The government’s consultation on tariffs will give it little guidance

The government’s month-long public consultation on the UK’s ‘most-favoured nation’ tariff policy, conducted by the Department for International Trade, closed on 5 March. This tariff – termed the UK global tariff – would apply to imports from countries with which the UK does not have a free trade agreement (FTA) or other preferential arrangement after the Brexit transition period ends on 31 December this year.

This is a major advance on the process that led up to the launch of 2019’s temporary tariff regime (TTR), developed with the intention of mitigating the effects of a no-deal Brexit. Although the government had entered into some (very) discreet discussion with business, it attracted sharp criticism from the wider sector for its decision to launch the TTR just two weeks before the original Brexit deadline without conducting any formal consultation.

But the timing and context of this consultation – almost a year before the end of the transition period, and before UK–EU negotiations have begun in earnest – seriously reduces its usefulness.

Applying the UK global tariff could drive up prices by 5% if there is no EU trade deal

The consultation document suggests the UK global tariff will designed to take the EU’s common external tariff and tweak it for the UK, with targeted reductions and simplifications. This is a more conservative approach than the TTR, which would have cut almost all tariffs to zero. The document boldly declares that, with the conclusion of the Withdrawal Agreement, such a no-deal scenario is “no longer relevant”.

But no trade deal is still a possibility. If the UK and EU cannot reach an agreement before the transition period ends, the implications for trade in goods (Irish border aside) would in effect be identical to 2019. The UK Trade Policy Observatory found that applying the common external tariff to imports from the EU would push consumer prices up by 5%,^[1] while the economic consultancy Retail Economics projected an increase of around £9bn to food prices alone.^[2]

It is hard to see why the similar UK global tariff would be much better.

The tension between unilateral liberalisation and trade agreements remains 

According to the Bank of England, the TTR would have effectively prevented new tariffs causing consumer price increases. However, this came at some cost to the UK’s ambitions regarding FTAs: the Canadian government walked away from trade talks when it became clear that the proposed liberalised tariffs would give its exporters all the access they needed without any concessions on the Canadian side. Whatever its merits as domestic economic policy, the TTR was something of an own goal as a negotiating tactic.

This dilemma will remain. Cutting tariffs could well be beneficial for the UK economy: one study suggested that comprehensive unilateral liberalisation (going even further than the TTR) could boost UK GDP by around 0.75%, rather more than government analysis suggests FTAs with the US, Australia and New Zealand would.^[3] But it would reduce the incentives for negotiating partners to come to the table. If the government wants FTAs, it may have to accept an opportunity cost to the domestic economy by shelving tariff reductions.

The government cannot avoid creating winners and losers – whatever the consultation returns

Tariff changes necessarily create winners and losers. This choice for ministers is fundamentally a political one: cut the UK’s tariffs on, say, beef imports and consumers may benefit as cheap Argentine steaks flood the market – but the UK’s own producers will suffer. So it’s not surprising that producers tend to be more active in responding to consultations. Given the uncertainty ahead and the alarm the government’s previous attempt at setting a tariff provoked, businesses are likely to have taken an even more conservative approach than they might in more normal circumstances.

This consultation is certainly a positive step compared with last year’s secretive horse-trading. But its timing undermines its usefulness: the government may well find it has to do its policy making all over again once the Brexit landscape become clearer.