1. Background

Further to our previous blog post (see here), the UK Government has published details of the UK’s temporary tariff regime in the event of a no-deal Brexit (see here and here).

The UK is proposing to cut tariffs to 0% for the majority of imported goods, while retaining duty rates on certain other goods (in more “sensitive” industries, such as agriculture and textiles). The aim of reducing the duty rates is to mitigate some of the economic impacts to the UK from increased costs of imports from the EU for businesses and consumers. Cutting trade tariffs across the board would likely lower costs for consumers, while simultaneously exposing UK production of goods to increased import competition.

In line with the World Trade Organisation (“WTO“) Most Favoured Nation (“MFN“) principle, which requires that all WTO-member trading partners be charged the same import duties (except in limited circumstances), the UK’s tariffs will apply to all the UK’s trading partners with whom the UK has no alternative arrangements, such as Free Trade Agreements, whether the EU or third countries.

This regime will apply for up to 12 months from 29 March 2019 while the Government launches a full consultation and review on a long-term tariff policy.

The classification of goods will broadly remain the same, in order to provide continuity to businesses who currently interact with this system.

 

2. Affected Goods

Under the temporary regime, 87% of total imports to the UK by value (based on average 2017 to 2018 trade flows) would be eligible for tariff free access. This means that, if the UK leaves the EU without an agreement on 29 March 2019, importers would not pay customs duties on the majority of goods when importing into the UK, whether importing from the EU or from other third countries.

However, tariffs would still apply to 13% of goods imported into the UK. This includes:

  • tariffs and quotas on beef, lamb, pork, poultry and some dairy to support farmers and producers who have historically been protected through high EU tariffs;
  • retaining a number of tariffs of 10-16% on finished vehicles in order to support the automotive sector, although carmakers relying on EU supply chains would not face additional tariffs on car parts imported from the EU to prevent disruption to supply chains;
  • tariffs up to 12% on products including certain ceramics, fertiliser and fuel, in order to help provide support for UK producers against unfair global trading practices, such as dumping and state subsidies;
  • tariffs up to 12% on certain textiles, clothing and homeware products; and
  • tariffs on goods including bananas, raw cane sugar, coconut oil and tariffs up to 24% on certain kinds of fish, in order to ensure that access for developing countries is maintained.

 

3. Impact of Tariff Cuts

As noted in our previous blog post, cutting trade tariffs across the board would likely have two significant implications: (1) lowering costs for consumers while exposing UK production of goods to increased import competition, and (2) depriving the UK of a bargaining tool in trade negotiations with third countries.

 

  • Impact on UK businesses/ price of goods: Tariffs are a tax on goods imported to the UK and typically protect UK businesses and domestic production by making imported goods more costly. By cutting tariffs on a number of goods, consumers would pay a lower price for those imported goods, but the affected UK industries would likely be exposed to higher import competition as it becomes cheaper to import those goods into the UK. The extent to which businesses will be affected by the policy will depend on firms’ reliance on imports from the EU and the degree to which they are already exposed to competition from the rest of the world. By carving out beef, lamb, pork, poultry, some dairy, cars and other finished vehicles, ceramics, fertiliser and fuel, and textiles and clothing from the tariff cut, the Government will protect UK industries such as UK farming, UK car manufacturers and UK textile manufacturers, as it will become more expensive to import those agricultural goods, cars, fuels or textiles, which will simultaneously mean that it becomes more expensive for consumers to purchase those imported products. There will also likely be a significant administrative burden for businesses to familiarise themselves with key operational issues related to the temporary regime. This will include a requirement to update the required software which may incur further costs for businesses.

 

  • Impact on trade negotiations: If the UK cuts tariffs, countries with whom the UK will be negotiating trade agreements post-Brexit would be entitled to duty-free access to the UK market, without having to offer concessions in return. This will likely have a significant impact on the UK’s trade negotiations post-Brexit, as it would deprive the UK government of much of its leverage when negotiating these trade agreements. The effect will likely be even more prominently felt when negotiating agreements with developing countries, who are typically particularly interested in tariffs, as opposed to access to the UK’s service markets.

 

  • Impact in relation to Northern Ireland border: It also remains to be seen how these tariffs will operate alongside the UK’s proposal issued today (here) to not to impose any tariffs on movements from the EU into Northern Ireland. The proposals for the Northern Ireland border state that “the UK temporary import tariff announced today would not apply to goods crossing from Ireland into Northern Ireland” meaning that goods could be imported into Northern Ireland duty free. This appears incompatible with the protective effect granted to UK industry under the temporary tariff plan; if goods are able to flow across that border duty-free, they would then avoid the tariffs and quotas that have been retained on certain goods to protect UK industry, thus undermining the very point of the retained duties.

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