13 March 2019

A good start: HMG’s contingency tariff rates

by IFT

This morning the Department for International Trade published the tariffs it will apply for a period of 12 months should the UK leave the EU without a deal. Our view is that while No Deal would not be the preferred outcome, in that scenario these contingency measures are broadly correct.

In short, import tariffs will be eliminated on 87% of goods imports by value. This constitutes a major, positive programme for trade liberalisation.

While some protections remain on products such as finished vehicles, and a number of agricultural products including beef, lamb, pork, poultry and dairy, there have also been major tariff reductions within some of these sectors too.

Gail Soutar, Chief Adviser in NFU England & Wales’ trade team, has called the measures “quite possibly the greatest example of overnight trade liberalisation of an agricultural market ever”. On beef, for example, the out of quota duty has been cut by nearly half, from 12.8% + €176.8/100kg, to 6.8% + €93.3/100kg. Gail Soutar also highlights tariff cuts on fresh boneless pork from €86.9/100kg to €11.4/100kg.

Free traders entirely against temporary tariff protections for sensitive sectors must remember that existing protections are the state’s doing - not, ultimately, the fault of business. HMG is therefore right to assume a duty of care. Sheep meat, for example, will not be exposed to further market access beyond WTO commitments over the next 12 months.

Our view is that, ultimately, tariffs should be eliminated unilaterally across the board, but over a reasonable period of time to allow businesses to adjust. Our Ideal FTA report proposed no longer than 10 years for some sensitive sectors.

The measures are also rightly cognisant of potentially exposed businesses in developing countries. The maintained tariff on bananas, for example, is revealing. If the UK were to adopt sudden liberalisation in this area, it would lead to shock preference erosion for developing countries. Exporters in developing countries, who currently enjoy tariff free advantage, would face competition from non-developing countries who are currently disadvantaged by a tariff. Eroding this preference could shock businesses in developing countries.

As stated, we do not believe that a No Deal exit on March 29 is the best route forward for Britain. But these contingency measures are to be welcomed as a contingency plan - particularly if they are a forebear for Britain’s trade policy in other Brexit scenarios.