The post-Brexit ‘trade deal’ you weren’t told about.

For a ‘no deal’ Brexit, the Government announced zero tariffs on 87% of all imports

Readers may have blinked while watching BBC news and missed this

On 13 March this year ahead of the 29 March and April 12 ‘leaving dates’, Philip Hammond’s Treasury Dept and Liam Fox’s Dept for International Trade announced

“the UK’s temporary tariff regime for no deal, designed to minimise costs to business and consumers while protecting vulnerable industries.”

The effect of the new schedule of tariffs is to zero-rate 87% of goods entering the UK from the EU and from the rest of the world. This plan was (and is) the most radical proposed change to the UK’s international trading arrangements since the EU took over control of trade and imposed huge tariffs on goods entering any EU28 country

1. 87% of all imported goods (by value) will have zero tariffs applied

2. A few UK economic sectors — agriculture, cars, textiles, ceramics — will be protected by tariffs

3. Northern Ireland will have ALL imports zero-rated

4. This arrangement is for the first 12 months post-Brexit

What does this mean to the average member of the public?

In the event that the UK leaves the EU on 31 October 2019 on WTO terms, the vast majority of goods imported by the UK from either the EU or the rest of the world will not be subject to any tariffs, meaning prices will be able to fall in most cases of non-EU imports and will stay the same for most cases of EU imports as they were tariff-free anyway.

There are exceptions in certain sectors, amounting to just 13% of the value of all imports and representing only a tiny fraction of the UK economy as a whole. These exceptions have been made to protect vulnerable sectors, as follows.

1. Agriculture: Beef, lamb, pork, poultry and some dairy to support farmers and producers who have historically been protected through high EU tariffs

2. Automotive: tariffs on finished vehicles of around 10%, but NOT on car parts used in manufacturing

3. Some homeware, clothing tariffs of up to 12% — traditionally subject to high EU tariffs

4. Miscellaneous: ceramics, fertilizer, fuel — to protect against ‘dumping’ — and various products such as bananas, raw cane sugar, coconut oil, and some types of fish

With the exception of the above, imports will be zero-rated. This will mean potentially lower prices for the consumer when buying any of the majority of goods which are imported into the UK.

Northern Ireland will be exempt from all tariffs

In a bold move, the Government plans to zero-rate all products imported into Northern Ireland.

“The UK temporary import tariff announced would therefore not apply to goods crossing from Ireland into Northern Ireland.

“We would only apply a small number of measures strictly necessary to comply with international legal obligations, protect the biosecurity of the island of Ireland, or to avoid the highest risks to Northern Ireland businesses — but these measures would not require checks at the border.”

What are the potential downsides of the proposed tariff regime?

A) Protecting certain UK economic sectors

The Government intends to protect industries such as farming, and car and textile manufacturers. It will, therefore, become more expensive to import agricultural goods, cars, fuels or textiles from around the world. This, in turn, may mean higher prices for some of these goods if these tariffs are passed on by businesses, albeit that they represent a small fraction of the UK economy.

B) Discriminating in favour of the Republic of Ireland

There are also questions about the arrangements for Northern Ireland, which is an integral part of the United Kingdom.

A principle of the WTO is that identical tariffs should be offered to all WTO members. In effect, the UK would be discriminating in respect of goods from the Republic of Ireland crossing into Northern Ireland.

There are three answers to this

1. Any claim made to the WTO takes years to reach adjudication, by which time this temporary regime should have been replaced
2. I believe the Government could rely on the WTO’s Article XXI which covers exemptions for purposes of national security
3. The exemption for Northern Ireland has clearly been made to support the Good Friday Agreement, and we doubt that the WTO would want to be seen as a provoker of an old conflict between two members.

This is a unilateral policy — other countries can apply tariffs to our exports

Any Government can only decide on its import tariffs. It is up to the EU countries and the rest of the world to decide what tariffs they wish to impose on their own imported products, although they must offer the same to all countries unless they do a Free Trade Agreement or enter a customs union. This might restrict the UK’s ability to do good trade deals in the next 12 months following Brexit. That said, this scheme is designed to be temporary and will be reviewed as the post-Brexit United Kingdom takes shape in its first year.

It’s also important to remember that goods exports as a whole represent only a small fraction of the UK economy.

The above tariff scheme has been available for three and a half months, but I know many readers will not have been aware of it because it received very little media coverage.

It relates solely to a clean, WTO-terms Brexit. This is the form of Brexit of which Philip Hammond most definitely does not approve (and of which it seems Liam Fox no longer approves), and yet this scheme was published by them on behalf of the Government. It is official policy.

With 87% of UK imports subject to zero tariffs in the event of ‘no deal’ — and the remainder only subject to some tariffs to protect some vulnerable sectors, I thought readers might find this interesting and important.

[ Sources: Dept for International Trade | The Treasury | WTO ]