Food and Drink Federation – Supplementary Written Evidence (JTN0041)

Introduction

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 almost 20 per cent of the total manufacturing sector), turning over £105 billion per annum; resulting in Gross Value Added (GVA) of £28 billion and employing over 430,000 people.
2. Our industry is unique in that it provides the opportunity for the UK Government to deliver direct benefits for every UK community through future international trade agreements. Production of food and drink is widely dispersed with a significant footprint in every constituency. As a whole, the food and drink supply chain employs 4.3 million people – 17.5 per cent of the UK workforce – and generates over £120 billion of GVA each year.

Tariffs and Quotas

3. We welcome the agreement of tariffs that mirror those in the EU-Japan Economic Partnership Agreement (EPA). A key priority for our industry in these negotiations was to ensure that UK businesses have access on terms that at the very least match those of the EU. This is particularly important for staged tariffs that are being phased in via annual reductions and we are pleased that CEPA will deliver staged tariffs that continue to match those in place via the EU’s agreement from day one.
4. We hope to see the swift progression of the agreement from signature to ratification so that businesses can have certainty that it will apply with effect from 1 January 2021 with no break in application. Failure to do this would result in tariffs reverting to WTO Most Favoured Nation (MFN) rates and, even if only on a temporary basis, this would still have long-lasting, damaging impacts for UK food and drink exporters.
5. The application of Tariff Rate Quotas (TRQs) is less clear. The UK loses access to 15 of the EU’s 25 quotas but most of these have not been used by UK businesses. While this shouldn’t have major implications for existing UK exporters, it does remove a potentially useful route to market for businesses that otherwise might have been developing their trade with Japan with the intention of utilising preferential tariff rates via these quotas.
6. Among these, the UK loses access to the EU’s preferential quota for malt (TRQ-10). This is notable as malt is currently the UK’s second largest agri-food and drink export to Japan, worth £35.5 million in 2019, with the UK currently Japan’s second largest supplier. In practice, UK exporters typically don’t use this EU TRQ, instead opting to export via Japan’s global ‘erga omnes’ quota because it is administratively more straightforward for businesses to access. While this shouldn’t materially impact existing exports, the loss of access to the EU’s quota removes a potentially useful alternative preferential route to market for UK malt exporters outside of its global quota.
7. The UK retains access to 10 TRQs where not fully utilised by EU exporters in the previous year. Products under these commodity codes will be imported into Japan on a tariff free basis and at the end of the year an assessment will be made on the utilisation of these TRQs by the EU. Where there is unutilised quota, these products will not face a tariff but if insufficient volume remains, tariffs will be charged retrospectively. This creates significant uncertainty for trade in these goods and risks undermining UK trade in these products. We understand that most of these TRQs are heavily underused at present and in the short term at least, this should allow tariff free trade to continue.
8. Japan will establish a new ‘Low Rate Import Certificates’ scheme to simplify processes for Japanese importers that use these TRQs and this could offer some encouragement if the reductions to administrative burdens are seen to be sufficiently generous to encourage Japanese businesses to favour imports from the UK via these quotas rather than the EU.
9. Businesses note that differences in the use of tariff codes for these quotas and in goods trade presents issues. Qualifying products are expressed by Japan in the form of nine-digit tariff codes and this leads to a real lack of clarity for UK businesses. It would be helpful if DIT could provide greater clarity on this to help support business awareness of these preferential quotas.

Rules of Origin

10. Securing extended cumulation covering the use of EU inputs and processing across a large proportion of agri-food and drink products is an extremely welcome part of this agreement for our industry. This agreement also leaves the door ajar for potential full diagonal cumulation between the UK, Japan and EU in the future, however at this stage the EU is clearly not keen to go down this route.
11. From an administrative perspective, the UK’s agreement also delivers certain improvements through the extension of the validity of origin certificates beyond the 12 months that is permitted in the existing EU agreement.
12. For product specific rules of origin, the majority of agri-food chapters are unchanged, however some chapters benefit to varying degrees from simplifications that will deliver greater flexibility around sourcing of inputs for use in UK manufacturing for export to Japan. We have identified changes to product specific rules in the following six chapters:
1. Chapter 11: Products of the milling industry; malt; starches; inulin; wheat gluten
2. Chapter 16: Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates
3. Chapter 17: Sugars and sugar confectionery
4. Chapter 19: Preparations of cereals, flour, starch or milk; pastrycooks' products
5. Chapter 21: Miscellaneous edible preparations
6. Chapter 23: Residues and waste from the food industries; prepared animal fodder
13. As noted in examples provided by the Government, UK pet food manufacturers should benefit from more flexible rules around the use of meat, fish, cereals and sugar in products that are manufactured in the UK, while bakers and biscuit makers similarly should face less restrictive rules around their use of flours, starches and sugar.
14. These product specific rules are hugely important for manufacturers of high quality food and drink. The ingredients used in many UK products are a rich mix of goods from the UK and around the world, many of which are not produced in the UK or not in sufficient quantity throughout the year. The added flexibility provided through this agreement around the levels at which global content will be allowed will for some exporters mean they will now be able to access preferential tariffs when exporting to Japan when this wasn’t possible under existing arrangements.

Geographical Indications

15.                                                                                                                                                 We welcome DIT’s stated intention to put forward an additional 70 UK Geographical Indications (GIs) for approval by Japan in January 2021. If successful, this will add to the seven GIs which retain existing protections from the UK-Japan EPA[1]. The timescale and process for securing this recognition is less clear. It is our understanding that the Japanese approval process can present significant complexities that will likely mean it takes significantly longer than the five months indicated by the Department for International Trade[2].

Organics

16. An important outcome of this agreement that will support the continued rapid growth of UK organic exports is the continued recognition by Japan of the UK’s organic system. This recognition will continue until 31 Jan 2022, and plans are in place for Japan to audit the UK’s organic system in 2021 to provide longer term certainty for exporters.

Sanitary and Phytosanitary Measures (SPS)

17. The UK and Japan’s SPS commitments appear to be largely unchanged from the existing agreement and this is welcome. We also note very welcome commitments from Japan to ensure food safety rules are available in English and to speed up approval processes for agri-food goods.

SMEs

18.                                                                                                                                                 With SMEs making up 96 per cent of our industry, we welcome the continued focus and commitment the agreement provides to supporting SME trade and investment. There do not appear to be significant changes in this respect to the existing agreement, however we have noted plans for a dedicated SME website that includes a searchable database of rules and regulations. This sort of up-to-date information is of critical importance to SME food and drink exporters as is the availability of information on doing business in Japan for SMEs in English.

6 November 2020