No deal Brexit tariff plans a 'mixed bag' for EU traders
Director | Tudor International Freight
The Government’s proposed tariff regime to apply temporarily in the event of a no-deal Brexit is a mixed bag for the UK’s EU traders.
While the structure is undoubtedly well-intentioned and will cause some UK businesses to breathe sighs of relief, it also contains potentially significant weaknesses which could well grow to haunt the government and industry.
The current official position is that unless the UK agrees an alternative arrangement with the EU and this is given legal force before the Article 50 period expires, the country will then leave the bloc without a withdrawal agreement.
If, in these circumstances, we maintain the current zero tariffs on all imports from the EU, World Trade Organisation rules say we would have to extend them to every other country. Although that would minimise disruption to our trade with the EU - by far our largest commercial partner - it would also open the door to other imports, including from nations with unfair trading practices, potentially in quantities highly damaging to UK industry.
But, on the other hand, if we just extend the tariffs currently applying on imports from other countries to goods from the EU, the results would include many immediate, and in some cases sharp, price rises for UK businesses and consumers. These would probably be exacerbated by a drop in the value of sterling which would follow a no-deal departure.
The Government has therefore come up with an essentially hybrid plan, which would apply for up to 12 months, while a full consultation and review of a permanent approach to tariffs took place.
Under the proposals, 87% of all UK imports by value will qualify for zero-tariff access, up from the current 80%. The plans also represent a shift, favouring products from non-EU countries. That is because they would see the proportion of EU goods exempt from tariffs dropping from 100% to 82%, while the share of imports from the rest of the world in this category would rocket from 56% to 92%.
The plans contain sensible proposals for tariffs protecting some UK industries vulnerable to cheap imports, such as certain areas of agriculture and ceramics. They also seek to make car parts from the EU - including engines - tariff-free, to avoid disruption in complex supply chains and help UK plants, many of which rely on just-in-time production processes.
However, the plans are not perfect.
The Government has been criticised for developing its proposals without consulting business, the public or Parliament, for example.
Its plans also include tariffs not being charged on any goods entering Northern Ireland from the Republic. While maintaining the open border is a perfectly laudable intention, for its effects on cross-frontier trade and the peace process, this proposal could also provide an invitation for people wanting to evade UK tariffs or smuggle goods, perhaps including contaminated food or weapons, into the country.
The proposals will also do little to ameliorate the much-publicised long delays and traffic congestion expected in the Dover area if the UK leaves without a deal and the EU’s agriculture commissioner has even suggested the plans are illegal under World Trade Organisation rules.
For all these reasons, the Government’s proposals are at best a mixed bag for the UK’s EU traders.
Their weaknesses merely underline that the current arrangements are ideal for Britain’s businesses. In our view, a no-deal departure would still be highly complex, costly and damaging for these organisations and should be avoided at virtually any cost.
Posted on: March 21st 2019