No-deal tariffs plan – Admirable free trade ambitions or a hopeless negotiating strategy?

Disastrous defeats for the government are seemingly now commonplace in British politics. The PM’s Brexit Withdrawal deal was defeated comprehensively by 391 votes to 242 on Tuesday night. With time running out before the legal exit date on March 29, the government has published further information for the event that the UK crashes out of the EU without a deal.

The government has announced its temporary tariff regime, “designed to minimise costs to business and consumers while protecting vulnerable industries.” This is certainly debatable.

Without a deal, the UK would have to revert to “WTO terms”, which has various ramifications. Possibly the most important of which means it would have to apply tariffs and trading terms equally to all member countries and trading blocs unless it has preferential trade deals with them.

Under a temporary scheme, 87% of all UK imports by value would be eligible for zero-tariff access, up from 80% currently. 82% of imports from the EU would be tariff-free, down from 100% now, whilst 92% of imports from the rest of the world would see no border duties applied, up from 56% currently.

The full temporary tariffs list is available here and a comparison of new tariffs with the EU’s preferential rates is available here. UK meat and dairy producers would be protected by tariffs, although these would be lower than the EU’s preferential tariff rates. Tariffs would apply to ceramics products, but lower on average than now. Whilst some clothing and textiles imports from the EU will be up to 12% higher, the average tariff rate for that category is expected to fall. Chemical tariffs meanwhile would drop to an average of 0.1% from around 4.6% currently and steel tariffs would be cut to zero.

Automotive parts imported from the EU will be tariff free. This appears to be good news but given the non-tariff barriers in place if no deal is agreed, it is no cause for celebration. Delays at ports would, according to Society of Motor Manufacturers and Traders Chief Executive Mike Hawes, render “just-in-time manufacturing impossible”. Finished vehicle imports will attract a 10% tariff, which might provide some limited protection for UK manufacturing plants, but could still harm UK parts producers. Ford for example, which makes engines in the UK, claims it would be hit twice by a no-deal Brexit, with its products being taxed on import into the EU for final assembly, then taxed again once that car is imported back into the UK for sale.

Another controversial part of the plans means the UK “will take a temporary approach to avoid new checks and controls on goods at the Northern Ireland land border if the UK leaves the EU without a deal. The UK’s temporary import tariffs will therefore not apply to goods crossing from Ireland into Northern Ireland.” Phil Hogan, EU Commissioner, commented, “We don’t even know if it’s legal and compatible with WTO (World Trade Organization rules), it beggars belief the contradictions in this proposal.” The UK government insists it is legal due to the special circumstances on the island. Nevertheless, the proposals would create a curious situation, where farmers in the Republic of Ireland will see tariffs applied if shipping goods across the Irish sea, but not if goods travel via truck into Northern Ireland. Conversely, Northern Irish farmers may see tariffs applied for goods heading south. It also leaves open the potential for goods to be smuggled from mainland Europe, via the Republic of Ireland, into Northern Ireland and then into Great Britain without attracting tariffs.

The regime, it should be re-emphasised, would be strictly temporary. The government will monitor the impact that tariffs have on the economy over time. However, this does show a potential framework for how Britain would trade with the rest of the world in the future. The UK’s decision to cut such a substantial amount of tariffs opens itself up to markets from the rest of the world. Whether or not Brexit is indeed an internationalist cause can be debated. However, these proposals do represent a substantial liberalisation in trade policy.

That being said, in order to sign Free Trade Agreements that benefit UK exporters, it needs a strong negotiating position. Its unilateral liberalisation weakens this position. What incentive does a trading partner have to reduce its tariffs for UK exports when the UK’s tariffs are already low or non-existent?

Source: Transport Intelligence March 14, 2019

Author: Andy Ralls


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