£22bn Brexit tariff brawl

£22bn Brexit tariff brawl

Avalara's Richard Asquith explores what the government's tariff strategy will be as the Brexit deadline looms ever closer, in his monthly column

£22bn Brexit tariff brawl

For Brexit-minded folk who like numbers on the side of red buses, try this one: £423m a week in new tariffs. That’s the £22 billion* per annum tariffs on UK to EU imports and exports which will be triggered by the scheduled no-transition deal Brexit on 29 March 2019.

The government has openly split on its tariff strategy, and will unilaterally cut most customs duties post-Brexit. Chancellor Phillip Hammond, who wants to deliver price cuts to hard-pressed consumers, is going to secure wholesale cuts with only Michael Gove’s agriculture protectionist objections standing in his way.

Massive potential cost surges aside, the delay in resolving this corner of Brexit means retailers like Tesco say it is no longer about avoiding shortages in UK shops and factories; it’s planning to cope with the shortages that are coming.

Tariffs – the next big Brexit brawl

Post Brexit, under World Trade Organisation rules, the UK must apply ‘most favoured nation’ schedules equally on all countries around the world. The UK can eventually vary these through future Free Trade Deals. So any UK cut on its import tariffs must be done equally for all nations. The Hammond-sponsored zero-tariffs on all but agriculture-related issues will create three problems:

  1. Expose sensitive UK industries to cheap imports;
  2. Lead to a reduction in existing UK non-EU tariff income, which is one of the few tangible Brexit dividends at £3.5bn per annum; and
  3. Generate a big back-lash from some 40 developing states that have discounted / nil tariff arrangements with the UK to help their economies grow.

Business lobbyists out of the stalls

What is clear is that the UK government has days to resolve this conundrum. Goods are now shipping across borders that won’t land until post Brexit; that means parties don’t know the tariffs and liabilities today. So free-traders in the government should announce their zero-tariff strategy in the next few days. And then wait for the political fireworks to go off.

Already the most-vulnerable domestic sectors are canvasing for import tariffs to be sustained, and to prevent product dumping from China and the like. The biggest affected industries are vehicles, meat and dairy.  The environment secretary, Michael Gove, has likely secured a concession that the UK will apply tariffs to food imports to protect British farmers in a no-deal scenario. And Business Secretary Greg Clark is lobbying for high tariffs on ceramic imports and steel to safeguard industry. But they have been fighting a losing battle with the Brexit-zealots looking to show a quick no-deal win for UK consumers.

Bad timing: winter import season is now peaking

Indecision on duties costs could not have come at a worse time. The UK is in winter import season, when most of its fresh food has to be bought from aboard. Last year’s hot summer means domestic supplies of some vegetables are at all-time lows.  “Provided we’re all happy to live on spam and canned peaches, all will be well.” said Tesco Chairman, John Allan, recently.

So, for the next week, sit back and enjoy the next Brexit brawl. Oh, and stock-up on tinned carrots!

* £22bn is based on £15bn UK import tariffs and £7bn EU export tariffs on UK goods. This is based on ONS on trade of goods’ data and CBI estimates on tariffs. It excludes the loss of any preferential tariffs the UK enjoys that were negotiated by the EU on its behalf as a member of the Customs Union.

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