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

Part Two of our simple explainer of trade under a WTO-terms Brexit

Credit: Dept for International Trade

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.

Brexit Facts4EU.org Summary

87% of all imported goods (by value) will have zero tariffs applied
A few UK economic sectors – agriculture, cars, textiles, ceramics – will be protected by tariffs
Northern Ireland will have ALL imports zero-rated
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:-

Agriculture: Beef, lamb, pork, poultry and some dairy to support farmers and producers who have historically been protected through high EU tariffs
Automotive: tariffs on finished vehicles of around 10%, but NOT on car parts used in manufacturing
Some homeware, clothing: tariffs of up to 12% - traditionally subject to high EU tariffs
Miscellaneous: ceramics, fertiliser, 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. Readers who saw Part One of this trade series yesterday may be asking themselves if it is legal in terms of WTO rules to discriminate in favour of one country.

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

Any claim made to the WTO takes years to reach adjudication, by which time this temporary regime should have been replaced
We believe the Government could rely on the WTO’s Article XXI which covers exemptions for purposes of national security
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 provoker of an old conflict between two members

C) 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.

Post-Brexit trade - MENU

Intro - Intro to trading with the EU after 31 October
Part 1 - Why Boris is right. A simple summary of the 'GATT XXIV' option.
Part 2 - Brexit with no trade agreement, on WTO terms, but with 87% of all goods being on a zero-tariff basis (this article).

Observations

The above tariff scheme has been available for three and a half months, but we 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 – we thought that Brexit Facts4EU.Org readers might find this interesting and important.

Finally, whilst everyone is enjoying the heatwave, please give a thought to supporting our work if you can. Quick and simple donation methods are below.

[ Sources: Dept for International Trade | The Treasury | WTO ] Politicians and journalists can contact us for details, as ever.

Brexit Facts4EU.Org, 30 Jun 2019

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Reader Comments 5

1. James Bertram , Sunday, June 30, 2019, 07:50:

Thank you. Yes, completely unaware of this. It seems great for the consumer. However, presumably we import more than we export so this results in less tax-take for the government. Too, I hope we are getting rid of VAT - again, less tax-take. Too, once outside Europe, we will need very low business taxes to retain Foreign Direct Investment. So the government may take in more from direct personal taxation if it is to continue its spending and pay down National Debt. It is hoped that UK economic activity will expand sufficiently, thus increase tax-take, for the overall balance to be positive.
Do you have any calculations on how the books might balance, or by how much GDP we will need to expand post-Brexit to achieve a neutral tax outcome, and over what timescale? There may well need to be increased government borrowing for the initial few years. Clearly we cannot be throwing £39 billion at the EU, or wasting money on all the other things May has tried to sign us up to in the last few months (that woman remains a complete menace, and should have been thrown out of the door on Day1 of her resignation, computer handed over and access to all buildings denied).
I see the Brexit Party is getting the £200 billion for the regions from cutting HS2 (£100 billion+), the £39 billion not paid to the EU, and cutting the Foreign Aid budget (£14 billion) - [the last item I am not in favour of cutting unless we can provide an equal amount of aid by more efficient means. (Yes, I agree, a lot of our aid money is badly handled - both by governments and large NGOs; and too, trade is better than aid where possible - see how Chinese investment has benefited Africa - and leaving the EU will definitely help the poorer countries increase trade through more open market access with the UK; but in my view aid still has a role in development, and the UK benefits from that development - as well as us having a responsibility to help others. Perhaps woolly thinking?]
Sunday missive over.

2. Not4EU, London , Sunday, June 30, 2019, 10:11:

James, current tariffs are set by the EU as our sovereignty in this area had been handed over to them. The UK collects the tariffs and, less an 'admin fee' % (agreed by the EU), passes this over to the EU. The same goes for the EU tax VAT. We have no say in what it is collected from, nor the rate. The UK does not benefit in 'tax take' and is just a collector/admin for the EU.
In a WTO exit, not beholden to the EU in any form, any tariffs set & collected DO impact the 'tax take' as the UK gets the money directly which is an increase from our current position. The UK decides the rates & what it applies to.
The same applies to 'VAT'. I haven't seen anywhere that they intend to replace VAT with a purchase tax, making it clear to all that it is not the EU-derived tax so it looks as if they intend to continue the smoke & mirrors to obscure their intention to take us back in at the earliest opportunity. Regardless of the deliberately confusing name (if it is kept), the UK can decide what it applies to and the rate. Again, the 'tax take' belongs to the UK.
How the 'tax take' is utilised, and other policies, will demonstrate the Govt's fiscal & economic competence.

3. James Bertram , Sunday, June 30, 2019, 10:38:

Thanks, Not4EU. Really helpful. That completely changes my understanding - I'd no idea that all this money from tariffs and VAT was handed over to the EU and that we had little, if no, direct benefit (perhaps just a few grants sent back our way). So, even stronger reason to leave the EU asap!

4. Adam Hiley , Sunday, June 30, 2019, 14:35:

do not join the WTO We want to leave one Bureaucratic nightmare why want to join another We will be replacing German & French job worths with Yankie Ones

5. kzb , Sunday, June 30, 2019, 18:07:

We do not hand over all the VAT taken to the EU. It's a tiny percentage of it.
Adam -we are a founder member of the WTO. There is no way the UK will leave it to become some kind of rogue state.

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