The UK’s Proposed New MFN Tariff Regime: Protects ACP Interests in the Short Term
Summary
While the UK’s proposed no-deal Brexit MFN tariff schedule would ease immediate ACP concerns over the loss of value of rolled over tariff preferences arising from the removal of MFN import duties, the short duration of the proposed measures provides no longer term assurances of the value of any tariff preferences which might be rolled over under the UK’s proposed ‘Continuity Agreements’. The new announcement leaves unaddressed just how the UK plans to roll over existing ACP tariff preferences under a no-deal outcome to the current Brexit negotiations. Indeed, it could see ACP banana, horticulture, rice, beef, fisheries and cocoa product exporters all facing new tariffs on exports to the UK if Continuity Agreements are not concluded by the date of the UK’s ‘no-deal’ departure from the EU. What is more serious questions have been raised as to the viability and sustainability of specific UK proposals to avert a hard border on the island of Ireland.
On 13th March 2019 the UK government published a temporary tariff schedule which would apply in the event of a no-deal departure of the UK from the EU. The UK government’s press release describes the new MFN tariff schedule as a ‘modest liberalization of tariffs’, the impact of which will be closely monitored with reference to the objective of minimizing ‘costs to businesses and consumers while protecting vulnerable industries’ (1).
It is maintained this published tariff schedule represents a balanced approach which will ‘help to support British jobs and avoid potential price spikes that would hit the poorest households the hardest’ (1). Reports in the Guardian suggest that had the UK simply applied inherited standard MFN duties to existing imports from the EU27 this would have added £9 billion to the price of goods to consumers and businesses in the UK (2).
Under this tariff schedule ‘87% of total imports to the UK by value would be eligible for tariff free access’, with tariffs and/or TRQs applying on the other 13% of imports (1).
Amongst the areas where the UK proposes to maintain current high MFN tariff are a range of products where ACP countries have significant export interests, with non-ACP access being managed through a system of TRQs as is currently the case (3).
Summary of Proposed UK MFN Tariffs for Main Products of Export Interest to ACP Countries Where Current High EU MFN Tariffs Apply
| Product | Proposed UK MFN Tariff | TRQ |
| Bananas | €114/tonne | N/A |
| Rice | €145/tonne | Various TRQs at zero duty |
| Fresh and Chilled Beef | 6.8% + €933/tonne | Various TRQs at zero duty |
| Frozen Beef | 6.8% + €933/tonne | Various TRQs at zero duty |
| Cocoa paste | 9.6% | N/A |
| Cocoa butter | 7.7% | N/A |
| Crude palm oil | 3.8% | N/A |
| Frozen fish | 8%, 9%, 15% | Limited TRQ at zero duty |
| Frozen Shrimps and Prawns | 12% | Limited TRQ at zero duty |
| Prepared Tuna | 24% | TRQ access at zero duty |
| Fresh bean (07082000) | 10.4% +16/tonne | N/A |
| Rum | 0.6 EUR/% vol/hl + 3.2 EUR/hl | N/A |
| Raw beet sugar for refining | €339 to €419/tonne | 260,000 tonnes at zero duty |
| Textiles and Clothing | 2.5%, 7%, 8%, 8.9% 12% |
Source: Guidance: MFN and tariff quota rates of customs duty on imports if the UK leaves the EU with no deal’, 13 March 2019
https://www.gov.uk/government/publications/temporary-rates-of-customs-duty-on-imports-after-eu-exit/mfn-and-tariff-quota-rates-of-customs-duty-on-imports-if-the-uk-leaves-the-eu-with-no-deal
The proposed new UK-only MFN tariff schedule would apply equally to all trading partners, except where the UK has free trade agreements in place and least developed countries who would benefit from the UK’s rolled over EU EBA based scheme, which forms part of the UK’s new GSP regime (1).
However the proposed new tariff arrangement would only apply ‘for up to 12 months while a full consultation and review on a permanent approach to tariffs is undertaken’ (1)
It should be noted that as part of this new tariff schedule import duties would not be applied to imports from the Republic of Ireland into Northern Ireland, but they would be applied to imports from the Republic of Ireland to the remainder of the UK (1). This has been described as a ‘smugglers charter’ (2).
CBI NI Director Angela McGowan said: ‘the Government’s proposals are confused at best, disingenuous at worst’, raising ‘serious questions over deliverability, and potentially consequences for the island of Ireland on smuggling and tariff proposals’. It was argued the ‘proposed tariff scheme would leave Ireland with no option but to apply EU tariffs on all goods coming from the UK and therefore would require substantive checks to take place at the Irish border’ (4).
This view was broadly endorsed by Ireland’s agriculture minister, Michael Creed, who highlighted the irony of a UK policy position which proposed ‘bespoke arrangements for Northern Ireland’, which disadvantage Northern Irish producers while having rejected bespoke arrangements for Northern Irish producers in the Withdrawal Agreement which would have secured continued unfettered access for Northern Irish producers to EU27 markets and markets served under all EU trade agreements (2).
With regard to the special treatment of trade between the Republic of Ireland and Northern Ireland former European trade commissioner Lord Mandelson maintained that ‘refusing to comply with our responsibilities under international trade law to operate a customs border at any frontier is not a serious or sustainable solution to the problem of a hard border’ (2).
The proposal could even face problems in the WTO given its violation of the non-discrimination principle which is the foundation of the WTO.
Ireland’s European affairs minister, Helen McEntee, meanwhile complained the tariffs to be imposed ‘on beef and dairy exports to the UK from the republic would be absolutely disastrous for Irish agriculture’ (2).
The European Commission for its part has said that it will ‘carefully analyse the compliance of the UK plan with WTO law and the EU’s rights thereunder’, noting how ‘the differential treatment of trade on the island of Ireland and other trade between the EU and the UK raises concerns’ (2).
The CBI meanwhile claimed the announcement amounted to a ‘the biggest change in terms of trade this country has faced since the mid-19th century’ (2) with this having been ‘imposed on this country with no consultation with business’, on a timeframe which provided no time for businesses to prepare for such radical changes. It was maintained that what was about to happen would be the ‘imposition of new terms of trade at the same time as business is blocked out of its closest trading partner’ (2).
Meanwhile the ‘National Farmers’ Union president, Minette Batters, said it was “relieved” that tariffs would be imposed on imported food to protect farmers but it was “appalling” that the tariff regime was published only 16 days before the potential cliff-edge departure from the EU’ (2). Similar concerns over the lack of time to prepare for the proposed changes were expressed by the Food and Drink Federation (2).
| Comment and Analysis Significantly from an ACP perspective, despite rumours the UK government was planning to eliminate existing high MFN tariffs on all products where the UK has no production interest in order to combat no-deal food price inflation, the current proposal includes the maintenance of current EU level MFN tariffs on a range of products where preferential duty free-quota free access is enjoyed by ACP countries under existing EU trade arrangements. This includes products such as bananas, raw cane sugar, rice, fresh and chilled beef, value added cocoa products and certain kinds of fish (including canned tuna) (2).While the UK government announcement placates ACP fears of an immediate and radical undermining of the value of any rolled over duty free-quota free (DFQF) access which might be secured through the conclusion of ‘Continuity Agreements’ with the UK, this is only for a period of up to 12 months. This leaves unresolved what the long term MFN basis for UK imports will be in areas where ACP countries have significant export interests.It also does not address the question of the basis on which the existing duty free-quota free access enjoyed by ACP countries under EU economic partnership agreements is to be maintained in the face of the serious reservations which ACP government have over the shortcomings of the UK’s existing Continuity Agreement approach. So far only 4 of the 31 ACP countries involved in an EPA process under which duty free-quota free access is currently enjoyed to the UK market has signed Continuity Agreements. Although negotiations are reported to be at an advanced stage with CARIFORUM, the SADC and Pacific EPA beneficiaries there remain serious areas of concern in regard to the shortcoming of these agreements in ensuring, continuity of trade flows the future value of rolled over preferences and the one sided nature of the rules of origin arrangements being set in place. More seriously for countries such as Kenya, Ghana, Cote d’Ivoire and Cameroon, there remains considerable uncertainty as to whether ‘Continuity Agreements’ can be set in place by 29th March 2019, given the regional complications which exist in concluding these agreements. These complication are particularly acute for Kenya given its long standing membership of the East African Customs Union. Without a Continuity Agreement being in place and in the absence of a further unilateral UK trade initiative Kenya, for example, would face 10.4% +€16/tonne for its exports of fresh beans (total value of exports to the UK in 2017 €48.75 million), while Ghana, Cote d’Ivoire and Cameroon would face import duties of €114/tonne on 35,327 tonnes, 68,453 tonnes and 36,093 tonnes respectively. For these countries, as enshrined in Article 129 of the EU/UK Withdrawal Agreement, ensuring existing duty free-quota free access to the UK market is ‘rolled over’ at least for a transitional period up to 1st January 2021 is vital. It remains to be seen whether the UK government will take the necessary unilateral actions given the lack of success enjoyed to date in rolling over current market access arrangements through the existing ‘Continuity Agreement’ approach. |
Sources:
(1) gov.uk, ‘Temporary tariff regime for no deal Brexit published’, 13 March 2019
https://www.gov.uk/government/news/temporary-tariff-regime-for-no-deal-brexit-published
(2) Guardian, ‘UK will cut most tariffs to zero in event of no-deal Brexit’, 13 March 2019
https://www.theguardian.com/politics/2019/mar/13/brexit-tariffs-on-87-of-uk-imports-cut-to-zero-in-temporary-no-deal-plan
(3) gov.uk, ‘Guidance: MFN and tariff quota rates of customs duty on imports if the UK leaves the EU with no deal’, 13 March 2019
https://www.gov.uk/government/publications/temporary-rates-of-customs-duty-on-imports-after-eu-exit/mfn-and-tariff-quota-rates-of-customs-duty-on-imports-if-the-uk-leaves-the-eu-with-no-deal
(4) CBI, ‘CBI Northern Ireland’s Response to Tariff Liberalisation Proposals’, 13 March 2019
http://www.cbi.org.uk/news/cbi-northern-ireland-s-response-to-tariff-liberalisation-proposals/