Brexit: UK Government reveals temporary zero tariff regime for no-deal following second rejection in HoC

13 Mar 2019 --- After UK Prime Minister Theresa May’s Brexit deal faced a second overwhelming rejection in the House of Commons last night, UK MPs will vote later today on whether to block the UK from leaving the EU without a deal on March 29. In an announcement this morning, the UK Government has said it will cut tariffs on a range of imports from outside the EU and introduce measures to avoid a hard border in Northern Ireland in a no-deal scenario. If the UK does leave without a deal, the government has pledged to set the majority of import tariffs to zero while maintaining tariffs for the most sensitive industries within the food, beverage and agricultural space.

However, industry has hit back claiming businesses cannot adapt to this new regime in just two weeks. Food and Drink Federation Chief Executive, Ian Wright, claims it’s “disgraceful” that members are only now, getting to see the details.

“There must be proper consultation with business before a change of this magnitude is introduced,” he tells FoodIngredientsFirst. “We were promised that business would only have to adapt to one new change of rules; it’s now clear that promise has not been kept. This new system is confusing and complex. It includes some zero tariffs, some new tariffs and some quotas. Some foodstuffs qualify for partial protection and some not for any protection at all; with little logic to explain the difference.”

“New tariffs will apply to some foods that are currently imported tariff-free, yet no tariffs will be applied to goods that cross the border between Ireland and Northern Ireland.  This is likely to result in massive trade distortions,” he says. 

“In a world where it is costly and complex to export finished goods to the EU, and costly and complex to import key ingredients, many food and drink manufacturers who trade with the EU will surely question whether the UK is the right place for them to be,” Wright adds. “This is yet another reason why Parliament must, this evening, act decisively to remove the threat of exiting the EU without a deal on 29 March.”

Wright also said that last night’s result is “another body blow” for the country and the UK’s largest manufacturing sector.”

“As we teeter on the brink of the cliff edge, just seventeen days’ away, confidence in our political leaders is almost gone,” he says. 

The UK’s temporary tariff regime for a no-deal scenario is designed to minimize costs to business and consumers while protecting vulnerable industries, according to the government. Most imports into the UK would not attract a tariff in the event of a no-deal Brexit, under the arrangement. 

The government will also take a temporary approach to avoid new checks and controls on goods at the Northern Ireland land border if the UK leaves the EU without a deal. The UK’s temporary import tariffs will therefore not apply to goods crossing from Ireland into Northern Ireland.

This regime is temporary and the government would closely monitor the effects of these tariffs on the UK economy. It would apply for up to 12 months while a full consultation and review on a permanent approach to tariffs is undertaken.

However, tariffs would still apply to 13 percent of goods imported into the UK. This includes a mixture of tariffs and quotas on beef, lamb, pork, poultry and some dairy to support farmers and producers who have historically been protected through high EU tariffs.

British businesses would not pay customs duties on the majority of goods when importing into the UK if the country leaves the EU without an agreement. The EU has also said that no-deal plans are "more important than ever" after the defeat in Parliament last night. 

There are a number of sectors where tariffs help provide support for UK producers against unfair global trading practices, such as dumping and state subsidies. Tariffs would be retained for these products, including fertilizer and fuel.

To meet the government’s long-standing commitment to reducing poverty through trade, it currently offers preferential access to the UK market for developing countries. To ensure that access for developing countries is maintained, the government would retain tariffs on a set of goods, including bananas, raw cane sugar, and certain kinds of fish. 

“Our priority is securing a deal with the EU as this will avoid disruption to our global trading relationships. However, we must prepare for all eventualities,” says 

Trade Policy Minister George Hollingbery. “This balanced approach will help to support British jobs and avoid potential price spikes that would hit the poorest households the hardest. It represents a modest liberalization of tariffs and we will be monitoring the economy closely, as well as consulting with businesses, to decide what our tariffs should be after this transitional period.”

The food and beverage industry, which is particularly susceptible to the trading challenges a no-deal represents and has been fighting for clarity for many months, continues to watch closely as a week of Brexit votes unfolds. 

After MPs voted by 391 to 242 votes to reject May's deal, they will gather again later today. If a no-deal is rejected, MPs will vote again on Thursday on delaying Brexit by extending Article 50.

Helen Dickinson, Chief Executive of the British Retail Consortium (BRC), also warns “hundreds of ships are currently sailing towards Britain without a clear understanding of the tariffs, checks, or documentation requirements, they will face when they arrive.”

“Even as the Brexit clock approaches midnight, MPs continue to squabble. Yet it is the public who will feel the impact of a no-deal Brexit – tariffs, non-tariff barriers and currency depreciation will all push up costs and reduce the choice on the shelves we currently enjoy,” she says.

Businesses are exasperated by the lack of clarity over their future trading arrangements, Dickinson stressed and urged politicians to “swallow their pride” and find an agreement that can command the support of the House of Commons. 

The temporary tariffs would also apply equally to all other trading partners, except for those who already have a free trade agreement with the UK in place and around 70 developing countries that will benefit from preferential access to the UK market.

The government admits that it’s not possible to maintain its current external tariff regime and apply it to the EU, as this would impose new tariffs on EU imports, drive up prices for consumers and disrupt business supply chains –  vital aspects for the food and beverage industry.

The government also notes that if it fully maintained zero tariffs with the EU, this would also have to extend to the rest of the world due to World Trade Organization (WHO) rules. This would minimize disruption to EU trade but would open the UK to competition from other countries including those with unfair trading practices, it says. 

By Gaynor Selby