The UK's post-Brexit tariff schedule: what does it mean for business?

Tariffs are duties which governments levy on imported products.  They are usually paid by the importer, although as between the importer and the exporter, it is possible for the parties to agree that the exporter will pay them.  

The amount of any tariff may be constrained by governments' commitments to other WTO members and by free trade agreements with other states.  For example, under the General Agreement on Tariffs and Trade (GATT), governments typically set out the maximum tariffs they reserve the right to impose;  these are known as bound tariffs.  However, in practice, many governments set their actual tariffs at a lower level than this; these are known as applied tariffs.  They may also have agreed that products from certain countries – with which they have free trade agreements – can enter tariff-free or at lower rates.

The UK has now published the tariffs it will apply to products from countries with which it does not have free trade agreements after the expiry of the Brexit transition period (currently expected to end on 31 December 2020).  These tariff rates are generally below the bound tariff rates which the UK has committed not to exceed as a member of the WTO.  They are also somewhat more liberal than the EU's CET as regards products from outside the EU;  according to the UK Trade Policy Observatory (UK TPO), about 70% of such products will enter tariff free, as compared with about 52% at present.  The UK has also reduced some tariffs below the level in the CET.  For some businesses, therefore, these changes will produce savings on their purchases of non-EU products.  However, in most cases these savings will be in the order of a few percentage points on the wholesale price, not the retail price paid by final consumers (which often incorporates a very significant mark-up to reflect other costs such as premises and the need for a profit margin).   In addition, as noted below, these savings could be cancelled out if the UK does not reach a trade deal with the EU.

Unless the UK concludes a free trade agreement with the EU, thereby eliminating tariffs on most if not all imports from the EU, any gains from the liberalisation of the UK tariff are likely to be cancelled out by the imposition of duties on EU products which currently enter the UK tariff free.  The UK TPO estimates that in the absence of such an agreement, 56% of imports from the EU would be subject to tariffs.

In 2019, the UK Government published an interim tariff schedule which was intended to apply if the UK left the EU without any agreement at all.  This would have removed tariffs on 87% of imported goods by value (including those from the EU) and meant that UK firms relying on imported goods would have paid substantially less in tariffs than they will under the rates envisaged under the UK government's new tariff schedule. 

The main aim of that interim schedule was to mitigate some of the potential adverse impact of a no deal Brexit by lowering costs for importers across a wide range of goods.  By contrast, the UK Government's main aim in publishing the new tariff schedule at this juncture is probably to incentivise the EU and others (such as the US) to enter into free trade agreements, which would be expected to reduce tariffs on their exports (hence the higher overall level of tariffs being put forward). 

If it appears likely that the UK and EU cannot reach agreement on a trade deal, it is quite possible that the UK government could produce a further interim schedule later in the year, aimed at providing temporary relief for importers from tariffs on certain products.  However, that is by no means guaranteed and for the time being, we would suggest planning for the future on the basis of the rates in the new schedule (or, potentially, as a very worst case scenario, the UK's bound tariff rates).

Although the uncertainty over the outcome of negotiations with the EU is frustrating, time is also short and recently, the signals from the negotiators themselves have been less than encouraging.  We therefore strongly recommend that businesses assess the impact of there being no trade deal at the end of the transition period and make plans to mitigate any significant adverse effects – unwelcome as this may be alongside the many additional stresses imposed by COVID-19.   We are very happy to assist with any no deal planning.