13 March 2019

An independent trade policy will allow the UK to set its own tariffs, but there are reasons to be seriously concerned about the Government’s handing of this complex area, writes Alex Stojanovic.

For the first time in over 40 years, the UK Government could, should it exit the EU without a deal, set its own tariffs. Today the Government has set out what those tariffs will be from 30 March onwards if the UK leaves without a deal. These are complex and technical decisions, but there is little evidence that the Government has based them on deep analysis or careful consultation.

As an EU member, the UK benefits from tariff-free trade with other EU member states and from the EU’s free trade agreements with third countries. If it leaves the EU without a deal, then the UK can choose its own tariffs policy – but under World Trade Organization rules, it has to apply the same tariff to all members without a preferential agreement.

The no deal tariff schedule set out by the Government today reflects the difficult trade-off between a desire to maintain minimal tariffs on UK-EU trade to protect UK-EU supply chains and UK consumers, but maintaining tariffs on imports of some goods from elsewhere to protect vulnerable industries in the UK.

Tariff choices create winners and losers

The Government had a choice between throwing the UK’s market open to imports – which would harm UK competitors but benefit consumers – and deciding to apply tariffs, which has the potential to harm importers and consumers.

The Government has opted to maintain tariffs on sensitive agriculture products – such as certain meat and dairy products – and some other selected industrial goods like finished vehicles, but it will drop most other tariffs to zero.

From a purely economic point of view, it can make sense to drop tariffs, especially on products the UK doesn’t produce or where the tariff is already negligible. Retailers would benefit from being able to obtain a wider variety of potentially cost-effective supplies, and that could then benefit consumers.

On the other hand, a sudden exposure to international competition could have serious economic consequences for fragile sectors who don’t have time to adapt.

The Government has not addressed the complex consequences of its tariff policy

Reports suggest that the decisions over tariff-setting were the result of ministerial horse-trading, rather than being based on considered analysis and consultation. There has been none of the usual approach to consultation – for example, as the Government did with its consultation on trade defence – and businesses have been given little more than two weeks before the UK’s scheduled departure from the EU to prepare for the new tariff regime.

Reducing tariffs through free trade agreements is usually done after extensive consultation (for example, see the impact assessments and consultation for the now defunct EU–US trade agreement), and the most sensitive tariffs are often only reduced after a number of years. The speed of government decision making, the lack of consultation and the lack – so far – of mitigating policies raises serious concerns. The Government intends to reassess any new tariffs within 12 months, but that could still allow time for serious economic damage to occur, and any shift would force businesses to adapt all over again.

It is welcome that Nicky Morgan, the Chair of the Treasury Select Committee, has requested more detail on the Government’s analysis of the impact of tariff changes on businesses. But even this request only addresses one side of the question as it fails to inquire about the impact on consumers.

The Government’s approach to deciding on the tariff schedule in the event of no deal leaves a lot to be desired. Changing tariffs involves multiple complex trade-offs for businesses and consumers and has important implications for trade policy strategy. Clearly the UK cannot go on making such decisions on trade policy relying solely on ministerial intervention and secretive consultations.

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