As part of the Single Market, the UK currently benefits from tariff-free access to EU markets, and vice versa.
In a no-deal scenario, however, UK exporters will face EU tariffs as of 29 March 2019 for goods imported into the EU from the UK. The UK would also be required to impose tariffs on goods imported from the EU, at the same most favoured nation (“MFN“) rate as it would charge on goods imported from other countries around the world. Due to the MFN principle, if the UK wishes to lower its duty rates for imports from the EU, it will also have to reduce its duty rate for imports from all other countries.
The UK had initially indicated that it planned to mirror the EU’s MFN rates for goods imported into the UK, which would result in a significant increase in the cost of importing certain goods into the UK from the EU.
However, recent sources have stated that an option for the UK post-Brexit would be to cut tariffs on 80-90% of goods. Tariffs would be cut back on most imported goods, except on 10-20% of more sensitive goods in “protected industries”, such as cars (though not car parts, which will see tariffs eliminated), agricultural goods such as beef, lamb and dairy (but not many finished food products and some farm produce including cereals, which will also see tariffs eliminated), and some textiles.
The plans have been agreed by the UK Cabinet, but the precise schedules would only be published if, after next week’s Commons votes, MPs have backed a no-deal departure.
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. By carving out beef, lamb, dairy and cars from the tariff cut, the Government will protect UK industries such as UK farming and UK car manufacturers as it will become more expensive to import agricultural goods or cars, which will simultaneously mean that it becomes more expensive for consumers to purchase those imported products.
- 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 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.
The plan is currently that these measures would only be implemented for a year, during which officials will monitor their impact on the UK’s economy. The proposal would then be for the UK’s tariffs to revert to the EU’s MFN rates (unless the Government chooses otherwise).