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Government consults on post-Brexit tariffs: should you respond?

Overview

The UK Government is consulting on the level of tariffs that will apply to goods imported under WTO rules after Brexit.  In particular, it is seeking views on products where tariffs could be reduced or removed altogether after 31 December 2020.

If you or your suppliers rely on imported goods, particularly from non-EU countries, this could be an opportunity to secure cost savings.  Given that the cost of importing goods from the EU is almost certain to go up because of Brexit (even if a zero tariff free trade deal is reached with the EU), these tariff reductions offer the prospect of offsetting at least a proportion of those additional costs.  In some cases, they may even pave the way for new, cheaper sources of supply from non-EU countries.  We would therefore strongly encourage businesses to respond to the consultation, highlighting any goods which in their view would benefit from tariff reduction/removal.  Equally, UK manufacturers should consider responding if they are concerned that removal of tariff protection could leave them dangerously exposed to cheaper foreign competition. 

The deadline for responses is 23.59 on 5 March 2020 (the very short consultation period is probably due to the expected start of trade negotiations with the EU and other countries early this year).

Which goods could be in line for tariff reductions/removal?

The Government is considering removing tariffs on two categories of goods:

  • Products where there is zero or limited UK production – including, but not limited to, the products on this list; and

  • Products which UK businesses import for use in production and manufacturing of other goods – including, but not limited to, the products on this list and this list.

THE MYSTERIOUS CASE OF THE MISSING ORANGES

As noted above, the lists of products provided by the UK Government are not exhaustive and there are some puzzling omissions.  For example, the list of products where there is zero or limited UK production appears to be derived from a list produced by the EU.  It does not, for example, contain any mention of oranges, even though there is very limited UK production of these fruits – so one would expect the UK Government to be considering removing any tariffs from oranges (whereas the EU does have orange growers that it wishes to protect, so it is not surprising that its list omitted them).  Businesses should not therefore assume that the lists are definitive, but will need to make the case for the inclusion of additional products.

FAQs on the UK's proposed tariff schedule

How can the UK reduce tariffs when it has already agreed to adopt largely the same WTO tariffs as the EU?

The UK has indeed agreed to commit to a WTO tariff schedule which largely mirrors the EU's WTO commitments.  However, these are "bound tariffs" which set the maximum rates of duty that the UK is allowed to apply to imports from WTO member states.  The UK will be free to apply lower rates if it wishes (known as "applied tariffs") – and it is this possibility which has prompted the current consultation.  In a welcome move, the Government is also proposing to set applied tariffs based on "rounding down" the bound tariff rates – for example, a tariff of 19.2% will be rounded down to 17.5% and tariffs of 2.5% or less will be removed altogether.

What has happened to the idea of removing tariffs from most goods by value in the event of "no deal"?

In 2019, the Government indicated that if the UK left the EU without a deal, it would – as a temporary measure - apply zero tariffs on 87% of goods by value (whether those goods originated from the EU or the rest of the world).  The thinking was that this would help to offset the adverse economic impact of "no deal", particularly additional costs and delays produced by the re-introduction of customs formalities on trade between the EU and the UK.  More recently, the Government has indicated that it will not pursue this policy.  

It is possible that this is a negotiating stance ahead of the start of negotiations with the EU on the future trading relationship.  It may also have been prompted by reports that the no deal tariffs policy led to the refusal of countries such as Canada to agree to "roll over" the terms of the EU-Canada trade agreement after the end of the transition (click here for more detail).  That said, in principle, there would be nothing to stop the  Government reverting to the policy if a "no deal" exit appeared likely at the end of the transition period – although as things stand, businesses should prepare on the assumption that tariffs will apply to EU imports in the event that a zero-tariff trade deal cannot be agreed by 31 December 2020.

Why do you say that the cost of importing goods from the EU will go up even if a zero-tariff trade deal is agreed?

Removing tariffs would be helpful, but even if there is a trade deal, importing goods from the EU will still become more expensive because of the additional burdens of dealing with customs formalities and related border "red tape";  it would only be possible to remove those additional costs if the UK remained within a customs union with the EU and also agreed to regulatory alignment on goods (both of which the Government has ruled out).

Some press coverage suggests there could be massive savings for UK consumers from these tariff reductions – is this right?

Some of the press coverage of this issue appears to have assumed that tariff reductions of X% would result in reductions of the same amount in the retail prices paid by consumers – hence claims of significant savings for consumers.  This is not correct, as tariff reductions will only affect the price paid by importers – which is only a proportion of the retail price paid by consumers, once the retailer has applied a mark-up (which will often be significant owing to the cost of the retailer's premises/distribution etc).  It also assumes that importers will always pass on any savings to their customers (and that retailers will do likewise with their customers). 

In practice, importers may wish to retain the benefit of the savings, especially if they help to offset increases in the cost of imports of other products from the EU.  Nevertheless, retailers should keep a careful eye on whether their suppliers are benefitting from material tariff reductions without passing on any of the benefit or using the savings to avoid increasing the price of other products.

 

If your business is keen to respond and you would like any further guidance on the consultation before doing so, please do get in touch.

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