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Brexit: How will the new tariff system work? (BBC)

A no-deal Brexit has always meant that the UK would have greater flexibility to set its own trade tariffs.

The government has now set out its plans on how it would take advantage of that opportunity.

It has said it will cut tariffs to zero on 87% of the goods it imports if the UK leaves the European Union with no deal in place.

Business Secretary Greg Clark told the BBC before Wednesday’s publication of the plans that the changes would have “big implications” for some sectors.

Why does the UK have to set new tariff rates?

In one word: Brexit. As a member of the EU, the UK currently applies the EU’s common customs tariff to goods imported from outside the EU (with exemptions for goods from countries with which the EU has free trade agreements).

That would continue if there was a withdrawal agreement, and then for as long as the backstop to avoid a hard border in Ireland is in force.

After that, or in the event of a no-deal Brexit, the UK would no longer apply the EU’s tariff policy and so would have to make decisions about what, if any, tariffs to impose.

Are there any restrictions on the tariffs the UK could set?

The rules of the World Trade Organization (the UK is a member) do impose some constraints.

WTO members have “schedules” which are mainly lists of tariffs they promise not to exceed.

Countries can freely apply tariffs below those levels. Generally they must apply the same tariffs to goods from all members, subject to some exceptions.

They can reduce or eliminate tariffs on goods from countries with which they have a free-trade agreement.

Rich countries can also do that for goods from developing countries.

What are the potential benefits?

Tariff revenue (such as it is) would go the UK Treasury. It is currently paid to the EU (less 20% for the cost of collecting it).

It would also in theory enable the UK government to set tariff levels in line with its judgement of the UK’s best interests, rather than the interests of the whole EU.

However, the CBI has said the tariffs regime laid out by the government will deal “a sledgehammer to our economy”

CBI director-general Carolyn Fairbairn told BBC Radio 4’s Today: “What we are hearing is the biggest change in terms of trade this country has faced since the mid-19th century being imposed on this country with no consultation with business, no time to prepare.”

Tariffs are, as a general rule, being reduced or eliminated where there are no British producers to protect.

To take one obvious example: citrus fruit, olive oil and many southern European foods will have all tariffs removed.

That may help lower costs in the shops.

It is, however, important to note that some goods are already exempt from the EU tariffs, where the country concerned has a trade agreement, so the fall in price may not be as great as expected.

Another consideration is that lower tariffs might be offset by a decline in the value of the pound, which analysts think is particularly likely in the event of a no-deal Brexit.

 

Read the full article here.

 

Source: BBC

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