duties and import VAT are paid when goods arrive in the UK and the goods are released. 20. The requirement for such a solution is predicated on the need to treat EU traffic, post Brexit, in the same way as third country traffic now, albeit as part and parcel of an overall improved experience for UK trade. While we fully support efforts to enhance import and export processes, we do have areas of specific concern and suggestions to help Government improve this model. 21. The re-introduction of customs entries for all freight traffic crossing between the UK and EU will inevitably pose challenges for businesses that have no or limited practical experience of managing the complexity of international trade beyond the borders of the EU. Government would need to lead an education programme to ensure businesses fully understand their obligations and are prepared for these challenges. 22. Ports, Community Service Providers (CSPs), customs agents and freight forwarders, will need to invest in their systems, working collaboratively with HMRC to ensure that importers and exporters have unrestricted access to CHIEF and the Customs Declaration Service (CDS). However, that will come at a cost where currently, for EU traffic at least, there is no charge. Additional ongoing costs such as these will be passed on to importers, exports and ultimately to UK consumers. In simple terms the cost of trading cross border will increase, and given that a large proportion of our members operate in a low margin/high volume environment, any increase in regular and recurring charges is of concern to the UK food and drink industry. 23. Businesses will also need to invest heavily in systems, but may be reluctant to do so until they are sufficiently confident that Government systems improvements will be delivered. Independent oversight of the critical systems developments would be a positive step to provide greater transparency and therefore improve business confidence in progress being delivered. 24. A process re-design and systems development of this size and scale, will require a long transitional period as seen with the Union Customs Code (UCC), to allow ports, airports, Government departments, systems developers, logistics providers, importers and exporters, to build the necessary infrastructure and communication links to make this a viable option. 25. With the UCC, clear timeframes are set out for the EU to ensure implementation of new IT systems. Government s paper says that the promotion of the free flow of trade in both directions between the UK and the EU would also require the EU to implement equivalent arrangements at its borders with the UK. To successfully deliver the highly streamlined customs arrangement will therefore also depend on the readiness of IT systems in EU27 Member States and this could also have significant implications for the required transition period. 26. Government s vision of trade that is as frictionless as possible can only be achieved via a coordinated and coherent inter-governmental approach to border controls and, preferably, the development of one-stop data collection point (the Single Window ), so that business is not required to provide what is essentially the same data, to multiple agencies. This requires a significant step change in the readiness of some Government agencies to engage. With that in mind, we believe there would be a need for a non-governmental body like SITPRO, that acts as a broker and brings together all the relevant departments and trade interests to deliver practical, workable solutions. 27. We welcome the recommendation that the UK would continue to contribute to the wider safety and security agenda by negotiating customs co-operation, mutual Food and Drink Federation Page 4

5 assistance and data-sharing which replicates existing UK cooperation with EU27 Member States to reduce revenue and security risks to the UK, and improve targeting of inspections, reducing delays for legitimate traders. 28. We would also welcome membership of the Common Transit (CT) system for movements passing via the EU and/or through the UK. This will require agreement with the EU to ensure UK hauliers can operate across the EU27 and vice versa, otherwise every lorry will have to swap drivers at the quay. The CT system also requires a bank guarantee, whereas for most of these current shipments, there is no such requirement. This will increase the cost for most road traffic coming into or out of the UK that is ultimately destined for a non-eu location. 29. There is clearly a role for the Authorised Economic Operator (AEO) system and a trusted trader programme. There are challenges though, not least that achieving accreditation via the current application process under EU rules is long-winded, complex and time consuming. Although it is critical that AEO status is hard-earned and robust, we would hope that the UK would be able to come up with a better structured application process, especially for small and medium sized companies. There may also be lessons to be learned from customs authorities in EU27 Member States on streamlining the accreditation approach for AEO (C). 30. There have been calls for an AEO-light type programme and this would need to be carefully thought through. AEO-light does to some extent already exist in the form of AEO (C) and the issue is not so much about changing the requirements, but how the programme is marketed. Put another way, a pre-requisite to customs facilitations should be sound compliance processes and this is to an extent, already divorced from Safety and Security requirements of the full AEO programme. What is needed is a change in how AEO (C) is marketed and a clearer distinction between that and AEO (S). HMRC will need to actively support business through AEO (C) applications and this will require additional resources to be successfully delivered. 31. Whatever the outcome for UK customs, the safety and security aspects of the current AEO regime must not be watered down. This is part of an internationally recognised programme and UK exporters will want to benefit from mutual recognition, which will become increasingly important, especially with key non-eu partners such as the USA. 32. The introduction of a self-assessment regime will be critical to achieving a border that is as frictionless as possible as it moves the fiscal obligation away from the frontier. However, we do not believe self-assessment should be limited to AEO registered businesses unless there is a significant uptake before the UK leaves the EU. HMRC will need to consider whether to introduce a registration limit; a single fixed rate for small value imports; and/or specific restrictions placed on specific goods that attract high import taxes i.e. excise duties and CAP items. Nevertheless, the infrastructure and resource supporting Intrastat could be used to manage self-assessment. 33. We would welcome any improvement in the speed, methodology and requirements associated with granting authorisations for customs procedures with economic impact. Nevertheless, we also recognise that HMRC will need to have appropriate controls in place to ensure that access is only given to legitimate trade. 34. Equally, we would welcome any improvement in the current procedures around granting access to simplified procedures. 35. While tariffs are not mentioned in the Government paper, it should be noted that the current EU regime around processed food is extremely complex, sometimes requiring scientific analysis to determine dairy, sucrose and starch content, which drives in Food and Drink Federation Page 5

6 significant cost. The Meursing Code contains 13,608 separate tariffs on biscuits, chocolate, bakery goods and confectionery alone. Whilst we understand that tariff levels will be subject to negotiations, we would urge Government to examine this complex area and prioritise the introduction of an alternative mechanism. 36. At a sectoral level, specific challenges would need to be addressed to facilitate as frictionless as possible movements of food and drink products. Taking products of animal origin as an example, Government will need to negotiate specific facilitations to ensure this vital trade can continue. On leaving the EU, the UK would not automatically be listed as a permitted non-eu country. Only listed non-eu third countries are permitted to export all animal derived products to the EU. For example, this would require amendment by the EU of regulations 853/2004 (collagen), 206/2010 (meat products) and 798/2008 (poultry) to add the UK to their list of permitted non-eu countries. This would need to happen before the UK leaves the EU to avoid a cliff edge scenario. Additionally, all non-eu meat, meat product and collagen producers will need to be included on the EU s list of authorised exporters. 37. Under a highly streamlined customs arrangement, exporters of certain agrifood products to the EU will require an Export Health Certificate to accompany each shipment. Defra can begin to prepare these certificates in advance as we know already what the requirements would be. However, questions remain regarding non- EU exports and whether approved manufacturers of animal products will keep the same registration number and whether this will be recognised by the EU. A new customs partnership with the EU 38. The second option set out by Government presents a different set of challenges and appears to be possibly more complex for businesses to operate than the streamlined customs arrangement. The practicality of operating a system such as this where raw materials are co-mingled, sent for further processing, and then sold within the UK, to the EU27 or to the rest of the world without direct segregation in the supply chain or manufacturing process poses particular challenges. 39. In the case of food and drink, it is difficult to see how this partnership model could operate if the UK does not maintain food standards that are strictly aligned with those of the EU. Given the sensitivity of many EU27 Member States to trade in agrifood and drink products, they will want to ensure that any imports from the UK continue to strictly meet EU standards. The obvious place to control shipments is at the border. So, if this is to work, HMRC will need to work with the other interested frontiers to establish how the import of food will be controlled. 40. The paper indicates that the UK and the EU would need to ensure robust procedures are in place to ensure that whatever is agreed in terms of origin and preference rules between the UK and EU, that traders on both sides of the channel do not circumvent those rules. There is precedent for how this might operate in practice. For instance, Turkey has a range of specified reliefs for imports of specific commodities, where they are to be used for domestic use. The EU-Turkey treaty specifically precludes full duty relief when determining EU-Turkish origin and to deal with that, Turkey has introduced a compensatory levy on exports of certain processed food products. 41. However, while Turkey and the EU are in a Customs Union, fiscal controls still operate at the border, providing HMRC and other frontier agencies an opportunity to intervene. That would not be the case under Government s customs partnership proposal. Therefore, as indicated, either a robust tracking mechanism would be required, or a reclaim mechanism i.e. EU tariffs are applied at the point of importation and a reclaim is submitted for the overpaid duty where the goods are put to home use. Either Food and Drink Federation Page 6

7 option has its disadvantages and imposes a heavy burden on intermediary processors and finished goods manufacturers in the supply chain. 42. A system to reclaim duties would have heavy cash flow impacts if HMRC is slow in repaying claims. This would be particularly undesirable for small and medium sized businesses in our sector. The Inward Processing Relief scheme (IPR) which operates on an accounting principle could offer potential workarounds in this regard as it allows for the full EU duty to be suspended, with businesses giving an assurance that the duties would be paid if products are not re-exported within an agreed time period. However, this system is again complex and bureaucratic to implement, both for businesses and HMRC. 43. While postponed accounting for import VAT (the reverse charge) is available in some Member States, this proposal would require its implementation at the very least, for all UK imports, across all EU Members States to adopt a postponed accounting/reverse charge for UK sourced products. Business readiness and contingency planning 44. It is difficult for FDF s members to plan in the absence of a clear idea of what requirements they might face after the UK leaves the EU. Some members have completed detailed scenario planning around potential tariffs and duties they may face on imports and exports, often focusing on the more predictable consequences of the UK leaving without an agreement. This would mean reverting to trade based on the EU s WTO Most Favoured Nation (MFN) tariff rates and these are notably high for agrifood and drink products. 45. However, our intelligence suggests that few businesses have planned for EU traffic to be treated in the same way as current third country traffic after March If that happens, we might see significant delays at the Irish border and on both sides of the Channel, with serious consequences for UK businesses. This could very quickly result in shortages in the shops. 46. With food included as a part of the UK s Critical National Infrastructure, it is imperative that the Government develops its own contingency plans in order to ensure we do not face this scenario and that continuity of supply of food and drink for consumers and businesses is maintained. Food and Drink Federation Page 7

8 The UK Food and Drink Manufacturing Industry The Food and Drink Federation (FDF) is the voice of the UK food and drink manufacturing industry, the largest manufacturing sector in the country. Our industry has a turnover of 95.5 billion, which is 19 per cent of total UK manufacturing, with Gross Value Added (GVA) of 28.2 billion. Food and drink manufacturers directly employ 400,000 people in every corner of the country. Exports of food and drink make an increasingly important contribution to the economy, exceeding 20 billion in 2016 for the first time. The UK s 6,800 food and drink manufacturers sit at the heart of a food supply chain which is worth 110 billion to the economy and employs four million people. The following Associations actively work with the Food and Drink Federation: ABIM ACFM BCA BOBMA BSIA BSNA CIMA EMMA FCPPA FOB GFIA PPA SA SNACMA SSA UKAMBY UKTIA Association of Bakery Ingredient Manufacturers Association of Cereal Food Manufacturers British Coffee Association British Oats and Barley Millers Association British Starch Industry Association British Specialist Nutrition Association Cereal Ingredient Manufacturers Association European Malt Product Manufacturers Association Frozen and Chilled Potato Processors Association Federation of Bakers Gluten Free Industry Association Potato Processors Association Salt Association Snack, Nut and Crisp Manufacturers Association Seasoning and Spice Association UK Association of Manufacturers of Bakers Yeast United Kingdom Tea & Infusions Association Ltd FDF also delivers specialist sector groups for members: Biscuit, Cake, Chocolate and Confectionery Group Frozen Food Group Ice Cream Committee Meat Group Organic Group Seafood Industry Alliance Food and Drink Federation Page 8