News & Insights

Countdown to Brexit: 15 Days - MPs vote to take a ‘No-Deal’ Brexit off the table.

15 Mar 2019

Michel Barnier told the European Parliament on Wednesday that “the risk of an accidental no-deal Brexit has never been higher”. He was responding to the second overwhelming rejection of Theresa May’s Brexit deal by MPs on Tuesday.

Her defeat led - as she had committed – to a vote in her name: “That this House declines to approve leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship on 29 March 2019; and notes that leaving without a deal remains the default in UK and EU law unless this House and the EU ratify an agreement.” The House of Commons instead voted for an amendment tabled by Yvette Cooper MP “rejecting a no-deal Brexit under any circumstances” - by 4 votes.

This dramatic development led to the Government to order Conservative MPs to vote against its own motion. The amended motion passed by 321 votes to 278 – strongly reinforcing the message that MPs do not want to leave without a deal.

On a practical note for businesses trying to plan for what may happen in two weeks’ time. Tuesday’s defeat of the Brexit ‘deal’ also triggered publication the UK’s “temporary” no-deal tariff regime. The Government notice states that the tariffs are designed to “minimise costs to business and consumers - while protecting vulnerable industries.” The regime will apply for up to 12 months – “while a full consultation and review on a permanent approach to tariffs is undertaken”.

The Government estimates that “87% of total imports to the UK by value” in a no-deal Brexit would be tariff free.

The remaining 13% of goods will incur import tax to be paid as goods cross the border coming into the UK. This includes:

  • a mixture of tariffs and quotas on beef, lamb, pork, poultry and some dairy – aimed at supporting farmers and producers who have historically been protected through high EU tariffs - and ranges between 20 – 60%;
  • tariffs on finished vehicles in order to support the automotive sector and in light of broader challenging market conditions. Car makers relying on EU supply chains, however, would not face additional tariffs on car parts imported from the EU to prevent disruption to supply chains. Tariffs range from 10 – 16%;
  • tariffs to help provide support for UK producers against unfair global trading practices, such as dumping and state subsidies. Tariffs these products - including certain ceramics, fertiliser and fuel - will between 7.5 – 75%;
  • tariffs to meet long-standing UK commitments to reduce poverty through trade. The Government currently offers preferential access to the UK market for developing countries. To ensure that access for developing countries is maintained, UK will retain tariffs on a set of goods - including bananas, raw cane sugar, and certain kinds of fish - between 3 – 24%.

The global Treaty regulating tariffs means that rates must be applied equally to all other WTO trading signatories – some 190 nations - except for: those that have an agreed a Trade Agreement in place; and around 70 developing countries that benefit from “preferential access” to the UK market.

Key for the UK a no-deal Brexit is that every country in the World Trade Organisation is free to set its own the tariffs on incoming goods and services – but must apply them equally – or negotiates bi-lateral rates with a trade-partner. There is no rule that says that other countries have to match tariffs. This will be the case under the Government’s proposal, for instance, between the UK and the EU. The EU has one single set of tariff tables that each member state applies. It is fundamental to the single market and customs union and underpins free movement of goods across the bloc.

Thus, every EU member state will apply the ‘third country’ tariff table to all goods moving from the UK into Europe – and the tax is payable by the purchaser on arrival - including goods moving from Northern Ireland to Ireland.

UK Trade Policy Minister, George Hollingbery MP, said: “If we leave without a deal, we will set the majority of our import tariffs to zero, whilst maintaining tariffs for the most sensitive industries.”

The UK Government has, however, stated that it will if it leaves the EU without a deal, the temporary import tariffs will NOT apply to goods crossing from Ireland into Northern Ireland. This may be subject to challenge by any other WTO member nation. We previously reported that over 20 countries - including China and Russia - objected to the UK’s application last year to become a member of the WTO in its own right as a ‘preferred trading nation’.

The ‘honesty box’ Northern Ireland border will be open to abuse. Studies into smuggling across borders where there are pricing differences through tax regimes paint a picture from petty crime and personal gain to widespread and wholesale organised crime. James Cleverly MP in a BBC interview on Wednesday seems blissfully unaware of the facts – stating that he felt that he could trust people and businesses to behave according to the rules.

Business reaction has also been critical. According to the CBI: “The Government’s proposals are confused at best, disingenuous at worst. There are serious questions over deliverability, and potentially consequences for the island of Ireland on smuggling and tariff proposals.

“Today’s announcement on emergency tariff measures is totally contradictory to previous UK government promises to prevent a hard border in Northern Ireland, leaving this region highly exposed both economically and politically.

The Government will lay the appropriate legislation in light of the final outcome of the series of Brexit votes – which will give it precious little time if the vote on Theresa May’s deal is put before parliament for a third time ahead of the European Council summit meeting on 21-22 March – and if this is rejected – for a fourth time in the 96 hours ahead of the UK crashing out in a default no-deal Brexit at 23:00 GMT on Friday 29 March 2019.

Background

In a no-deal Brexit, it is not possible to leave tariff regimes as it stands as a member of the EU.

It is deemed unacceptable to adopt the current EU ‘third country’ tariff regime and apply it to the EU. This would impose new tariffs on EU imports, driving up prices for consumers and disrupting business supply chains.

If the UK maintained zero tariffs with the EU – it would under WTO rules – have to extend this to the rest of the world. This would minimise disruption to EU trade - but would open the UK to competition from other countries including those with unfair trading practices.

The UK’s temporary tariff regime does not affect its ability to implement trade remedies measures to protect UK businesses from unfair trading practices such as ‘dumping’.

The UK will retain 43 existing EU trade remedies measures which involves applying additional tariffs to imports from specific countries.

Reference

Businesses can find more information about our temporary tariff regime here:

https://www.gov.uk/guidance/check-temporary-rates-of-customs-duty-on-imports-after-eu-exit

For details on tariffs that will apply to specific items:

1. Aluminium foil

2. Automotive vehicles

3. Bananas

4. Bioethanol and motor spirit

5. Bovine meat (Beef)

6. Butter

7. Ceramics and related items

8. Cheese

9. Cloves and vanilla

10. Cocoa

11. Fats and oils

12. Fertiliser

13. Fish

14. Fresh beans

15. Glass fibres

16. Other household items

17. Polyethelene

18. Poultry meat

19. Rice

20. Rum

21. Sheep meat

22. Sugar and molasses

23. Swine meat (Pork)

24. Textiles and clothing

25. Tyres and wheels

This article first appeared on the website for Brexit Partners (www.brexit-partners.com). 

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