Counting the cost of imported goods in a no-deal Brexit
One of the key issues raised consistently in the discussions around a no-deal Brexit is the impact it would have on the customs duties payable on goods that are imported in to the UK. Whilst MPs have now voted against a no-deal Brexit, this does not change the legal position – that unless a deal is agreed, there will be a no-deal Brexit, (or no Brexit at all).
Imports of goods from the EU are currently tariff-free, but in the event of a no-deal Brexit, and without an alternative being put in place, World Trade Organisation tariffs would be the default position. This means that Most Favoured Nation (MFN) tariffs and non-preferential rules of origin would apply to goods imported between the UK and EU, and this would undoubtedly lead to an increase in costs for consumers.
A government briefing was issued on the morning of Wednesday 13 March, following a second rejection of Theresa May's Brexit deal by the House of Commons, that sets out a temporary tariff regime "designed to minimise costs to businesses and consumers while protecting vulnerable industries”.
The proposed tariffs would apply for up to 12 months, during which time a full consultation would be undertaken with a view to establishing a permanent tariff regime. The temporary regime would not apply to goods crossing from Ireland into Northern Ireland, as the government has announced a separate temporary approach for such goods (in order to "avoid new checks and controls"). It is also important to note that this applies to goods only, not services.
Under the temporary regime, the tariff for 87% of imports into the UK by value would be cut to zero, meaning that UK businesses would not pay import duties on the majority of goods they import in the event of a no-deal Brexit. The intention being, this would protect consumers from potential pricing spikes.
Tariffs will still apply during this period to 13% of imports, which are largely proposed to protect "sensitive industries", including those who have previously been afforded protection by high EU tariffs.
It is likely that this temporary tariff regime will be controversial as, whilst it is designed to protect consumers from increased costs of goods, it would also mean, for example, a rise in the cost of European cars, (a 10.6% tariff would apply to finished cars, although no tariffs would apply to car parts required by manufacturers reliant on EU supply chains) as well as increases in the price of beef, lamb and poultry products from Europe (to which varying tariffs will apply).
These tariffs will apply to all other trading partners, unless there is already a free trade agreement in place. As such, reducing the majority of tariffs to zero may result in the UK market being flooded with cheaper offerings from non-EU nations. This may provide more competitively priced products for consumers, but is likely to cause significant concern for UK businesses.
The UK Government has stated that it is necessary to impose some tariffs as, "if we maintained zero tariffs with the EU, we would also have to extend this to the rest of the world due to WTO rules. This would minimise disruption to EU trade but would open the UK to competition from other countries including those with unfair trading practices”.
Businesses can find out more detail about the temporary tariffs on imports in the event of a no-deal Brexit here.