U.K. Post-Brexit Trade Plan Cuts Tariffs, Highlights EU Risk
The U.K. announced its post-Brexit tariffs regime, cutting import duties on many products while protecting industries such as automotive and agriculture, as the country turns its focus toward global trade beyond Europe.
Items like dishwashers, freezers and Christmas trees will be able to enter the U.K. tariff-free as of Jan. 1 2021, the Department for International Trade said in a statement Tuesday. Under the plan, 30 billion pounds ($36.6 billion) of tariffs will also be removed on supply chain imports, including copper alloy tubes, and screws and bolts, the department said.
Britain’s so-called global tariff regime is a key part of its economic policy as it leaves the European Union and seeks to re-position its economy for commerce around the world. The new rules will replace the bloc’s common external tariff, which sets duties on non-EU trade that’s not covered by separate deals with other countries.
But the plan also highlights the scale of the risk to the U.K. if Boris Johnson’s government does not finalize a trade agreement with the EU by the deadline of the end of the year. At that point, the U.K. will tumble out of Europe’s customs union and single market, and under the measures set out on Tuesday, new duties would be imposed on thousands of EU imports for the first time. For example, cars would face tariffs of 10%.
Publication of the tariff plan “demonstrates the importance of reaching a U.K.-EU agreement to avoid substantial increases in costs for businesses on both sides of the Channel,” said Adam Marshall, director-general of the British Chambers of Commerce. “Support will be required for the industries, places and people affected by tariff changes at what is already a difficult time.”
The Society of Motor Manufacturers and Traders echoed the sentiment about the need to secure free-trade deals with major trading partners, citing the EU, U.S. Japan and Turkey. “We must avoid any tariffs or barriers that add cost and reduce choice for consumers, and which would result in like-for-like barriers to export, undermining U.K. manufacturing competitiveness,” Mike Hawes, chief executive officer of SMMT, said in a statement.
The U.K.’s National Farmers Union said it was glad to see tariffs protecting domestic agriculture, but cautioned that more safeguards are needed to protect food-standards in looming trade deals.
“Although the overall position appears to support U.K. farmers, we need to examine and fully consider all the implications of the simplifications involved,” the group said. “It is still likely that the changes will lead to increased competition for some domestically produced commodities.”
Under the new schedule, 60% of British trade will come in tariff-free, compared to 47% currently, the government said. The government said it will keep duties on agricultural products including beef, lamb and poultry, to protect those industries.
“Our new global tariff will benefit U.K. consumers and households by cutting red tape and reducing the cost of thousands of everyday products,” International Trade Secretary Liz Truss said in the statement. “We are backing U.K. industry and helping businesses overcome the unprecedented economic challenges posed by coronavirus.”
Separately, the U.K. is engaged in trade talks with the EU, aiming to sign a Canada-style accord that would eliminate most tariffs and quotas on goods but introduce new barriers such as customs paperwork. The latest round of talks ended with little progress last week. Without a deal, goods from Britain’s largest trading partner would become more expensive and value chains for manufactured products like cars, airplanes and electronics would be disrupted.
“There will be some diversion of trade to other markets,” said David Henig, U.K. director at the European Centre for International Political Economy, referring to the scenario of no trade deal with the EU. “There will be some price rises for goods in the shops, there will be some changes in the way we consume products.”
An advantage of the U.K.’s announcement is that it helps its ongoing trade negotiations with the EU, the U.S and Japan, because it makes clear what the default duties would be if no agreement is reached in these talks, according to Sam Lowe, senior research fellow at the Centre for European Reform.
Britain’s plan also marks a walk-back from the temporary tariff schedule it proposed in the event of a no-deal Brexit last year, which would have seen 87% of U.K. imports made tariff-free. That proposal was criticized for giving away too much British leverage in future trade talks.
“It seems to me that those in government who wanted to retain tariffs for the purpose of future trade negotiations won the argument this time round,” Lowe said.
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