Question

Please refer to the article “Brexit: Could the UK drop tariffs to zero?” From a March 10th BBC report. The proposed exit of the UK from the European Union has been debated, delayed, and fragmented by the political system that created it. This question asks you to define tariffs and discuss the impact on global business if some UK tariffs are greatly reduced or scrapped completely. Why can’t the UK maintain their existing tariffs even if the UK leaves the EU? What are the likely outcomes?

Answer 1

1. A tariff is a tax applied only to internationally traded goods. In the great majority of cases, tariffs are applied to imported goods by the country importing them.

Import tariffs give a competitive advantage to local industry because it is not subject to the tariffs. They also provide revenue for governments, although compared with other types of tax the contribution is relatively small in rich countries.

If the UK does reduce tariffs some industries, and especially agriculture, could be exposed to more competition. Some have suggested that if the UK were to remove all tariffs it could lead to many business failures among manufacturers and farmers.

That is probably why reports about the government's plans suggest some sectors will retain tariff protection, including agriculture, ceramics and cars. To the extent that the UK does retain any tariffs, they would, in the event of a no-deal scenario, have to apply to imports from the EU, which are currently completely tariff free. That follows from WTO rules. That could make EU goods more expensive.

2. In one word: Brexit. As a member of the EU, the UK currently applies the EU's common customs tariff to goods imported from outside the EU (with exemptions for goods from countries with which the EU has a free trade agreement).

That will continue if there is a withdrawal agreement, and then for as long as the backstop to avoid a hard border in Ireland is in force.

After that, or in the event of a no-deal Brexit, the UK would no longer apply the EU's tariff policy and so would have to make decisions about what, if any, tariffs to impose. The rules of the World Trade Organization do impose some constraints. WTO members have schedules which are mainly lists of tariffs they promise not to exceed. Countries can freely apply tariffs below those levels. Generally they must apply the same tariffs to goods from all members, subject to some exceptions.

They can reduce or eliminate tariffs on goods from countries with which they have a free-trade agreement.