Food and drink manufacturers from across the EU and the UK have urged Brussels to take a more “flexible” approach to future commerce arrangements with Britain, warning that a basic free trade deal would hurt companies, workers and consumers.
The letter from 57 food and drink trade associations to the EU chief Brexit negotiator Michel Barnier called for Britain and the bloc to seek “continued close alignment” in order to protect highly-integrated supply chains that directly employ almost 5m people.
In a united attempt to exert pressure on both sides that is likely to hearten British negotiators, the EU and UK food and drink manufacturers warned that a tariff-free trade agreement will be “meaningless” unless measures are taken to ensure companies can take advantage of “zero tariff” rates.
The EU and the UK are both seeking a “zero-tariff, zero quota” free trade agreement, but under so-called rules of origin only goods that are at around 50 per cent locally-made will qualify for preferential tariff rates.
Mr Barnier has rejected Britain’s proposal that UK manufacturers could count inputs from other EU trade partners as “British” in a future trade deal — a practice known as diagonal cumulation. He has warned it would enable Britain to become a “manufacturing hub” for the EU.
However the EU and UK food and drink trade associations called on Mr Barnier to be more flexible, and set out five demands, including “diagonal cumulation” between the UK, the EU and their trade partners, as well as developing countries.
“A tariff free preferential trade agreement will be meaningless if businesses are unable to access these preferential tariff rates,” they said. “In the case of food and drink, this will only be possible if both sides agree to put in place bespoke rules of origin.”
Alex Waugh, director-general of the National Association of British and Irish Flour Millers, said a trade deal without customised rules of origin would significantly disrupt manufacturers of products using grain — from flour through to pasta, biscuits and frozen pastries.
About £1bn of bakery products are exported from the UK to the EU each year and about £2bn imported from the bloc, he added.
“If a grain miller were to use wheat imported from the US, Canada, Australia, Ukraine or Russia, then neither the flour nor the products made from flour would count as UK or European and would be excluded from the benefits of the [free trade agreement],” said Mr Waugh.
“For example, it’s quite common for pasta to be made with US or Canadian durum wheat, and in the UK we use Canadian wheat for a number of our bakery products.”
However Anna Jerzewska, an associate at the UK trade policy observatory at Sussex University, said the food and drink associations’ demands were “highly ambitious”, exceeding even those set out in Britain’s draft trade agreement with the EU, which have already been rejected by the bloc.
“Several elements of this proposal have never been introduced in any [free trade agreement] and would be completely unique,” she added. “They might fix the industry’s problems but they are not something that the EU could agree to.”
Mr Barnier has cited Britain’s attempt to secure generous rules of origin as an example of the UK’s determination to “cherry-pick” EU single market rights, warning the bloc needed “to look beyond the short-term adaptation costs to our long-term economic interests”.
He said last week: “Do we really want to take a risk with rules of origin that would allow the UK to become a manufacturing hub for the EU, by allowing it to assemble materials and goods sourced all over the world, and export them to the single market as British goods: tariff and quota-free?”
However Ian Wright, chief executive of the UK Food and Drink Federation, said the industry needed a “best-in-class [trade] agreement” that included flexible rules of origin.
“It is in the interests of both sides to minimise avoidable disruption, and flexible rules of origin are crucial,” he said. “This will be essential to support the post Covid-19 economic recovery.”
The European Commission said it would reply to the letter from the EU and UK food and drink associations in due course.