Manufacturing (including Catering, Retail and Wholesale)

Sector Coverage

4. This paper covers market access and trade issues around forestry, retail, agricultural, animal and plant health, food and drink manufacturing and related biotech products. This includes:
– Basic agricultural commodities (e.g. grain, milk);
– Food (e.g. dairy, fish, processed products etc.);
– Alcoholic beverages;
– Animal feed;
– Live animals and genetic material;
– Non-food horticultural products (e.g. seeds, ornamentals, trees);
– Non-food animal products (hides and skins, germplasm etc);
– Catering (retail and wholesale); and
– Timber.

Northern Ireland and Ireland

The open land border has a unique practical, economic, social and cultural context for the everyday lives of the people of Northern Ireland and Ireland. In terms of trade, a key consideration is the complex nature of cross border trade between Northern Ireland and Ireland. The food and drink industry between the UK and Ireland is fully integrated and treated as a single trading unit by businesses. Ireland s the UK’s largest food and drink
export market – £3.3 billion in 2016 – and the UK imported £4.0 billion from Ireland (second largest source of imports).1

There is also considerable food processing and manufacturing located along the border with Northern Ireland. Many workers are employed by factories the other side of the border from where they live. Raw materials are traded freely – for instance pigs bred in Ireland are slaughtered in Northern Ireland and processed to ham and bacon back in Ireland; milk from one country will be processed in the other (and with trade flows changing seasonally) and so on.

In August 2017, the UK government published the Northern Ireland and Ireland position paper outlining the UK’s position on addressing the unique circumstances of Northern Ireland and Ireland in light of the UK’s EU withdrawal. In the nine key principles and criteria for the land border, the paper noted the unique nature of the land border, in particular the integrated nature of the agri-food sector and the aim to avoid physical border infrastructure for any purpose including agri-food checks.

The UK and EU have mapped out areas of cooperation under the Belfast (‘Good Friday’) Agreement that function on a cross-border North-South basis. This detailed work demonstrates a wide range of cooperation across different aspects of the economy, public services, and the environment.

The current EU regulatory regime

For the UK, there is extensive regulation across food and agriculture and virtually all of it is governed by EU legislation, some of which is underpinned by internationally agreed standards.

There is extensive regulation in the food and drink sector and virtually all of it is governed by EU legislation, some single market rules and others under the CAP. The single market regulations are designed to do three things:
• Protect public health
• Protect animal and plant health
• Ensure consumer confidence in the food they eat, through ensuring authenticity and by giving consumers appropriate information.

Many of these are based on internationally agreed standards through, for example, CODEX Alimentarius (a “Food Code” to develop harmonised international food standards), the World Organisation for Animal Health (OIE) and IPPC (International Plant Protection Convention). The UK will maintain protection of public, animal and plant health after leaving the EU. These standards are well recognised and help underpin the good reputation for quality the UK’s food and drink products enjoy on the world market.

Biosecurity

As well as rules on food safety, composition and labelling, animal and plant health issues are of significant importance. Maintaining the highest levels of biosecurity is an essential part of exporting or importing animals and plants and plant products. The potential spread of highly contagious animal diseases such as Foot and Mouth Disease or the threat from non-native plant pests such as the Asian Longhorn Beetle is a major risk. There are also public health risks from diseases like BSE, BTB or from bacterial infections such as

Salmonella.

There are well established EU and international sanitary and phytosanitary standards in place to manage these risks. For animal health, highly technical rules define the health certification conditions appropriate to the product and the country of origin. In plant health technical/ scientific rules set out risk-based phytosanitary import requirements for regulated plants (including trees) and plant based commodities being imported from third countries. The global pest and disease situation constantly changes and our regulatory regimes need the flexibility to react quickly to manage the risks presented by new disease events. Within the EU market, there is a focus on regionalisation (based on areas of established disease freedom), to ensure that the trade restrictions are proportionate and risk based. Third country trading partners can be far slower to accept regionalisation or relax restrictions on UK exports following a disease outbreak.

The assurance that high animal and plant health standards provide for our trading partners is underpinned by our compliance with detailed EU rules on the official controls needed at the place of production, point of despatch or at the border.

An outbreak of an economically damaging disease such as Foot and Mouth Disease, Avian Flu or Asian Longhorn Beetle can have an immediate and potentially long lasting impact on market access.

Since November 2014, there have been seventeen outbreaks of Avian Flu in the UK of which fifteen were of high pathogenicity, fourteen in England and one in Wales. One further low pathogenicity outbreak was in Scotland and one in England. There have also been major recent epizootics of Avian Flu and Bluetongue across Europe. EU rules ensure there is a proportionate but immediate cessation of all trade from the infected areas and provide for the swift resumption of trade once appropriate controls are in place.

EU Agencies and Systems

There are a number of EU agencies and systems that underpin the agri-food sector in a variety of ways. The systems support the rapid sharing of information to manage public, animal and plant health risks, for instance by helping to stop potentially non-compliant, illegal and fraudulent food being placed on the UK market (e.g. the Rapid Alerts System for Food and Feed). They can also enable Member States to keep up to date with each other’s animal disease incidences and prevalence (e.g. the Animal Disease Notification System). Certain EU systems also facilitate trade by avoiding disruption at the border (e.g. Trade Control and Export System). The agencies provide scientific advice to underpin decision-making and carry out audit, inspection and testing functions on behalf of the EU and internationally.

The EU’s Systems that underpin the agri-food sector are:
– Trade Control and Export System (TRACES);
– Animal Disease Notification System (ADNS);
– EUROPHYT;
– European Alien Species Information Network (EASIN-NOTSYS);
– EU Reference Laboratories (EURLs) network;
– EU Vaccine Banks;
– Rapid Alert System for Food and Feed (RASFF);
– Food and Feed Administrative Assistance and Co-operation (AAC);
– Food Fraud Network (FFN); and
– Copernicus.

The EU’s Agencies that underpin the agri-food sector are:
– Sante F (formerly FVO);
– European Environment Agency (EEA);
– Consumers, Health, Agriculture and Food Executive Agency (CHAFEA);
– Community Plant Variety Office (CPVO);
– European Food Safety Authority (EFSA);
– European Medicine Agency (EMA);
– European Maritime Safety Agency (EMSA);
– European Network for Rural Development (ENRD);
– European Chemicals Agency (ECHA);
– European Fisheries Control Agency (EFCA);
– Standing Committee on Plants, Animals, Food and Feed (PAFF);
– European Research Council Executive Agency (ERC);
– Research Executive Agency (REA);
– European Institute of Innovation and Technology (EIT); and
– European Food safety Authority (EFSA).

There are also similar international bodies and systems that provide for international standards setting and information sharing. For example the International Food Safety Authorities Network (INFOSAN) allows sharing of information on food safety incidents. There are also a number of international bodies that focus on setting international standards and policy, with CODEX Alimentarius for food, the World Organisation for Animal Health (OIE) and the International Plant Protection Convention (IPPC).

The Regulatory Landscape

The regulatory landscape is summarised in Annex 1 and described in detail in the Annex.To help simplify the analysis we have categorised the material into a number of blocks and for each, describe the main rules, the international standards they derive from, how these affect trade with non-EU countries and the extent to which they are devolved (in most cases the full responsibilities for each policy area are devolved). The blocks covered
• Food and feed safety and hygiene;
• Official controls (including audits);
• Animal and fish health (including bees);
• Plant health including trees and timber trade;
• Common Organisation of Markets in Agricultural Products;
• Animal welfare;
• Food standards;
• Fish and food labelling and nutritional claims;
• Country of origin labelling;
• Food composition and labelling;
• Protected Food Names (PFNs);
• Spirit drinks;
• Protected wine names;
• Protected aromatised wine names;
• Fertilisers;
• Organics;
• GM issues; and
• Zootechnics.

Food and feed safety and hygiene is regulated by five main “horizontal” Regulations in respect to which compliance is crucial for intra-EU trade, imports into the EU from non-EU countries and vice versa along with a number of key product / issue-specific “vertical” Regulations and Directives. EU food law is developed taking into account risk assessments from the European Food Safety Authority and international standards and agreements to facilitate global trade in safe food. The EU regulatory system, however, generally goes beyond simple trade and reflects consumer concerns and preferences (such as some labelling) and for issues such as food additives, concepts of technological need and maximum levels of certain substances in specified food, rather than blanket approval of substances considered safe. EU rules can be more detailed or wider in scope than international standards. EU rules, Codex standards, guidelines and recommendations are all based on scientific evidence (e.g. supplied by FAO/WHO scientific committees).

The official food and feed controls set out a system for official controls to be carried out by EU Member States to ensure compliance with food and feed law and animal health and welfare rules. Food and feed products from non-EU countries entering the EU mustcomply with EU law.

There is extensive EU regulation governing the biosecurity risks associated with international trade. There are separate EU regimes to manage the risk from international trade in live animals and animal products, aquaculture, plants (including trees), plant produce (fruit and vegetables) and plant based commodities. They work on a broadly similar basis whereby health conditions and import and certification requirements are established by EU technical committees. There are specific rules for importation into the EU from third countries. The highest-risk plant material is prohibited from being imported
into the EU and a licensing system provides for the import and movement (e.g. for scientific work) of such material, subject to strict containment measures.

Consignments of regulated permitted material must be presented for mandatory identity and documentary checks at a Border Inspection Post. For plant material, a physical check is also required for all consignments of regulated goods, other than wood packaging material and some plant produce which is eligible for reduced frequency checks in cases where it has been demonstrated they represent a low plant health threat. There are detailed rules on how these official controls must be carried out and how cases of non-compliance should be handled.

For movements between EU Member States, there are separate rules for providing health certification for some types of trade (for example for live animals). EU plant passports are required to allow for the free movement of high risk plants and plant products between Member States. For some plant health material there are also marketing and certification schemes which need to be complied with.

There is no requirement to inspect intra-EU consignments at the border, although Member States may carry out random checks on arrival. Targeted checks of plant material are required in cases where there is evidence of a plant health threat. Responsibility lies with the ‘exporting’ Member State to ensure that official checks and certification requirements are complied with.

There is an extensive EU regime for the control of notifiable animal diseases, laying down detailed conditions for the way that a disease eradication campaign must be conducted. They also lay down the conditions that can lead to the removal of restrictions and the eventual resumption of trade. Traceability is also ensured through EU requirements for the identification of animals and for some species the recording of movements. Many of these rules have been developed in direct response to serious threats to public health from zoonotic disease such as BSE.

The EU Plant Health Regime requires that action is taken against all damaging plant pests which meet the definition of a ‘harmful organism’ in the legislation, irrespective of whether such organisms are listed in the legislation or not. The control of certain regulated plant pests is specified in a series of Control Directives (for some harmful pests of potatoes) and emergency Decisions (mainly for organisms which have caused damaging outbreaks in the EU, but are not yet listed in the Plant Health Directive). This legislation describes surveillance requirements and lays down detailed conditions for demarcation of outbreak areas and for pest and disease eradication and containment programmes. Movement restrictions are imposed for host material within outbreak areas, with requirements to ensure traceability. The legislation also lays down the conditions which lead to the removal of restrictions following eradication.

There are a number of EU directives that set standards for the welfare of animals on farms, during transport and killing. National legislation enforces EU law and goes beyond it with some national laws on slaughter. The UK also has global standards through the OIE (World Organisation for Animal Health). OIE standards are set by consensus amongst all 181 OIE Member Countries. OIE standards provide animal health and welfare benchmarks and reflect existing acceptable requirements, rather than aspirational best practice. Unless Member Countries incorporate OIE standards into their own domestic legislation and regulations, they are not directly enforceable. Instead, OIE standards tend to help inform separate domestic legislation and regulations.

Thirteen Directives underpin food standards, setting rules on description, production,composition and marketing of food. This is to set a fair basis for competition and an accurate representation of food products to consumers. EU rules go beyond international standards. Where the UK imposes (EU-permitted) additional standards, the relevant domestic legislation contains a mutual recognition provision so that any product lawfully produced or marketed in a Member State can be sold in the UK without needing to meet the additional UK standards. The EU also sets extensive food labelling rules which imported products to the EU market must meet.

Spirit drinks, wine and aromatised wine have their own regulatory regime to define the characteristics of regulated products that need to be met to market those products and makes provision for the protection of geographical indicators. There are also international treaties and agreements on intellectual property and geographical indications which signatory countries need to comply with, e.g. TRIPS. Currently the UK complies with many of these through its EU membership. Once the UK leaves the EU, we will take steps toensure that appropriate domestic legislation is in place.

The position in relation to Protected Food Names is similar, with EU legislation on the creation and protection of designations of origin (PDO), geographical indications (PGIs) and Traditional Specialities Guaranteed (TSGs) relating to certain agricultural products and foodstuffs. The UK has 65 products currently registered under this regulation including products such as Scotch Beef, Welsh Lamb, Stilton Cheese, Cornish Pasties, Wensleydale cheese and Kentish Ale.

Registered spirit drinks, wines, aromatised wines and protected food names products are protected across the EU. There is also provision for products from third countries to apply directly to the Commission for protection across the EU. This is in compliance with WTO/TRIPs arrangements. With regard to agriculture, the most significant piece of legislation is the Common Organisation of Markets in Agricultural Products (the ‘CMO’). The aim of this is to achieve stability in prices, ensure a fair standard of living for agricultural communities and encourage farmers to produce food of a given quality, meeting consumers’ expectations and adding value. It has similar measures to those which operate in most developed countries across the world, but applies these in uniform way across the EU. It includes internal price support mechanisms, market access measures including processes for the management of tariffs and quotas, quality controls and marketing standards and collection of statistical information for monitoring purposes to underpin management measures. It regulates the internal market and both EU imports and exports.

In addition, EU funding is available to trade organisations for promotional measures that are aimed at increasing the information on, and sales of, certain agricultural products in EU countries and third country markets. A promotion programme can include advertising campaigns in the press, on television, on radio or on the Internet; point-of-sale promotions; public relations campaigns; participation in exhibitions and fairs, and a range of other activities. Programmes can run between one and three years. The Scheme was reformed in 2015 and the new rules came into force in January 2016. €142.5m of funding was available for 2017, increasing in stages up to €200m per annum by 2020.111

The UK is usually well represented, with funding schemes being awarded to AHDB, Dairy NI, Quality Meat Scotland, Soil Association, Organic Trade Board, and others. Schemes are managed by the RPA and the Commission directly.

Organic products are also regulated to ensure fair competition, consumer confidence and functioning of the internal market. Imports of organics from third countries into the EU need to be certified by a body recognised by the Commission and accompanied by a certificate.

Genetically modified (GM) products can only be marketed in the Single Market following a scientific risk assessment by the European Food Safety Authority and consideration of a Commission proposal by the Member States. There are no international standards, third countries act in a similar way to the EU but the EU generally asks for more data.

EU law regulates fertilisers including their import and export. They have access to the open market and must be allowed to be traded freely across the EU. Manufacturers from non-EU countries must still comply with EU regulations in order to export to the EU.Importers of fertilisers from outside the EU are subject to an import tariff.

The Common Agricultural Policy (CAP)

The Common Agricultural Policy is the agricultural policy of the European Union. It implements a system of agricultural subsidies and other programmes.
92. The key objectives of CAP enshrined in Article 39 of the Treaty (on the Functioning of the European Union) are:
– To increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
– Thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
– To stabilise markets;
– To assure the availability of supplies; and
– To ensure that supplies reach consumers at reasonable prices.

CAP accounts for around 40% of the EU budget (around €58 billion annually) and exceeds the agricultural output of any individual EU Member State with the exception of France. It affects consumers as well as farmers; on average prices received by farmers are 5% higher due to CAP and supporting trade policy.112

The current CAP consists of three main policy instruments, organised into two Pillars, supported by a horizontal regulation laying down rules on financing and controls. The table overleaf summarises key features of the two pillars.

CAP Pillar Key features

Pillar I –
Direct Payments
A system of direct payments providing income support for farmers
– Area based payments for managing land contingent on meeting national and EU regulatory standards e.g. environment and animal health standards – known as “cross compliance”.
– Mainly granted in the form of basic income support decoupled from production.
– No targeting – largest farms receive largest payments.
– 30% of funding pays for low value greening, including the so called “three crop rule”.

Pillar I –
Single Common Market Organisation (CMO)

Sets out how the single market for EU agriculture operates and includes rules on international trade and mechanisms intended to support the price of agricultural products
– Market support in the form of public and private stocking of agricultural products.
– Crisis measures to deal with severe market disturbance.
– Aid schemes for specific sectors and for the distribution of agricultural products in schools.
– Standards for the marketing of agricultural products on the EU single market.
– Rules on cooperation, competition and state aid.
– Provisions on trade in agricultural products, including the administration of tariff rate quotas.

Pillar II –

Rural Development

Schemes designed to improve environmental land management, farming productivity and rural economic growth
– Most England Pillar II spend is directed to agri-environment schemes.
– Member States and regions draw up their rural development programmes based on the needs of their territories and addressing at least four of the following six common EU priorities:
– fostering knowledge transfer and innovation in agriculture, forestry and rural areas;
– enhancing the viability and competitiveness of all types of agriculture, and promoting innovative farm technologies and sustainable forest management;
– promoting food chain organisation, animal welfare and risk management in agriculture’
– restoring, preserving and enhancing ecosystems related to agriculture and forestry; and
– promoting resource efficiency and supporting the shift toward a low-carbon and climate-resilient economy in the agriculture, food and forestry sectors.
– At least 30% of funding for each RDP must be dedicated to measures relevant for the environment and climate change and at least 5% to LEADER.

The forestry sector also benefits from EU funding, particularly through the European Agricultural Fund for Rural Development (EAFRD), an element of CAP. Lower levels of funding are also provided through ERDF and research funds.

Cross-sectoral rules affecting Food, Drink and Agriculture

A wide range of international environmental agreements such as the Convention on Biological Diversity (CBD) and the Convention on International Trade in Endangered Species of Wild Fauna (CITES) and the Nagoya, Montreal and Cartagena protocols, as well as Sustainable Development Goal 2 on global food security and sustainable agriculture, can impact on policy and regulatory decisions.Agricultural inputs such as pesticides and fertilisers are also key to this sector.

Gibraltar, other Overseas Territories, and the Crown Dependencies

Gibraltar and the other Overseas Territories are outside of the EU customs union and free movement of goods rules do not apply. The Crown Dependencies’ relationship with the EU is set out in Protocol 3 of the UK’s Act of Accession. Article 1 of the Protocol brings the Crown Dependencies into the Customs Union, and aligns their tariffs and other import measures for agricultural products with those of the EU.

The Channel Islands voluntarily apply all EU animal health legislation relating to imports and EU trade in live animals and animal product. The Crown Dependencies have their own domestic plant health legislation but are able to trade within the Single Market.

Existing frameworks for how trade is facilitated between countries in this sector

The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.

The EU has previously agreed a range of preferential trading arrangements with its global trading partners, which reduce and simplify the requirements for trading with the EU.

Under WTO Most Favoured Nation (MFN) rules, tariffs, duties paid on imported goods, must be consistent for all countries, except those with a preferential trade agreement. In the absence of any preferential trade agreement, goods imported into the EU from nonEU countries must pay the MFN tariff. EU applied MFN tariff rates vary significantly depending on the particular sector and product. Tariffs and non-tariff measures (NTMs) are used to protect domestic production from losing out to cheaper imports. Higher trade barriers are put on sectors which are more sensitive. The product categories with the EU’s highest simple average applied MFN tariff include dairy products (35.6 per cent), fish and fish products (12.2 per cent) and fruits, vegetables and plants (13 per cent).117,118 Tariffs for certain commodities, including for some meat (including lamb and beef) and sugar products, can be substantially higher. In addition to preferential trade agreements, the EU has agreed a number of tariff rate quotas (TRQs) that allow trading partners to access the EU market with reduced tariffs on specific products within set quota amounts. Once the quotas are exceeded the tariff rate reverts to the MFN rate.

Eligibility for preferential tariff rates is determined by Rules of Origin (RoO). RoO are used to ensure that only goods that originate in an FTA partner country receive the preferential tariff rates specified by that FTA. Evidence of the originating status, or “nationality” of the good is therefore required.

Negotiations between the EU and agricultural trading partners often begin from a starting point of existing tariffs. Removing these tariffs creates both gains and losses. While the gains should outweigh any losses, the social and political importance of groups losing from the change can make it painful for certain sectors.

In addition to tariffs, agri-food products must be compliant with EU law. This can be demonstrated in a number of ways, such as Export Health Certificates or other documents that demonstrate how an importer’s product is compliant. International agreements often provide for more streamlined border checks.

The EU’s free trade agreement with Canada (CETA) is an example of a modern “deepening” or “living” FTA. It is ambitious in scope, covering both “traditional” areas directly related to trade as well as social development, environmental protection and labour standards.

CETA provides for the phased elimination of tariffs for the majority of agricultural lines, as well as of all tariffs in fisheries and other goods. However, the EU retains strict quotas on some products such as beef, pork and poultry. CETA also provides for the protection of 171 of the EU’s Geographical Indications. Although no UK GIs are protected under CETA, Scotch Whisky is registered as a GI independently of the agreement. CETA falls short of
eliminating non-tariff barriers between the two parties, as Canadian agricultural imports still require extensive EU-Canada border controls.

The EEA agreement excludes trade of most agricultural goods, but bilateral provisions can be negotiated to cover liberalisation in this area. In practice, the level of tariffs on agricultural goods varies between each of the agreements as countries look to protect their sensitive sectors, but is generally lower than the comparable MFN rate. Norway does not face sanitary and phytosanitary border checks as it implements the EU acquis, but is
subject to customs controls and tariffs on some products despite harmonisation through its EEA membership. EEA states voluntarily opt to comply with animal health rules. EU food law, food composition, food labelling rules apply to EEA states, however plant health rules (other than seed marketing rules) are not currently part of the agreement.

110. Switzerland is not part of the EEA Agreement, but trades agricultural products with the EU by close bilateral agreement. This allows unhindered Single Market-like trade in most cases (including zero tariffs on some important agricultural products), although in some circumstances products entering the EU are treated as third country products. The EU/Switzerland Veterinary Agreement is based on regulatory equivalence. The EU and Switzerland operate a common veterinary area (with reduced checks and certification); to achieve this Switzerland harmonised with a large amount of EU regulation.

Unlike the EEA and EFTA countries which maintain free trade arrangements with the EU, Turkey is treated as a member of the EU Customs Union. This applies to processed food and drink, but not to agricultural products. Customs Union status enables Turkey to have reduced non tariff measures although some checks remain, but requires Turkish tariffs to align with EU tariffs. As Turkey is not able to access EU-negotiated free trade deals, EU FTA partners can export to Turkey while keeping barriers on Turkish imports.Turkey is also unable to negotiate free trade agreements that improve on EU equivalents.

The EU-South Korea free trade agreement takes a progressive, step-by-step approach towards the reduction of tariffs for agri-food and fish products. It provides for the phased elimination of the majority of tariffs on agricultural goods, but sets out lengthy transition periods (or exemption from tariff liberalisation) for some sensitive agri-food products. While the agreement seeks to reduce barriers to trade, it does not provide for regulatory
equivalence or a reduction in sanitary and phytosanitary (SPS) controls and is therefore less effective at reducing non-tariff measures.

The EU has a veterinary agreement (covering animal, but not plant health) with New Zealand that has reduced the frequency of physical border checks on animal products. The agreement is based on outcome-based regulatory equivalence, aiming to provide both parties with flexibility in meeting the sanitary requirements of other trading partners. However, physical border checks are still required for one per cent of imports.The agreement however does not remove the need for all imports to enter the EU through a Border Inspection Post with a relevant Export Health Certificate and undergo a documentary and identity check.