U.K. Firms Slam No-Deal Brexit Levies as Too Risky, Too Late

(Bloomberg) -- Britain’s plan for tariffs under a no-deal Brexit was decried as too little, too late by business groups, who say it doesn’t go far enough to protect sensitive industries and poses a danger to some manufacturers.

Under the temporary regime announced Wednesday, the U.K. would avoid slapping tariffs on most imported goods, though prices of key European Union products including beef, cheese and cars would rise. The government says it sought to strike a balance between avoiding a spike in prices for consumers and shielding industry.

“It feels like a sick joke,” said Laura Cohen, chief executive officer of the British Ceramic Confederation, adding that the number of levies on imports of different ceramic products would be cut to six from 50. “It’s as if government is goading manufacturers to see if they can survive.”

The decision to publish the tariffs just 16 days before the U.K. is scheduled to leave the EU brings fresh headaches for businesses already fed up with the uncertainty surrounding Brexit, said Allie Renison, the head of Europe and Trade at the Institute of Directors.

“It has come far too late to allow businesses to be ready in just a few short weeks,” she said. “Making these tariff decisions temporary will lead to widespread confusion about what may change and when.”

International Trade Secretary Liam Fox and Business Secretary Greg Clark held a conference call with business representatives Wednesday to explain the plan and respond to companies’ concerns.

They acknowledged the lack of discussion with firms and committed to a future consultation about the impact of tariffs, plus an emergency mechanism to deal with any oversights or negative effects, according to two people on the call, who asked not to be identified discussing a private conversation. Most of the concerns raised by businesses were around the issue of the Irish border and the prospect of cheap imports entering Northern Ireland, the people said.

To be sure, the U.K. Parliament could go a long way toward rendering the tariffs plan moot by voting to take a no-deal Brexit off the table Wednesday. Yet even if the departure is delayed, the prospect of a cliff-edge exit could return in a few months’ time.

Here’s how the tariffs plan would affect different parts of the U.K. economy:

Manufacturing

While manufacturing businesses could see a reduction in costs if they can import cheaper inputs from overseas thanks to lower tariffs, those supplying advanced industrial firms and sectors like aviation could suffer, said Phil Brown, senior trade adviser at PwC in London.

“They could take a hit for parts that could be replaceable from China and elsewhere,” he said. “These effects will become greater over time as people start looking at their supply chain options.”

Agriculture

Britain’s farming industry welcomed the protection for some agricultural sectors, such as beef, poultry and pork, but expressed dismay at how little time it would have to prepare for the new regime and that some goods wouldn’t be covered.

“It is enormously worrying that some sectors will not have this protection -- noticeably eggs, cereals, fruit and vegetables,” said Minette Batters, president of the National Farmers Union. “Even those sectors that are treated sensitively will, in most instances, see worrying and large reductions in the tariff rates currently charged on non-EU imports.”

Wm Morrison Supermarkets Plc, which gets two-thirds of its produce from the U.K., said the tariffs on meat would allow it to continue to source more from within Britain. But the retailer has concerns about imports of bacon and butter, which mostly come from abroad, CEO David Potts said at a press conference Wednesday.

Retail

The tariffs plan includes levies on certain clothes and textiles, like cotton pajamas and t-shirts. Retailers and consumers currently get many of these goods duty-free from countries like Italy and Turkey and could face price increases, according to the British Retail Consortium.

Luxury

The U.K.’s luxury goods industry -- which includes products like high-end cars and fashion -- said it welcomed lower import tariffs, but that the threat of higher levies on exports in a no-deal Brexit would outweigh any benefits.

“We would lose 6.8 billion pounds of our exports each year in a no-deal Brexit and no amount of zero tariffs on imports can make that any more palatable,” said Helen Brocklebank, CEO of Walpole, which represents the U.K. luxury sector. “Luxury is disproportionately affected.”

The problem for exporters is that there’s no guarantee that the EU or other nations would reciprocate Britain’s low-tariff approach, said John Forrest, head of international trade at law firm DLA Piper.

Northern Ireland

Without more clarity from the government, the U.K.’s plan to allow products to cross the border between Northern Ireland and Ireland without checks means importers could bypass the new tariffs by bringing goods through the island, said Lorand Bartels, a trade lawyer at Linklaters.

“It essentially means the U.K. is operating two different tariff regimes,” he said. “If you were a Turkish exporter to the U.K., you’d think about sending your trucks to Dublin.”

Owen Smith, a Labour lawmaker and supporter of a second Brexit referendum, said the situation could create a ‘‘smuggler’s paradise.’’

“The system would be a goldmine for criminals seeking to take advantage of a no-deal Brexit,” Helen Dickinson, CEO of the British Retail Consortium, said in an e-mailed statement. “No enforcement of custom checks and tariffs moving across the Irish border presents the biggest risk.”

©2019 Bloomberg L.P.